<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
INTERLIANT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7379 13-397-8980
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 374-4700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BRADLEY A. FELD
CO-CHAIRMAN OF THE BOARD
INTERLIANT, INC.
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 374-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
E. ANN GILL, ESQ. DAVID C. DRUMMOND, ESQ.
JONATHAN L. FREEDMAN, ESQ WILSON SONSINI GOODRICH & ROSATI,
DEWEY BALLANTINE LLP PROFESSIONAL CORPORATION
1301 AVENUE OF THE AMERICAS 650 PAGE MILL ROAD
NEW YORK, NEW YORK 10019 PALO ALTO, CALIFORNIA 94304-1050
(212) 259-8000 (650) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock
($.01 par value)................................. $75,000,000 $21,375
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
PROSPECTUS
SHARES
[INTERLIANT LOGO]
COMMON STOCK
------------------------
This is an initial public offering of shares of common stock of Interliant,
Inc. We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. After pricing this
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "INIT."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS WHICH ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to Interliant, Inc.............. $ $
</TABLE>
The underwriters may also purchase up to an additional
shares from us at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
CIBC WORLD MARKETS
------------------------
The date of this prospectus is , 1999.
<PAGE> 3
[GRAPHICS]
Interliant(R) is a registered trademark of Interliant, Inc.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 28
Management.................................................. 48
Certain Transactions........................................ 55
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 63
Underwriting................................................ 65
Legal Matters............................................... 67
Experts..................................................... 67
Available Information....................................... 68
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
All references to "we", "us", "our" or "Interliant" in this prospectus
means Interliant, Inc.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to these statements. Except as otherwise indicated, the
information in this prospectus (i) assumes that the underwriters' over-allotment
option has not been exercised, (ii) assumes conversion of all outstanding shares
of redeemable convertible preferred stock and (iii) gives retroactive effect to
a three-for-one stock split on July 28, 1998.
THE COMPANY
Interliant is a provider of a comprehensive suite of hosting and enhanced
Internet services that enable its customers to deploy and manage their Web sites
and network-based applications more effectively than internally developed
solutions. Our Web hosting services provide virtual, dedicated and co-located
hosting solutions to meet the needs of businesses of all sizes, as their Web
sites develop from low-end marketing "brochures" to more complex, interactive
Web sites and finally to mission-critical applications. Our application hosting
services consist of groupware hosting and application outsourcing solutions that
can provide our customers with 24x7 remote access to mission-critical
applications and data. Since our inception in December 1997, we have grown
rapidly through the acquisition of 16 hosting and related Internet service
businesses. We provide Web hosting solutions to more than 37,000 customers,
representing more than 65,000 active domains. We also host more than 10,000
customized Lotus Notes/Domino based applications for more than 1,300 customers
and believe that we are the leading provider of Lotus Notes/Domino hosting
solutions. We have two state-of-the-art primary data centers in Atlanta, Georgia
and Houston, Texas and a recently leased facility in the Washington D.C. area.
Our Atlanta and Houston data centers are monitored on a 24x7 basis and include:
- sophisticated monitoring and diagnosis;
- 24x7 customer support;
- redundant and high-speed network connectivity; and
- uninterruptible power supply.
The number of businesses using the Internet is growing rapidly. Many of
these businesses outsource the hosting of their Web sites and software
applications, rather than incur the cost of in-house operations and maintenance.
IDC estimates that the worldwide market for Web hosting services will grow from
$696 million in 1998 to $10.7 billion by 2002, a 98.0% compounded annual growth
rate. In addition, Forrester Research, Inc. reports that the worldwide market
for outsourcing application software products will grow from approximately $1.0
billion in 1997 to over $21.0 billion by 2001, a 111.1% compounded annual growth
rate. Today, the hosting market is fragmented, consisting for the most part of:
- small local and regional providers who do not have the capital, resources
or capabilities to provide quality services at competitive prices;
- large national providers who focus on Internet connectivity rather than
on hosting; and
- consulting and Web design firms for which hosting is not their core
competency.
We believe that a significant market opportunity exists for a
nationally-recognized hosting solutions provider with the scale and expertise to
offer a wide range of value-priced services to businesses of all sizes. Through
the acquisition and consolidation of hosting and enhanced Internet service
businesses, we believe we can offer a full range of hosting services that enable
businesses to deploy, use, expand and update their Web
1
<PAGE> 6
sites and applications infrastructures more rapidly and cost-effectively than
internally developed solutions. We offer the following hosting solutions to our
customers:
Web Hosting. We offer Web hosting solutions to meet the current and future Web
hosting needs of our customers. Our product offerings include:
Virtual Hosting. We host these Web sites on a shared server. Virtual
hosting is an economical solution for customers with simple or moderately
accessed sites.
Dedicated Hosting. We host these Web sites on a dedicated server, which we
typically own and maintain. This solution provides greater server and
network resources for our customers than virtual hosting and allows them to
configure their hardware to optimize site performance. Companies with
increasing levels of complexity, traffic or reliance on their Web sites may
prefer dedicated hosting.
Co-located Hosting. Co-located hosting allows customers with sophisticated
mission-critical applications to own and access their servers on a 24x7
basis while delegating the day-to-day operations and technical management
of their site to us. We house co-located servers in separate,
limited-access rooms in our Atlanta and Washington D.C. area data centers.
In addition to these basic hosting services, we offer our customers a
selection of enhanced Internet services, including e-commerce capabilities,
multimedia hosting and community hosting.
Application Hosting. We provide application hosting solutions to our customers
primarily through our Houston data center. Our application hosting solution is
designed to support our customers' Internet, intranet and extranet projects
through a variety of service and support options, with our primary platform
being Lotus Notes/Domino. In addition, through our strategic alliances with
software vendors such as Lotus and Microsoft, we host applications such as legal
automation, sales automation and distributed learning. We recently began
offering Internet rental applications which allow anyone with a Web browser and
an Internet connection to use sophisticated server-based applications.
Groupware Hosting. We offer a range of groupware hosting solutions for the
Lotus Notes/Domino platform which provides our customers with the
infrastructure needed to support the following:
- e-mail and other messaging methods for internal and external
communication;
- project team collaboration and document sharing;
- business process automation and workflow; and
- collaborative Web-based intranets and extranets.
Application Outsourcing. We offer a range of application outsourcing
services which provide our customers with the ability to capitalize on the
latest Internet-enabled technologies while outsourcing non-core
competencies such as deployment strategies and maintenance and upgrades of
software to a third party. Our application outsourcing offerings include:
- Legal Automation. Our legal automation solutions offer our customers
a suite of collaborative applications that assist corporate legal
departments and their outside counsel in managing cases, budgets,
intellectual property and workflow in a secure, reliable environment.
- Sales Automation. Our sales automation solutions provide
geographically distributed sales and marketing organizations with all
the elements needed to quickly deploy a sales automation solution at a
reasonable cost.
- Distributed Learning. Our distributed learning solutions offer our
customers opportunities to deliver online training solutions.
2
<PAGE> 7
Consulting Services. We provide consulting services to our customers for
Intranet, extranet and application hosting solutions, as well as for internal
networking implementations and back-end Web development projects. Consulting
services that we provide include:
- desktop and network server support;
- network architecture and design;
- strategic technology planning; and
- application development and implementation.
We seek to become the industry benchmark in hosting by providing businesses
with cost-effective, innovative solutions that will allow them to capitalize on
the potential of the Internet. To achieve this objective, our strategy includes
the following key elements:
- Build the Interliant Brand. We intend to continue to build on the equity
of the Interliant brand and strengthen brand recognition by marketing our
full range of services through an integrated marketing communications
program including public relations, print and online advertising
campaigns and other strategic initiatives as well as cooperative
promotions with key hardware and software vendors.
- Continue Acquisition Program. By integrating acquired companies, we
believe we can achieve substantial economies of scale and operating
efficiencies which will allow us to service customers of all sizes.
Further, we intend to capitalize on certain "best practices" we may
identify within acquired companies to maintain our competitive advantage
and to ensure ongoing delivery of high quality hosting services to our
customers.
- Expand Multiple Sales Channels. We currently use a variety of sales
channels to reach our customers including our recently launched business
partner program. We expect to increase our inbound and outbound telesales
efforts, which are targeted primarily toward virtual and dedicated
hosting customers as well as direct sales, which is targeted primarily
toward co-located hosting customers.
- Leverage the Interliant Customer Base. We intend to capitalize on the
enhanced revenue potential of the combined customer bases of our acquired
companies by leveraging the numerous cross-selling opportunities that our
expanded line of Interliant brand offerings provides. In this regard, we
seek to coordinate the selling efforts of our Web hosting, application
hosting and consulting sales force to increase customer leads and
referrals.
- Develop Strategic Relationships. We have established and continue to
seek strategic relationships that enable us to provide complete, scalable
and reliable hosting solutions to our customers, resellers and referral
partners.
On March 10, 1999, we completed the acquisition of substantially all the
assets of Interliant, Inc. ("Interliant Texas"). Interliant Texas had revenues
in 1998 of $21.2 million. In connection with that acquisition, we changed our
name from Sage Networks, Inc. to Interliant, Inc.
Our principal executive offices are located at 215 First Street, Cambridge,
Massachusetts 02142, (617) 374-4700.
3
<PAGE> 8
THE OFFERING
Common stock offered by Interliant... shares
Common stock to be outstanding after
this offering........................ shares
Use of proceeds...................... For acquisitions, increased sales and
marketing activities, capital
expenditures including the build-out of
data centers, repayment of a promissory
note assumed in connection with the
acquisition of Interliant Texas, working
capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol............................... INIT
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- -------------
PERIOD FROM
INCEPTION
(DECEMBER 8,
1997) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $ -- $ 4,905 $ 41,292
--------- --------- ---------
Operating loss............................................ (158) (9,848) (27,664)
--------- --------- ---------
Net loss.................................................. $ (158) $ (9,710) $ (27,802)
========= ========= =========
Net loss per share -- basic and diluted................... $ (0.05) $ (1.10)
Weighted average shares used in computing net loss per
share -- basic and diluted.............................. 3,000,000 8,799,432
Pro forma net loss per share -- basic and diluted......... $ (1.77)
Shares used in computing pro forma net loss per
share -- basic and diluted.............................. 15,749,406
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 6,813 $ 12,032
Working capital........................................... 3,755 2,666
Total assets.............................................. 27,219 108,297
Debt and capital lease obligations, less current
portion................................................. -- 1,125
Total stockholders' equity................................ 22,716 90,939
</TABLE>
The unaudited pro forma statement of operations data gives effect to the
acquisitions completed in 1998 and 1999 as if they occurred on January 1, 1998.
The unaudited pro forma balance sheet data gives effect to the acquisitions
completed in 1999 as if they occurred on December 31, 1998. The unaudited pro
forma balance sheet data also gives effect to the sale in January 1999 of
2,647,658 shares of Series A Redeemable Convertible Preferred Stock to certain
affiliates of SOFTBANK Technology Ventures and in February 1999 of 6,600,000
shares of common stock to Web Hosting Organization LLC and the conversion of all
of the preferred stock into common stock upon completion of this offering. See
"Description of Capital Stock -- The WEB Hosting Organization Investment" and
" -- The SOFTBANK Investment."
The unaudited pro forma as adjusted balance sheet data gives effect to the
sale of shares of common stock offered hereby at an assumed initial public
offering price of $ per share after deducting underwriting discounts and
estimated offering expenses.
4
<PAGE> 9
RISK FACTORS
Investing in our common stock involves risk. You should carefully consider
the risks and uncertainties described below and elsewhere in this prospectus
before making an investment decision. These risks and uncertainties are not the
only ones facing us. Additional risks and uncertainties not now known to us or
that we currently consider immaterial may also impair our business operations.
If any of the following risks or uncertainties actually occur, our business
could be adversely affected. In this event, the trading price of our common
stock could decline, and you could lose all or a part of your investment. This
prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a results of certain factors, including the
risks and uncertainties described below and elsewhere in this prospectus.
WE HAVE A LIMITED OPERATING HISTORY
We have a very limited operating history. We were incorporated in December
1997 and began offering Web hosting services in February 1998. We only recently
completed the acquisition of the application hosting business of Interliant
Texas. As a result, our business model is still in development. Our business and
prospects must be considered in light of the risks frequently encountered by
companies in their early stages of development, particularly companies in the
new and rapidly evolving hosting and enhanced Internet services market. Some of
these risks relate to our ability to:
- build a more comprehensive sales structure to support our business;
- provide reliable and cost-effective services to our customers;
- continue to build our operations and accounting infrastructure to
accommodate additional customers;
- respond to technological developments or service offerings by our
competitors;
- develop and offer new, successful products and services or differentiate
such products and services from those offered by our competitors;
- enter into strategic relationships with application software vendors;
- build, maintain and expand distribution channels; and
- attract and retain qualified personnel.
We may not be successful in addressing these risks, and if we are not
successful, our business could be adversely affected.
Since inception in December 1997, we have experienced operating losses and
negative cash flows for each quarterly and annual period. As of December 31,
1998, we had an accumulated deficit of approximately $9.9 million. The revenues
and income potential of our business is unproven, and our limited operating
history makes it difficult to evaluate our prospects. We anticipate increased
expenses as we expand our sales and marketing initiatives to continue to grow
the Interliant brand, fund greater levels of product development, continue to
build out our data centers, implement centralized billing, accounting and
customer service systems and continue our acquisition program.
In addition, we have experienced growth in revenues, primarily attributable
to acquisitions, and we do not believe that this growth rate is necessarily
indicative of future operating results which will depend not only on continuing
our acquisition strategy but also on internal growth. We expect that future
acquisitions will increase our operating expenses and operating losses. As a
result, we expect to incur operating losses for the foreseeable future. We
cannot give any assurance that we will ever achieve profitability on a quarterly
or annual basis, or, if we achieve profitability, that it will be sustainable.
5
<PAGE> 10
WE FACE RISKS RELATED TO INTEGRATION OF ACQUISITIONS
Since February 1998, we have acquired 16 businesses, and we are currently
pursuing additional acquisitions. Our future success will depend in large part
on our ability to integrate these businesses or any future acquired businesses
with our existing operations. To integrate these businesses, we will need to:
- consolidate their billing and accounting systems into our systems and
implement financial and other control systems;
- relocate the servers of acquired companies and other equipment to an
Interliant facility;
- migrate the operations of acquired companies onto our technology
platforms;
- integrate the customer accounts of acquired companies into our customer
service system;
- integrate the service offerings of acquired companies into the Interliant
brand; and
- identify resellers and referral partners of the services of acquired
companies and migrate them to our business partner program.
We may not be able to successfully integrate acquired businesses with
existing operations without substantial costs, delays or other problems, if at
all. As we integrate acquired businesses:
- we may lose certain customers of acquired companies due to difficulties
during the integration process;
- we may not be able to bill customers of the acquired companies on a
timely basis due to inadequate back-office systems of the acquired
companies and potential difficulties in migrating records onto our own
systems;
- we may experience difficulty in collecting accounts receivable of
acquired companies due to inaccurate record keeping of the acquired
companies;
- key employees of the acquired companies whom we wish to retain may
resign;
- management's attention and resources could be diverted from our ongoing
business concerns; and/or
- we may not be able to integrate newly acquired technologies with our
existing technologies.
Acquisitions also involve a number of other risks, including adverse
effects on our operating results from increases in amortization of intangible
assets, increased compensation expense associated with newly hired employees and
unforeseen liabilities. In addition, any acquired company could significantly
underperform relative to our expectations. In particular, acquired companies
have often experienced modest revenue declines immediately following the closing
of the acquisition. Because we have only recently completed many of our
acquisitions, we are currently facing all of these challenges, and we have not
established our ability to meet them over the long term. As a result of all of
the foregoing, our pursuit of an acquisition strategy could adversely affect our
business.
In March 1999, we purchased, through a wholly-owned subsidiary,
substantially all the assets, and assumed certain liabilities, of Interliant
Texas, which had revenues of $21.2 million for the year ended December 31, 1998.
Our acquisition of the business of Interliant Texas has been our largest
acquisition to date, and we expect that it will have a continuing, significant
impact on our business. Although we do not currently intend to integrate all the
operations of Interliant Texas into our operations, we still expect to incur
significant integration costs. In addition, the following factors could increase
the costs of integration:
- unexpected employee turnover;
- delays in addressing duplicate operations; and
- additional fees and charges to obtain consents, regulatory approvals or
permits.
Further, we cannot guarantee that we will realize the benefits or strategic
objectives we are seeking to obtain by acquiring Interliant Texas. Costs
associated with this acquisition that exceed our expectations would have an
adverse effect on our business.
6
<PAGE> 11
WE DEPEND ON OUR ABILITY TO MAKE ADDITIONAL ACQUISITIONS
We intend to pursue opportunities to expand our business through the
acquisition of selected companies in targeted markets. Although we expect to
finance future acquisitions, in part, with some of the proceeds from this
offering and, at a future date with the issuance of additional shares of our
common stock or other debt or equity securities, we cannot guarantee that:
- we will be able to identify appropriate acquisition candidates or
negotiate acquisitions on favorable terms;
- we will be able to obtain the financing necessary to complete future
acquisitions; or
- the issuance of our common stock or other securities in connection with
any future acquisition will not result in a substantial dilution in the
ownership interests of holders of our common stock.
WE DEPEND ON STRATEGIC RELATIONSHIPS WITH APPLICATION SOFTWARE VENDORS
We obtain software products pursuant to agreements with Lotus and Microsoft
and package them as part of our application hosting solutions. The agreements
are typically for terms ranging from one to three years. If these agreements
were terminated or not renewed, we might have to discontinue products or
services that are central to our business strategy or delay their introduction
unless we could find, license and package equivalent technology. Our business
strategy also depends on obtaining additional application software. We cannot be
sure, however, that we will be able to obtain the new and enhanced applications
we may need to keep our solutions competitive. If we cannot obtain these
applications and as a result must discontinue, delay or reduce the availability
of our solutions or other products and services, our business may be adversely
affected.
None of our third-party agreements are exclusive. Our competitors may also
license and utilize the same technology in competition with us. We cannot be
sure that the vendors of technology used in our products will continue to
support this technology in its current form. Nor can we be sure that we will be
able to adapt our own products to changes in this technology. In addition, we
cannot be sure that the financial or other difficulties of third party vendors
will not have an adverse affect on the technologies incorporated in our
products, or that, if these technologies become unavailable, we will be able to
find suitable alternatives.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, some of which are outside of our control.
These factors include:
- the demand for and market acceptance of our hosting and enhanced Internet
services;
- our ability to identify, complete and integrate acquisitions to sustain
growth;
- downward price adjustments by our competitors on services and products
they offer which are similar to ours;
- changes in the mix of products and services sold by our competitors;
- technical difficulties or system downtime affecting the Internet
generally or our hosting operations;
- the ability to meet any increased technological demands of our customers;
- the amount and timing of our costs related to our marketing efforts and
service introductions by us or reseller or referral partners; and
- economic conditions specific to the hosting industry.
Therefore, our operating results for any particular quarter may differ
materially from our expectations or those of security analysts and may not be
indicative of future operating results.
7
<PAGE> 12
WE DEPEND ON CONTINUED GROWTH OF THE HOSTING MARKET
Our market is new and rapidly evolving. Whether the market for our products
and services will continue to grow is uncertain. Our business would be adversely
affected if the hosting market does not continue to grow or if businesses prove
to be unwilling to outsource their hosting business.
In addition, our success depends in large part on continued growth in the
use of the Internet. Our business would be adversely affected if Web usage does
not continue to grow. Web usage may be inhibited for a number of reasons, such
as:
- security and privacy concerns;
- uncertainty of legal and regulatory issues concerning the use of the
Internet;
- inconsistent quality of service; and
- lack of availability of cost-effective, high-speed connectivity.
WE DEPEND ON THE GROWTH OF THE INTERNET INFRASTRUCTURE
If the use of the Internet continues to grow, its infrastructure may not be
able to support the demands placed on it by such growth and its performance or
reliability may decline. In addition, Web sites have experienced interruptions
in their service as a result of outages and other delays occurring throughout
the Internet network infrastructure. If these outages or delays occur
frequently, use of the Internet as a commercial or business medium could, in the
future, grow more slowly or decline which would adversely affect our business.
WE DEPEND ON OUR NETWORK INFRASTRUCTURE
Our success partly depends upon the capacity, scalability, reliability and
security of our network infrastructure, including the capacity leased from our
telecommunications network suppliers such as UUNET Technologies, Inc. We depend
on these companies to provide uninterrupted and "bug free" service and would be
adversely affected if such services were not provided. In addition, we would be
adversely affected if such companies greatly increased the prices of their
services or if the telecommunications capacity available to us was insufficient
for our business purposes and we were unable to use alternative networks or pass
along any increased costs to our customers.
THE SCALABILITY OF OUR NETWORK IS UNPROVEN
We must continue to develop and expand our network infrastructure as the
number of users and the amount of information they wish to transport as well as
the number of products and services we offer increases and to meet changing
customer requirements. Our expansion and adaptation of our telecommunications
and hosting facility infrastructure will require substantial financial,
operational and management resources. If we are required to expand our network
significantly and rapidly due to increased usage, additional stress will be
placed upon our network hardware, traffic management systems and hosting
facilities. Due to the limited deployment of our services to date, the ability
of our network to connect and manage a substantially larger number of customers
at high transmission speeds while maintaining superior performance is unknown.
As our customers' bandwidth usage increases, we will need to make
additional investments in our infrastructure to maintain adequate data
transmission speeds, the availability of which may be limited and the cost of
which may be significant. Additional network capacity may not be available from
third-party suppliers as it is needed by us. As a result, our network may not be
able to achieve or maintain a sufficiently high capacity of data transmission,
especially if customers' usage increases. Any failure on our part to achieve or
maintain high-capacity data transmission could significantly reduce consumer
demand for our services and adversely affect our business.
8
<PAGE> 13
OUR NETWORK SYSTEM COULD FAIL
To succeed, we must be able to operate our network infrastructure on a 24x7
basis without interruption. Our operations depend upon our ability to protect
our network infrastructure, equipment and customer files against damage from:
- human error;
- various natural disasters;
- power loss or telecommunications failures; and
- sabotage or other intentional acts of vandalism.
However, even if we take precautions, the occurrence of a natural disaster
or other unanticipated problems at our data centers could result in
interruptions in the services we provide to our customers.
At this time, we do not have a formal disaster recovery plan. Although we
believe that our Atlanta and Houston data centers are state-of-the-art and have
sufficient system protections in place to ensure high quality service with
minimal interruptions, we estimate that currently only approximately 34% of our
customers are hosted in these data centers. In addition, we may not integrate
into our Network Operations Centers all the data centers of companies we
acquire. Therefore, in some instances, our network reliability may be
compromised. Although we have attempted to build redundancy into our network and
hosting facilities, our data centers are currently subject to various single
points of failure. As a result, a problem with one of our routers, switches or
fiber paths could cause an interruption in the services we provide to some of
our customers. We have experienced interruptions in service in the past. Any
future interruptions could:
- require us to spend substantial amounts of money replacing existing
equipment or adding redundant facilities;
- damage our reputation for reliable service;
- cause existing end users, resellers and referral partners to cancel their
contracts;
- cause end users to seek damages for losses incurred; or
- make it more difficult for us to attract new end users, resellers and
referral partners.
Any of these occurrences could adversely affect our business.
We have entered into service level agreements with some of our customers,
and we anticipate that we will offer service level agreements to a larger group
of customers in the future. In that case, we could incur significant liability
to our customers in connection with any system downtime and those obligations
may adversely affect our business.
WE DEPEND ON NEW HOSTING SOLUTIONS AND ENHANCED INTERNET SERVICES
We have recently introduced new hosting solutions and enhanced Internet
services, including e-commerce, multimedia hosting, community hosting, rental
applications and consulting services. If these and other new hosting solutions
and enhanced Internet services fail to gain market acceptance, our business
could be adversely affected. In addition, if these newly introduced hosting
solutions and enhanced Internet services have reliability, quality or
compatibility problems, market acceptance of these products could be greatly
hindered and our ability to attract new customers could be adversely affected.
We cannot offer any assurance that these new solutions and services are free
from any reliability, quality or compatibility problems.
WE DEPEND ON OUR RESELLER SALES CHANNEL
We rely significantly on resellers to market and sell our services. We
estimate that as of December 31, 1998 approximately 16% of our active hosted
domains were maintained by resellers. For this purpose, we
9
<PAGE> 14
include as resellers any entity which has three or more active domains hosted by
us. Our failure to maintain and grow our reseller sales channel may adversely
affect our business. Our agreements with resellers generally do not require that
the resellers sell any minimum level of our services and do not restrict the
resellers' development or sale of competitive services. We have very little
control over whether these resellers will dedicate resources or give priority to
selling our services.
We will need to continue to deliver reliable service and keep our reseller
pricing and support programs competitive. If we succeed in increasing our sales
through resellers, we may lose brand identification and brand loyalty, since our
services may not be identified by the Interliant brand or may be marketed
differently by our resellers.
OUR GROWTH AND EXPANSION HAS AND MAY CONTINUE TO STRAIN OUR RESOURCES
We are currently experiencing rapid growth, primarily due to our
acquisition of 16 businesses since February 1998. In addition, from inception we
have grown to 489 employees, which includes 19 employees on a contract basis.
This rapid growth of our business and our product and service offerings has
placed, and is likely to continue to place, a significant strain on our
operating and financial resources. Our future performance will partly depend on
our ability to manage our growth effectively, which will require that we further
develop our operating and financial system capabilities and controls. We have
invested, and intend to continue to invest, significant amounts in billing,
accounts receivable, customer service and financial systems which we believe,
once implemented, will be able to produce timely, accurate and consistent
information as our business continues to grow. However, because we employ a
strategy that includes a high level of acquisition activity, at any time there
are likely to be one or more operating businesses that have not been fully
integrated into our core systems and continue to produce financial and other
information from their existing systems. As a result, our ability to record,
process, summarize and report financial data could be adversely affected.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO SUSTAIN GROWTH
Our ability to sustain growth depends on our ability to:
- expand or retain our business with current customers;
- acquire new customers;
- develop and offer new, successful products and services or differentiate
such products and services from those offered by our competitors;
- continue to identify and finance appropriate acquisitions on favorable
terms, or at all;
- retain key employees or hire, train and manage new employees; and
- effectively integrate acquired, and develop existing, billing, accounts
receivable, customer service and financial systems and develop our
information technology systems.
Our failure to sustain growth could adversely affect our business.
WE DEPEND ON OUR ABILITY TO GROW THE INTERLIANT BRAND
Upon acquiring Interliant Texas and its application hosting business, we
began the process of offering the full range of our hosting products and
services under the Interliant brand. Prior to this, we marketed all of our
products and services under the Sage Networks brand and the brand names of
acquired companies. In order to build the Interliant brand in the Web hosting
and consulting market as well as strengthen it in the application hosting
market, we must succeed in our marketing efforts and provide high quality
services at competitive prices. We will need to increase our marketing budget
substantially as part of our brand building efforts. Our business could be
adversely affected if the Interliant brand is not well received by our Web
hosting customers, our marketing efforts are not productive or we are otherwise
unsuccessful in increasing our brand awareness.
10
<PAGE> 15
OUR MARKET IS EXTREMELY COMPETITIVE
Our market is highly competitive. We expect that we will face additional
competition from existing competitors and new market entrants in the future. The
principal competitive factors in this market include:
- quality of service, including network capability, scalability,
reliability and functionality;
- customer service and support;
- variety of services and products offered;
- price;
- brand name;
- Internet system engineering and technical expertise;
- timing of introductions of new and additional value-added services and
products;
- network security;
- financial resources; and
- conformity with industry standards.
We may not have the resources, expertise or other competitive factors to
compete successfully in the future.
Our current and potential competitors include:
- other Web hosting and Internet services companies such as AboveNet
Communications, Inc., Exodus Communications, Inc., Frontier GlobalCenter,
Globix Corporation and local and regional hosting providers;
- national and regional Internet service providers such as Concentric
Network Corporation, MindSpring Enterprises, Inc., UUNet Technologies,
Inc., PSINet Inc. and Verio Inc.;
- global telecommunications companies including AT&T Corp., British
Telecommunications plc, Telecom Italia SpA and Nippon Telegraph and
Telephone Corp.;
- regional and local telecommunications companies, including the regional
Bell operating companies such as Bell Atlantic Corporation and US West,
Inc.;
- companies that focus on application hosting such as USinternetworking,
Inc. and IBM Global Services; and
- multimedia hosting companies such as broadcast.com.
Many of our 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 we do.
As a result, certain of these competitors may be able to:
- develop and expand their network infrastructures and service offerings
more rapidly, 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 services; and
- adopt more aggressive pricing policies.
In addition, these competitors have entered and will likely continue to
enter into joint ventures or consortia to provide additional services
competitive with those provided by us. We believe that the market in which we
compete is likely to encounter consolidation in the near future, which could
result in increased price and other competition that could adversely affect our
business.
11
<PAGE> 16
In an effort to gain market share, certain of our competitors have offered
hosting services similar to ours at lower prices than ours or with incentives
not matched by us. In addition, certain of our competitors may be able to
provide customers with additional benefits, which could reduce the overall costs
of their services relative to ours. We may not be able to reduce the pricing of
our services or offer incentives in response to the actions of our competitors
without an adverse impact on our business.
WE DEPEND ON KEY PERSONNEL
We are dependent on the continued service of our key personnel, including:
- Leonard J. Fassler and Bradley A. Feld, our Co-Chairmen;
- Stephen W. Maggs, our Chief Executive Officer;
- James M. Lidestri, our Executive Vice President;
- Rajat Bhargava, our Senior Vice President, Chief Operating Officer Web
Hosting; and
- William A. Wilson, our Chief Financial Officer.
We recently entered into one-year employment agreements with Messrs.
Fassler, Maggs and Bhargava and a one-year consulting agreement with Mr. Feld.
In addition, in connection with our acquisition of Interliant Texas, we entered
into a two-year employment agreement with Mr. Lidestri. The loss of the services
of one or more of these people could adversely affect our business.
Our Co-Chairmen, Bradley A. Feld and Leonard J. Fassler, are each currently
active in, and serve as directors and/or executive officers of, a number of
businesses other than Interliant. Although Mr. Feld spends approximately half of
his time and Mr. Fassler spends substantially all of his time at Interliant, and
both are active in its management, neither is contractually committed to spend
any specific amount of time at Interliant. If Mr. Feld or Mr. Fassler were to
significantly reduce the time they devoted to Interliant, our business may be
adversely affected.
WE NEED TO RECRUIT ADDITIONAL SKILLED PERSONNEL
We believe that our short- and long-term success depends largely on our
ability to attract and retain highly skilled technical, managerial and marketing
personnel, particularly additional management personnel in the areas of
application integration and technical support. Competition for such personnel is
intense. We may not be able to hire the necessary personnel to implement our
business strategy, or we may need to provide higher compensation to employees
than we currently expect. We cannot be sure that we will succeed in attracting
and retaining the personnel we need to continue to grow. Our inability to
attract and retain such personnel could limit our growth and have an adverse
effect on our business.
THERE IS UNCERTAINTY AS TO OUR ABILITY TO OBTAIN FUTURE FINANCING TO MEET OUR
NEEDS
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our operating needs
and to continue our acquisition program through the end of 1999. Thereafter, we
expect to require additional financing. At this time, we do not have any credit
facility or other working capital credit line under which we may borrow funds
for working capital or other general corporate purposes. If our plans or
assumptions change or are inaccurate, we may be required to seek additional
capital or seek capital sooner than anticipated. We may need to raise funds
through public or private debt or equity financing.
If funds are raised through the issuance of equity securities, the
percentage ownership of our then current stockholders may be reduced and such
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. If additional funds are raised through the
issuance of debt securities, such securities would have certain rights,
preferences and privileges senior to those of the holders of our common stock
and the terms of such debt could impose restrictions on our operations. If
additional funds
12
<PAGE> 17
become necessary, additional financing may not be available on terms favorable
to us, or at all. If adequate funds are not available on acceptable terms, we
may not be able to continue to fund our operations and growth or to continue our
acquisition program. Our inability to raise capital could adversely affect our
business.
WE DEPEND ON OUR ABILITY TO ADAPT TO TECHNOLOGICAL CHANGES
Our market is characterized by rapidly changing technology, evolving
industry standards and frequent new product announcements. These characteristics
are exacerbated by the recent growth of the Internet, the continued growth in
the use of commercial software applications and the intense competition in our
industry. To be successful, we must adapt to our rapidly changing market by
continually improving the performance, features and reliability of our services.
We could also incur substantial costs if we need to modify our services or
infrastructure in order to adapt to these changes. Our business could be
adversely affected if we incurred significant costs or could not adapt to these
changes.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION AND OPERATIONS
Approximately 13% of our dollar amount of billings were to customers
located outside of the United States, primarily in Europe and Asia. Our success
may depend in part on expanding our international presence. Because our sales
overseas are denominated in U.S. dollars, currency fluctuations may inhibit us
from marketing our services to potential foreign customers or collecting for
services rendered to current foreign customers.
In addition there are certain risks to conducting business internationally
such as:
- different regulatory requirements;
- trade barriers;
- different technology standards;
- different tax structures which may adversely impact earnings;
- different privacy, censorship and service provider liability standards
and regulations;
- different intellectual property laws; and
- political and economic instability of certain foreign countries.
Any of these risks could adversely affect our business.
WE FACE RISKS ASSOCIATED WITH THE SECURITY OF OUR SYSTEMS
A significant barrier to the growth of e-commerce and communications over
the Internet has been the need for secure transmission of confidential
information. Web usage could decline if any well-publicized compromise of
security occurred. Despite our design and implementation of a variety of network
security measures, unauthorized access, computer viruses, accidental or
intentional actions and other disruptions could occur. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by such breaches. If a third person were able to misappropriate
our users' personal or proprietary information or credit card information, we
could be subject to claims, litigation or other potential liabilities.
WE COULD FACE GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There are currently few laws or regulations that specifically regulate
communications, commerce or hosting activities on the Internet. However, laws
and regulations may be adopted in the future that address issues such as user
privacy, pricing, and the characteristics and quality of products and services.
For example, although parts of it were ultimately held unconstitutional, the
Communications Decency Act of 1996 prohibited the transmission over the Internet
of certain types of information and content. Other nations, including Germany,
have taken actions to restrict the free flow of material deemed to be
objectionable on the Internet. In addition, several telecommunications carriers
are seeking to have telecommunications over the
13
<PAGE> 18
Internet regulated by the Federal Communications Commission in the same manner
as other telecommunications services.
The growing use of the Internet has burdened the existing
telecommunications infrastructure in many areas and local telephone carriers,
such as Pacific Bell, have petitioned the Federal Communications Commission to
regulate Internet service providers and online services providers in a manner
similar to long distance telephone carriers and to impose access fees on these
companies. Moreover, it may take years to determine the extent to which existing
laws relating to issues such as intellectual property ownership, libel and
personal privacy, are applicable to the Internet. Any new laws or regulations
relating to the Internet could adversely affect our business.
We currently do not collect sales or other taxes with respect to the sale
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states and
countries in which we have offices and are required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes for
prior periods, could have an adverse effect on our business.
WE COULD FACE LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR NETWORK
The law relating to the liability of online services companies and Internet
access providers for information carried on or disseminated through their
networks by their customers or other third parties is unclear. It is possible
that claims could be made against online services companies and Internet service
providers under both U.S. 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. In addition, legislation has
been proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information, and we expect additional similar
proposals in the future.
If potential liability is imposed on us or other Internet service providers
for information carried on or disseminated through our or their systems, we may
be required to implement measures to reduce our exposure to such liability. Such
measures may require the expenditure of substantial resources, or may cause us
to discontinue certain service or product offerings. The increased attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could impact the growth of Internet use. Although we carry
professional liability insurance, it may not be adequate to compensate or may
not cover us in the event we become liable for information carried on or
disseminated through our networks. Any costs not covered by insurance incurred
as a result of such liability or asserted liability could adversely affect our
business.
WE DEPEND ON THE PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
Trademarks and other proprietary rights are important to our success and
our competitive position. We do not have any patented technology that would
prevent competitors from entering our market. Although we seek to protect our
trademarks, copyrights and other proprietary rights, these actions may be
inadequate to protect them or to prevent others from claiming violations of
their trademarks, copyrights and other proprietary rights.
To date, we have not been notified that our services infringe on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to current or future services. From time to time, we are
notified that the content of one of our customer's Web sites infringes on a
third party's trademark. In response, we inform the customer of this claim and,
if necessary, will terminate a customer's service. We expect that participants
in the hosting and enhanced Internet services markets will be increasingly
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service installation delays
or require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business.
14
<PAGE> 19
We currently license and may in the future license certain technologies
from third parties, which may subject us to infringement actions based upon the
technologies licensed from these third parties. Any of these claims, with or
without merit, could subject us to costly litigation and divert the attention of
our technical and management personnel. These third-party technology licenses
may not continue to be available to Interliant on commercially reasonable terms.
The loss of the ability to use such technology could require Interliant to
obtain the rights to use substitute technology, which could be more expensive or
offer lower quality or performance, and therefore have a material adverse effect
on Interliant's business.
OUR BUSINESS MAY BE IMPACTED BY THE YEAR 2000 ISSUE
Currently, many computer and software products are coded to accept
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. As a result, many companies' software and computer systems, including
ours, may need to be upgraded or replaced in order to comply with Year 2000
requirements. We recognize the need to ensure that our operations will not be
adversely impacted by Year 2000 software and computer system failures.
We have made a preliminary assessment of the Year 2000 readiness of our
information technology systems. In addition, we are currently seeking assurances
from our material hardware and software vendors that their products are Year
2000 compliant. Until such process is complete, we will not be able to
completely evaluate whether our information technology systems will need to be
revised or replaced. Although we have not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues to date,
we do not at this time possess the information necessary to estimate the
potential costs of revisions or replacements to our software and systems or
third party software, hardware or services that are determined not to be Year
2000 compliant. Such expenses, if higher than anticipated, could have a material
adverse effect on our business.
Although we are not currently aware of any Year 2000 compliance problems
relating to our information technology systems that would have a material
adverse effect on our business, there is no assurance that we will not discover
any such compliance problems. Our failure to fix or replace our software,
hardware or services on a timely basis could result in lost revenues, increased
operating costs and the loss of customers and other business interruptions, any
of which could have a material adverse effect on our business. Moreover, the
failure to adequately address Year 2000 compliance issues in our information
technology systems could result in claims of mismanagement, misrepresentation or
breach of contract and related litigation, which could be costly and
time-consuming to defend.
OUR STOCK HAS NO PRIOR TRADING MARKET AND MAY BE VOLATILE
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in Interliant will lead to the development
of a trading market or how liquid that market might become. The initial public
offering price for the shares will be determined by negotiations between us and
the representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. The stock market has experienced significant
price and volume fluctuations, and the market prices of securities of technology
companies, particularly Internet-related companies, have been highly volatile.
Investors may not be able to resell their shares at or above the initial public
offering price. 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 a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources and could have a
material adverse effect on our business.
OUR COMMON STOCK IS CONTROLLED BY A SIGNIFICANT STOCKHOLDER WHOSE INTERESTS MAY
BE IN CONFLICT WITH THOSE OF INTERLIANT AND THE OTHER STOCKHOLDERS
Immediately following this offering, Web Hosting Organization LLC will
beneficially own approximately % of our outstanding common stock. Accordingly,
Web Hosting Organization LLC will be able to control any stockholder vote,
including any vote on the election of directors. The members of Web Hosting
Organization LLC are affiliates of Charterhouse Group International, Inc. and
the WHO Management LLC
15
<PAGE> 20
(of which Interliant's Co-Chairmen, Leonard J. Fassler and Bradley A. Feld, are
the member managers). Web Hosting Organization LLC's interests could conflict
with the interests of our other stockholders. See "Description of Capital
Stock -- The WEB Hosting Organization Investment" and "Certain Transactions."
Charterhouse Equity Partners III, L.P., which is an affiliate of
Charterhouse Group International, Inc., has the ability to control our direction
and future operations through its significant equity ownership of Web Hosting
Organization LLC. Certain decisions concerning our operations or financial
structure may present conflicts of interest between Charterhouse and our other
stockholders. In addition to its investments in us, Charterhouse or its
affiliates may in the future invest in other entities engaged in the hosting
business or other Internet-related business. As a result, Charterhouse or its
affiliates have, and may develop, relationships with businesses that are or may
be competitive with us. Conflicts may also arise in the negotiation or
enforcement of arrangements entered into by us and entities in which
Charterhouse has an interest. Such conflicts of interest could cause
Charterhouse to use its significant ownership interest to force us to act in a
manner adverse to the interests of our other stockholders.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
The market price of the common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering. There
will be shares of common stock outstanding immediately after this
offering. The shares of common stock sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, as amended, unless such shares are held by "affiliates" of
Interliant, as that term is defined in Rule 144 under the Securities Act.
The remaining shares of common stock are subject to restrictions
under Rule 144 of the Securities Act. Holders of a majority of such restricted
shares have registration rights with respect to such shares. However, such
shares are subject to lock-up agreements pursuant to which the holders of these
shares have agreed, subject to certain limited exceptions, not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this prospectus, or exercise their registration rights, without the prior
written consent of Merrill Lynch & Co., Inc. See "Shares Eligible for Future
Sale."
A substantial number of shares of common stock issued as compensation will
also become available for resale in the public market at prescribed times. In
addition, we intend to register under the Securities Act the shares of common
stock reserved for issuance under our stock option plan. See "Shares Eligible
for Future Sale."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus contains certain forward-looking statements, relating to,
among other things, future results of operations, growth plans, sales, gross
margin and expense trends, capital requirements and general industry and
business conditions applicable to Interliant. These forward-looking statements
are based largely on Interliant's current expectations and are subject to a
number of risks and uncertainties. When used in this prospectus, the words
"anticipate," "believe," "estimate" and similar expressions are generally
intended to identify forward-looking statements. Actual results could differ
materially from these forward-looking statements. In addition to the other risks
described elsewhere in this "Risk Factors" discussion, important factors to
consider in evaluating such forward-looking statements include changes in
external competitive market factors, changes in Interliant's business strategy
or an inability to execute its strategy due to unanticipated changes in the
hosting industry or the economy in general and various other competitive factors
that may prevent Interliant from competing successfully in existing or future
markets. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this prospectus will be in fact
realized.
16
<PAGE> 21
USE OF PROCEEDS
Interliant estimates that it will receive net proceeds from the sale of
shares in this offering (assuming an initial public offering price of
$ ) of approximately $ million ($ million if the underwriters'
over-allotment option is exercised in full), after deduction of underwriting
discounts and commissions and expenses payable by Interliant, estimated at
$ million ($ million if the underwriters' over-allotment option is
exercised in full).
Interliant currently intends to use a significant portion of the net
proceeds of this offering for acquisitions. See "Business -- Strategy" and
"-- Acquisition Program." Interliant currently has no commitments or binding
agreements with respect to any acquisitions. Interliant also expects to use a
portion of the net proceeds for increased sales and marketing activities and for
capital expenditures, including the build-out of Interliant's data centers and
repayment of a 9% promissory note issued in favor of Mathew Wolf in connection
with the acquisition of Interliant Texas. This note will be paid in full upon
consummation of the offering. See "Business -- Technology and Network
Operations -- Network Operations" and "-- Facilities." The balance of the net
proceeds of this offering will be used for working capital and general corporate
purposes. Pending use of the net proceeds for the above purposes, Interliant
intends to invest such funds in short-term investment grade interest-bearing
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
Interliant has never paid or declared any cash dividends on its common
stock. Interliant currently intends to retain any future earnings for its
business and, therefore, does not anticipate paying cash dividends in the
foreseeable future. Future dividends, if any, will depend on, among other
things, Interliant's results of operations, capital requirements, restrictions
in loan agreements and on such other factors as the Board of Directors of
Interliant may, in its discretion, consider relevant.
17
<PAGE> 22
CAPITALIZATION
The following table sets forth at December 31, 1998 (i) the actual
capitalization of Interliant, (ii) capitalization on a pro forma basis to
reflect (a) the amendment of Interliant's Restated Certificate of Incorporation
to provide for authorized capital stock of 100,000,000 shares of common stock
and shares of undesignated preferred stock, (b) the issuance of
2,647,658 shares of Series A Redeemable Convertible Preferred Stock on January
28, 1999 and the conversion of all such shares of Series A Redeemable
Convertible Preferred Stock into shares of common stock upon the consummation of
this offering (see "Description of Capital Stock -- The SOFTBANK Investment"),
(c) the issuance of 6,600,000 shares of Common Stock to Web Hosting Organization
LLC on February 9, 1999 (see "Description of Capital Stock -- The WEB Hosting
Organization Investment") and (d) the acquisitions consummated since December
31, 1998 (See "Business -- Acquisition Program") and (iii) the pro forma
capitalization adjusted to reflect the offering contemplated hereby (assuming an
initial public offering price of $ per share after deducting the estimated
underwriting discounts and commissions and offering expenses). This table should
be read in conjunction with the Selected Consolidated Financial Data, the
Unaudited Pro Forma Consolidated Financial Statements and Interliant's
Consolidated Financial Statements and Notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, less current portion........................ $ -- $ 1,125 $1,125
======= ======== ======
Series A Redeemable Convertible Preferred Stock, $0.01 par
value; 0 shares authorized, actual; 2,647,658 shares
authorized, 0 issued and outstanding, pro forma and pro
forma as adjusted........................................
Stockholders' equity:
Common stock, $0.01 par value; 30,000,000 shares
authorized, 19,217,197 shares issued and outstanding,
actual; shares authorized, shares
issued and outstanding, pro forma; shares
authorized, shares issued and outstanding, pro
forma as adjusted(1).................................. 192 351
Additional paid-in capital............................... 34,160 102,224
Deferred compensation.................................... (1,769) (1,769) (1,769)
Accumulated deficit...................................... (9,867) (9,867) (9,867)
------- -------- ------
Total stockholders' equity............................... 22,716 90,939
------- -------- ------
Total capitalization............................. $22,716 $ 92,064
======= ======== ======
</TABLE>
- ---------------
(1) Excludes shares and 749,625 shares of common stock issuable upon
exercise of options outstanding under Interliant's 1998 Stock Option Plan
and upon exercise of outstanding warrants, respectively, at weighted average
exercise prices of $ and $6.67 respectively. See "Management" and
"Description of Capital Stock -- The SOFTBANK Investment."
18
<PAGE> 23
DILUTION
The pro forma net tangible book value of Interliant as of December 31, 1998
was $13,438,409 or $0.38 per share of common stock. "Pro Forma net tangible book
value per share" is determined by dividing the number of outstanding shares of
common stock into the net tangible book value of Interliant (total tangible
assets less total liabilities), after giving effect to the pro forma events
listed in the introductory paragraph of "Capitalization." After giving effect to
receipt of net proceeds from the sale of the shares of common stock
offered by Interliant hereby (at an assumed initial public offering price of
$ per share and after deducting the estimated underwriting discounts and
commissions and offering expenses), the pro forma net tangible book value of
Interliant as of December 31, 1998 would have been $ million, or $ . per
share. This represents an immediate increase in net tangible book value of
$ . per share to existing stockholders and an immediate dilution of $ . per
share to new investors purchasing shares at the initial public offering price.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............
Pro forma net tangible book value per share as of December
31, 1998............................................... 0.38
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors.........................
========
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
1998, the number of shares of common stock purchased from Interliant, the total
consideration paid to Interliant and the average price per share paid by the
existing stockholders and by the investors purchasing shares of common stock in
this offering (before deducting the estimated underwriting discounts and
commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- --------------------------
NUMBER PERCENT AMOUNT PERCENT AVERAGE PRICE PER SHARE
-------------- -------- -------------- -------- -----------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing
stockholders........ 35,095 $102,576 $2.92
New investors.........
------ -------- -------- --------
Total.......
====== ======== ======== ========
</TABLE>
The foregoing table assumes no exercise of warrants and stock options
outstanding. As of the date hereof there are warrants and options outstanding to
purchase a total of 749,625 shares and shares of common stock,
respectively, at weighted average per share exercise prices of $6.67 and
$ , respectively. To the extent that any of these warrants or options
are exercised, there will be further dilution to new investors. See
"Capitalization," "Management -- Stock Option Plan," "Description of Capital
Stock -- Common Stock Warrants" and Note 7 of Notes to Consolidated Financial
Statements.
19
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following selected consolidated financial data should be read in
conjunction with Interliant's Consolidated Financial Statements and Notes
thereto, the Unaudited Pro Forma Consolidated Financial (formerly Sage Networks,
Inc.) Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. The
statement of operations data for the period ended December 31, 1997 and the year
ended December 31, 1998, and the balance sheet data as of December 31, 1997 and
1998, are derived from the consolidated financial statements of Interliant
(formerly Sage Networks, Inc.) that have been audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this prospectus.
The unaudited pro forma statement of operations data for the year ended
December 31, 1998 assumes that the acquisitions completed in 1998 and 1999 had
occurred on January 1, 1998, and includes the historical consolidated statements
of operations of Interliant, adjusted for the pro forma effects of such
acquisitions. The unaudited pro forma balance sheet data assumes that
acquisitions completed in 1999 occurred on December 31, 1998, and includes the
December 31, 1998 historical consolidated balance sheet of Interliant adjusted
for the pro forma effects of these acquisitions. The unaudited pro forma balance
sheet data also reflects the sale in January 1999 of 2,647,658 shares of the
Series A Redeemable Convertible Preferred Stock and the sale in February 1999 of
the remaining shares of Common Stock to Web Hosting Organization LLC. "See
Description of Capital Stock -- The WEB Hosting Organization Investment" and the
"-- SOFTBANK Investment".
Results of operations for the period from inception to December 31, 1997
and for the year ended December 31, 1998 are not necessarily indicative of
results of operations for future periods. Interliant's development and expansion
activities, including acquisitions, during the periods shown below may
significantly affect the comparability of this data from one period to another.
The unaudited pro forma statement of operations data is not necessarily
indicative of the results of operations that would actually have occurred if the
transactions had been consummated as of January 1, 1998 and is not intended to
indicate the expected results for any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ------------
PERIOD FROM
INCEPTION
(DECEMBER 8,
1997) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $ -- $ 4,905 $ 41,292
Costs and expenses:
Cost of revenues........................................ -- 3,236 21,237
Sales and marketing..................................... -- 2,555 9,394
General and administrative.............................. 156 5,121 19,620
Depreciation............................................ 2 696 3,820
Amortization of intangibles............................. -- 1,417 13,157
Start-up and acquisition integration costs.............. -- 1,728 1,728
---------- ---------- -----------
Operating loss............................................ (158) (9,848) (27,664)
Interest income and other non-operating expense........... -- 138 (138)
---------- ---------- -----------
Net loss.................................................. $ (158) $ (9,710) $ (27,802)
========== ========== ===========
Net loss per share -- basic and diluted................... $ (0.05) $ (1.10)
Weighted average shares used in computing net loss per
share -- basic and diluted.............................. 3,000,000 8,799,432
Pro forma net loss per share -- basic and diluted......... $ (1.77)
Shares used in computing pro forma net loss per
share -- basic and diluted.............................. 15,749,406
</TABLE>
20
<PAGE> 25
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ------------
PERIOD FROM
INCEPTION
(DECEMBER 8,
1997) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
OTHER DATA:
EBITDA(1)................................................. $ (156) $ (7,735) $ 10,688
Capital expenditures...................................... 29 4,322 --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31, 1998
DECEMBER 31, ------------------------
1997 ACTUAL PRO FORMA
------------ --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 912 $ 6,813 $ 12,032
Working capital............................................. 815 3,755 2,666
Total assets................................................ 953 27,219 108,297
Debt and capital lease obligations, less current portion.... -- -- 1,125
Total stockholders' equity.................................. 842 22,716 90,939
</TABLE>
- ---------------
(1) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization and other income (expense). EBITDA is
presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to present cash flows for
the period, nor has it been presented as an alternative to operating income
(loss) as an indicator of operating performance and should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See Interliant's
(formerly Sage Networks, Inc.) Consolidated Financial Statements and Notes
thereto appearing elsewhere in this prospectus.
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following description of Interliant's financial condition and results
of operations should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and the Unaudited Pro Forma Consolidated
Financial Statements included elsewhere in this prospectus. This discussion
contains forward-looking statements based upon current expectations that involve
risks and uncertainties. Any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. Interliant's
actual results and the timing of certain events may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a discrepancy include, but are not limited to, those discussed in
"Risk Factors", "Business" and elsewhere in this prospectus.
OVERVIEW
Interliant is a provider of a comprehensive suite of hosting and enhanced
Internet services that enable its customers to deploy and manage their Web sites
and network-based applications more effectively than internally developed
solutions. Our Web hosting services provide virtual, dedicated and co-located
hosting solutions to meet the needs of businesses of all sizes, as their Web
sites develop from low-end marketing "brochures" to more complex, interactive
Web sites and finally to mission-critical applications. Our application hosting
services consist of groupware hosting and application outsourcing solutions that
can provide our customers with 24x7 remote access to mission-critical
applications and data. Since our inception in December 1997, we have grown
rapidly through the acquisition of 16 hosting and related Internet service
businesses. We provide Web hosting solutions to more than 37,000 customers,
representing more than 65,000 active domains. We also host more than 10,000
customized Lotus Notes/Domino based applications for more than 1,300 customers
and believe that we are the leading provider of Lotus Notes/Domino hosting
solutions. We have two state-of-the-art primary data centers in Atlanta and
Houston and a recently leased facility in the Washington D.C. area. Our Atlanta
and Houston data centers are monitored on a 24x7 basis and include sophisticated
monitoring and diagnosis, 24x7 customer support, redundant and high-speed
network connectivity and uninterruptible power supply.
During 1998 and 1999, Interliant's strategy has been to rapidly acquire
operating companies in the Web hosting and application hosting services
businesses, to build or acquire data centers, and to integrate the acquired
operations into those data centers. Interliant acquired 16 operating businesses
during 1998 and 1999 for total consideration of approximately $111.0 million,
including transaction costs. All acquisitions have been accounted for using the
purchase method of accounting which has resulted in the inclusion of substantial
intangible assets on Interliant's balance sheet. Of the total consideration,
approximately $34.0 million and $77.0 million was or will be allocated to
tangible assets and intangible assets, respectively. During 1998, approximately
$1.4 million of amortization of the intangible assets was charged to operations.
Additionally, during 1998 stock valued at approximately $2.6 million was issued
as compensation in connection with agreements entered into with sellers of
acquired operating businesses. During 1998, approximately $0.8 million of
deferred compensation was amortized and charged to operations. The purchase
consideration for the acquisitions was in the form of cash, stock or a
combination of cash and stock. See "Business -- Acquisition Program."
Most of the operating businesses acquired in 1998 by Interliant have been
small and entrepreneurial in nature and highly dependent on the focus and
attention of the owners. It has been Interliant's experience that during the
negotiation period prior to an acquisition, the attention of the owners has been
diverted from the operation of the business. The result of this has often been a
modest revenue decline immediately following the closing of the acquisition. In
most cases, the owner continued to have direct responsibility for the acquired
business, but in some instances, Interliant re-assigned the owner to take
advantage of unique skill sets that have broad application within Interliant. In
those cases, the operating businesses have experienced a modest decline in
revenues due to loss of customers. These factors resulted in minimal aggregate
internal growth in 1998 for Interliant and the businesses it acquired.
22
<PAGE> 27
Since its inception in December 1997, Interliant has experienced operating
losses and negative cash flows from operating activities for each quarterly and
annual period. As of December 31, 1998, Interliant had an accumulated deficit of
approximately $9.9 million. Had the companies acquired to date been included
since January 1, 1998, the accumulated deficit would have been $28.0 million.
The revenue and income potential of Interliant's business is unproven and its
limited operating history makes an evaluation of Interliant and its prospects
difficult. Interliant anticipates increased operating expenses as it expands its
sales and marketing initiatives to continue to grow the Interliant brand, funds
greater levels of product development, continues to build out its data centers,
implements centralized billing, accounting and customer service systems and
continue our acquisition program. Although Interliant has experienced revenue
growth, primarily attributable to acquisitions, Interliant does not believe that
this growth is necessarily indicative of future operating results. Future
acquisitions are expected to increase operating expenses and operating losses
and as a result, Interliant expects to incur operating losses for the
foreseeable future. There can be no assurance that Interliant will ever achieve
profitability on a quarterly or annual basis, or, if achieved, will sustain
profitability. See "Risk Factors -- We have a limited operating history."
RESULTS OF OPERATIONS
Revenues
Interliant has historically derived its revenues from Web hosting, enhanced
Internet services and consulting services. In March 1999, Interliant acquired
Interliant Texas to enter the application hosting market. Revenues for
Interliant's Web hosting business consist primarily of hosting fees and setup
fees, which cover costs incurred by Interliant to establish a customer's Web
site. Interliant provides virtual, dedicated and co-located hosting. Interliant
charges its Web hosting customers a fixed amount for bandwidth availability and
incremental fees if those fixed amounts are exceeded. In addition, Interliant's
virtual Web hosting customers are also charged for disk space on a server,
dedicated hosting customers are charged for use of one or more dedicated servers
and Interliant's co-located customers are charged for the amount of physical
space such co-located customers' servers occupy. Interliant charges flat rates
for its enhanced Internet services. For application hosting, Interliant's
revenues are comprised primarily of a one-time implementation fee and monthly
usage fees per number of end users. For its consulting services, Interliant
charges either a fixed fee or a fee based on time and materials.
Interliant's contracts with its Web hosting customers typically range in
length from month-to-month to one year, a large proportion of which are
cancellable by either Interliant or its customers with 30 days notice.
Interliant's contracts with its application hosting customers typically range in
length from one year to three years. Revenues derived from hosting are
recognized ratably over the applicable contractual period. Payments received and
billings in advance of providing services are deferred until such services are
provided. Revenues from consulting services are recognized as the services are
rendered. Generally, contracts call for billings on a time and materials basis;
however, in instances when a fixed fee contract is signed, revenue is recognized
on a percentage-of-completion basis.
Interliant's revenues increased to $4.9 million for the year ended December
31, 1998. This increase in revenues was primarily attributable to the 12
acquisitions consummated during 1998. For acquired Web hosting providers
included for a full quarter or more, Interliant estimates that the average
quarter-over-quarter revenue growth rate among these companies for quarters
subsequent to their acquisition was less than 5%.
On a pro forma basis, giving effect to acquisitions completed to date,
revenues for the year ended December 31, 1998 were $41.3 million. Interliant
Texas accounted for 51% of such revenues. Revenues for Interliant Texas were
$21.2 million for the year ended December 31, 1998 compared to $16.8 million for
the year ended December 31, 1997. This increase was primarily due to an increase
in the number of higher revenue generating customers.
Cost of Revenues
Cost of revenues consists primarily of salaries and related expenses
associated with network operations personnel as well as data communications
expenses, including one-time fees for circuit installation and
23
<PAGE> 28
variable recurring circuit payments to network providers. Monthly circuit
charges vary based upon circuit type, distance and usage, as well as the term of
the contract with the carrier.
Cost of revenues increased to $3.2 million for the year ended December 31,
1998. This increase in cost of revenues was attributable to the 12 acquisitions
consummated during 1998. In the future, cost of revenues may fluctuate due to
capacity utilization, the timing of investments in data centers, changes in the
mix of services, fluctuations in bandwidth costs and increased levels of
staffing.
On a pro forma basis, giving effect to acquisitions completed to date, cost
of revenues for the year ended December 31, 1998 were $21.2 million. Interliant
Texas accounted for 56% of such cost of revenues. Cost of revenues for
Interliant Texas were $11.9 million for the year ended December 31, 1998
compared to $9.4 million for the year ended December 31, 1997. This increase was
primarily due to an increase in staffing, a change in mix of staff to higher
paid employees, including technical engineers, and increased connectivity costs
associated with network upgrades.
Sales and Marketing
Sales and marketing expense consists of personnel costs associated with the
direct sales force, the internal telesales group and product marketing
employees, as well as costs associated with marketing programs, product
literature, external telemarketing costs and corporate marketing activities,
including public relations.
Sales and marketing expense increased to $2.6 million for the year ended
December 31, 1998. This increase in sales and marketing expense was attributable
to the 12 acquisitions consummated during 1998. A key component of Interliant's
strategy is to significantly increase its sales and marketing activities for
application hosting and launch a line of Web hosting products under the
Interliant brand starting in May 1999. See "Business -- Strategy" and
"-- Marketing." This will include the expansion of its sales force, development
of reseller and referral partner channels and increased marketing efforts to
grow the Interliant brand. As a result, sales and marketing expenses will
increase substantially in future periods.
On a pro forma basis, giving effect to acquisitions completed to date,
sales and marketing expense for the year ended December 31, 1998 was $9.4
million. Interliant Texas accounted for 72% of such sales and marketing expense.
Sales and marketing expense for Interliant Texas were $6.7 million for the year
ended December 31, 1998 compared to $4.4 million for the year ended December 31,
1997. This increase was primarily due to an increase in staffing, a change in
mix of staff to higher paid employees and increased external marketing costs.
General and Administrative
General and administrative expense includes the cost of customer service
functions including finance, accounting, human resources, legal and executive
salaries as well as fees paid for professional services and corporate overhead.
General and administrative expense increased to $5.1 million for the year
ended December 31, 1998 as compared to $0.2 million for the period from December
8, 1997 (inception) to December 31, 1997. This increase in general and
administrative expense was attributable to the 12 acquisitions consummated
during 1998 and increased investments in infrastructure and levels of staffing
to implement centralized billing, accounting and customer service systems to
integrate the operations of acquired companies. Staffing for general and
administrative functions increased substantially late in 1998 and is expected to
continue to increase during 1999 and as a result, general and administrative
expense will increase substantially in future periods.
On a pro forma basis, giving effect to acquisitions completed to date,
general and administrative expense for the year ended December 31, 1998 was
$19.6 million. Interliant Texas accounted for 21% of such general and
administrative expense. General and administrative expense of Interliant Texas
was $4.1 million for the year ended December 31, 1998 compared to $2.9 million
for the year ended December 31, 1997. This increase was primarily due to an
increase in staffing, a change in mix of staff to higher paid employees,
increased training costs and increased telecommunications costs.
24
<PAGE> 29
Depreciation
Depreciation expense increased to approximately $0.7 million for 1998. This
increase was due to the acquisition of approximately $5.7 million of furniture,
fixtures and equipment, including approximately $1.4 million acquired with
operating businesses acquired by Interliant during 1998. Investments included
the build-out and acquisition of equipment for Interliant's Web hosting
facilities to ensure high levels of service to its customers and capacity for
future growth and of technology and infrastructure to implement centralized
billing, accounting and customer service systems to integrate the operations of
acquired companies. Interliant expects depreciation expense to increase in the
future as it continues to invest in data centers and systems to integrate future
acquisitions and support future growth.
On a pro forma basis, giving effect to acquisitions completed to date,
depreciation expense for the year ended December 31, 1998 was $3.8 million.
Interliant Texas accounted for 66% of such depreciation expense. Depreciation
expense of Interliant Texas was $2.5 million for the year ended December 31,
1998 compared to $1.6 million for the year ended December 31, 1997. This
increase was due to an increase in investment in computer hardware, primarily
servers.
Amortization
Amortization expense increased to approximately $1.4 million in 1998. The
amortization expense was attributable to intangible assets associated with the
12 acquisitions consummated during 1998. On a pro forma basis, giving effect to
acquisitions completed to date, amortization expense for the year ended December
31, 1998 was $13.2 million. Interliant Texas accounted for $7.4 million of such
amortization expense. Interliant expects amortization expense to increase in the
future as it continues to acquire businesses.
Start-up and Acquisition Integration Costs
Start-up and acquisition integration costs consist primarily of salaries
for our acquisition and integration team as well as related travel expenses.
Start-up and acquisition integration costs increased to $1.7 million for the
year ended December 31, 1998. This increase was primarily attributable to the 12
acquisitions consummated during 1998. Interliant expects start-up and
acquisition integration costs to remain relatively constant in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Interliant has historically financed its operations and acquisitions
primarily from private placements of equity. As of December 31, 1998, Interliant
had approximately $6.8 million of cash and cash equivalents on a historical
basis and $12.0 million on a pro forma basis. Subsequent to December 31, 1998,
Interliant received private equity investments of $13.0 million in January 1999
and $11.0 million in February 1999 from two investor groups. See "Description of
Capital Stock -- The WEB Hosting Organization Investment" and "-- The SOFTBANK
Investment." In February 1999, Interliant acquired substantially all of the
assets of Telephonetics International, Inc., Digiweb, Inc. and all of the
outstanding capital stock of Net Daemons Associates, Inc. for approximately
$11.5 million in cash and 1,015,000 shares of common stock in the aggregate. On
March 10, 1999, we (partly through a wholly-owned subsidiary) acquired
substantially all of the assets and assumed specified liabilities of Interliant
Texas for $100,000 in cash and 4,091,642 shares of common stock. Such assumed
liabilities included a promissory note in favor of Mathew Wolf in the amount of
$8.0 million and a promissory note in favor of Erving Wolf in the amount of $7.9
million. Upon the closing of this acquisition, we paid in full the note in favor
of Erving Wolf, and we canceled the note in favor of Mathew Wolf and replaced it
with a note issued by us for the same principal amount (the "Wolf Note") which
bears interest at a rate of 9% per annum and is payable in full upon the
completion of this offering.
In addition to funding ongoing operations and capital expenditures
(including, without limitation, $4.0 million of expenditures planned to be made
in connection with the application hosting business), Interliant's principal
commitments consist of non-cancelable operating leases and contingent payments
of earnouts to certain sellers of operating companies acquired by Interliant. If
all earnout targets are achieved in full, total
25
<PAGE> 30
payments pursuant to all earnouts will be $2.5 million in cash and 37,481 shares
of common stock in 1999 and $0.5 million in cash and 37,481 shares of common
stock in 2000.
During 1998, Interliant constructed a data center in Atlanta into which the
majority of the operating businesses it acquired have been or are being
integrated. Interliant believes that this facility has the capacity to service a
larger number of customers than are currently serviced there. The cost of
constructing and equipping this facility was approximately $2.0 million.
Interliant intends to invest approximately $5.0 million to build out its data
centers as more operating businesses are acquired and integrated into these
facilities, and as sales and marketing efforts generate internal growth,
requiring additional servers, routers and related equipment. Interliant may
decide to construct one or more additional facilities in 1999, dependent upon
acquisition activity. Interliant's current anticipated level of capital
expenditures for 1999 is expected to be approximately $15.0 million, but may
vary from that amount depending upon acquisitions and changes in operating
plans.
In connection with our acquisition of Interliant Texas, we entered into an
Assignment and Assumption Agreement, dated March 10, 1999, pursuant to which we
were assigned all right, title and interest in and to, and assumed all
obligations under, the lease for the Houston data center. In connection with
receiving the landlord's consent to assignment of the lease, we were required to
issue letters of credit in favor of the landlord totaling $642,371.30 to replace
the letters of credit issued by Interliant Texas. The aggregate dollar amount
which may be drawn upon by the landlord under these letters of credit shall be
reduced at specified dates in specified amounts such that by August 8, 2000 all
of the letters of credit shall have lapsed.
Management believes that its existing cash and cash equivalents are
adequate to meet operating needs through the end of 1999 and will provide enough
funds to continue its acquisition program through 1999. Thereafter, Interliant
expects to require additional financing. If Interliant's plans or assumptions
change or prove to be inaccurate, Interliant may be required to seek additional
sources of capital or seek additional capital sooner than currently anticipated.
Interliant may also seek to raise additional capital to take advantage of
favorable conditions in the capital markets. Interliant has no credit facility
or other working capital credit line under which it may borrow funds for working
capital or other general corporate purposes.
YEAR 2000 COMPLIANCE
Currently, many computer and software products are coded to accept
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. As a result, many companies' software and computer systems, including
Interliant's, may need to be upgraded or replaced in order to comply with Year
2000 requirements. We recognize the need to ensure that our operations will not
be adversely impacted by Year 2000 software and computer system failures.
State of Readiness. Interliant has made a preliminary assessment of the
Year 2000 readiness of its information technology ("IT") systems, including the
hardware and software that enable it to provide and deliver its solutions, and
its non-IT systems. Interliant's plan consists of (i) quality assurance testing
of its internally developed proprietary software and systems, (ii) contacting
third-party suppliers, vendors and licensors of material hardware, software and
services that are both directly and indirectly related to the delivery of
Interliant's solutions to its customers, (iii) contacting vendors of material
non-IT systems, (iv) assessment of repair or replacement requirements, (v)
repair or replacement, (vi) implementation and (vii) creation of contingency
plans in the event of Year 2000 failures. Interliant has been informed by its
vendors of material hardware and software components of its IT systems that
their products used by Interliant are currently Year 2000 compliant. Interliant
is currently assessing the materiality of its non-IT systems and will seek
assurances of Year 2000 compliance from providers of material non-IT systems.
Until such testing is complete and such vendors and providers are contacted,
Interliant will not be able to completely evaluate whether its IT systems or
non-IT systems will need to be revised or replaced. Interliant plans to complete
its Year 2000 evaluation during the second half of 1999.
Costs. To date, Interliant has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
its expenses have related to the internal staffing costs associated with the
evaluation process and Year 2000 compliance matters generally. This trend is
expected to continue in the future. At this time, Interliant does not possess
the information necessary to estimate the
26
<PAGE> 31
potential costs of revisions to its software and systems should such revisions
be required or the replacement of third party software, hardware or services
that are determined not to be Year 2000 compliant. Although Interliant does not
anticipate that such expenses will be material, such expenses, if higher than
anticipated, could have an adverse effect on Interliant's business.
Risks. Interliant is not currently aware of any Year 2000 compliance
problems relating to its IT or non-IT systems that would have a material adverse
effect on Interliant's business, results of operations and financial condition.
There is no assurance that Interliant will not discover Year 2000 compliance
problems in its software and systems that will require substantial revisions. In
addition, there is no assurance that third party software, hardware or services
incorporated into Interliant's material IT and non-IT systems will not need to
be revised or replaced, all of which could be time consuming and expensive. The
failure of Interliant to fix or replace its software, hardware or services on a
timely basis could result in lost revenues, increased operating costs and the
loss of customers and other business interruptions, any of which could have an
adverse effect on Interliant's business. Moreover, the failure to adequately
address Year 2000 compliance issues in its IT and non-IT systems could result in
claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend. In addition,
there can be no assurance that governmental agencies, utility companies,
telecommunication companies, other Internet service providers, third party
service providers, hardware and software manufacturers and others outside
Interliant's control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond the control
of Interliant, such as a prolonged Internet, telecommunications or electrical
failure, which could also prevent Interliant from delivering its services to its
customers, decrease the use of the Internet or prevent users from accessing the
Web sites of its customers. Any of these occurrences could have an adverse
effect on Interliant's business.
Contingency Plan. As discussed above, Interliant is engaged in an ongoing
Year 2000 assessment and has not yet developed any contingency plans. The
responses received from third-party vendors and service providers will be taken
into account in determining the nature and extent of any contingency plans.
27
<PAGE> 32
BUSINESS
THE COMPANY
Interliant is a provider of a comprehensive suite of hosting and enhanced
Internet services that enable its customers to deploy and manage their Web sites
and network-based applications more effectively than internally developed
solutions. Our Web hosting services provide virtual, dedicated and co-located
hosting solutions to meet the needs of businesses of all sizes, as their Web
sites develop from low-end marketing "brochures" to more complex, interactive
Web sites and finally to mission-critical applications. Our application hosting
services consist of groupware hosting and application outsourcing solutions that
can provide our customers with 24x7 remote access to mission-critical
applications and data. Since our inception in December 1997, we have grown
rapidly through the acquisition of 16 hosting and related Internet service
businesses. We provide Web hosting solutions to more than 37,000 customers,
representing more than 65,000 active domains. We also host more than 10,000
customized Lotus Notes/Domino based applications for more than 1,300 customers
and believe that we are the leading provider of Lotus Notes/Domino hosting
solutions. We have two state-of-the-art primary data centers in Atlanta and
Houston and a recently leased facility in the Washington D.C. area. Our Atlanta
and Houston data centers are monitored on a 24x7 basis and include sophisticated
monitoring and diagnosis, 24x7 customer support, redundant and high-speed
network connectivity and uninterruptible power supply.
INDUSTRY BACKGROUND
Growth of the Internet. The Internet is experiencing significant growth
and is emerging as a global medium for communications and commerce.
International Data Corporation ("IDC") estimates that the number of Web users
worldwide will increase from approximately 97.3 million at the end of 1998 to
319.8 million by the end of 2002, a 34.6% compounded annual growth rate. IDC
also estimates that the number of Web users in the United States will increase
from approximately 51.6 million at the end of 1998 to 135.9 million by the end
of 2002, a 27.4% compounded annual growth rate. During this same period, the
number of business Web sites in the United States is projected by Forrester
Research, Inc. to increase from approximately 650,000 in 1998 to approximately
2.6 million in 2002, a 41.1% compounded annual growth rate. This growth in the
number of Web users and number of Web sites is being driven by a number of
factors including:
- the large and growing installed base of personal computers;
- easier and less expensive alternatives for Internet access;
- improvements in the speed, reliability and security of the Internet;
- commerce-enabling technologies;
- higher quality and more diverse content;
- an increase in the number of networked applications; and
- the proliferation of broadband technologies that promise consumers
faster, more convenient access to the Internet.
Growth in Business Use of the Internet. The dramatic growth in usage
combined with enhanced functionality and accessibility have made the Internet an
increasingly attractive medium for businesses to:
- disseminate information;
- engage in e-commerce;
- build customer relationships;
- streamline and automate data-intensive processes; and
- communicate more efficiently with dispersed employees.
28
<PAGE> 33
According to an industry source, more than 108 million employees worldwide
will regularly work outside of the traditional office setting by 2002. As a
result of the development of alternative workplaces, an increasing number of
businesses are relying on the Internet to enable fast and efficient
communication, not just with employees, but with all of their constituencies.
In the last several years, businesses have emerged with operating models
that are exclusively dependent on the Internet, while traditional businesses of
all sizes are working quickly to establish a Web presence. Many of these
businesses establish their initial online presence with a simple, static
"brochure" for marketing purposes. As they become more familiar with the
Internet as a communications platform, an increasing number of businesses are
implementing more complex, mission-critical applications on the Web (including
sales, customer service, customer acquisition and retention, employee
communications and e-commerce between suppliers and business partners).
Trend Toward Outsourcing. According to Forrester Research, Inc., U.S.
firms are now spending approximately 25% of their overall IT budgets on
outsourcing services. These services include packaged application software
implementation and support, customer support and network development and
maintenance. Reasons for the growth in outsourcing include:
- the desire of companies to focus on their core competencies;
- the increased costs that businesses experience in developing and
maintaining their networks and software applications;
- the fast pace of technological change that shortens time to obsolescence
and increases capital expenditures as companies attempt to capitalize on
leading-edge technologies;
- the challenges faced by companies in hiring, motivating and retaining
qualified application engineers and IT employees; and
- the desire of companies to reduce deployment time and risk.
Trend Toward Web Hosting Outsourcing. Many businesses, both small and
large, lack the resources and expertise to cost-effectively develop and
continually enhance their Web sites with evolving technologies while maintaining
a fault-tolerant and scalable network infrastructure. Small- to medium-sized
businesses typically lack the IT resources, capital and scale to design their
own Web sites and install, maintain and monitor their own Web servers and
Internet connectivity. Large businesses typically require state-of-the-art
facilities and networks that are monitored and managed on a 24x7 basis by
experts in Internet technology and that can be upgraded and scaled to meet the
needs of mission-critical Internet applications. As a result, Interliant
believes enterprises of all sizes are seeking outsourcing arrangements to help
build effective Web sites, improve the sites' reliability and performance,
provide continuous monitoring of their Internet operations and reduce costs.
Trend Toward Application Hosting Outsourcing. Businesses increasingly face
competitive demands to automate business processes. This problem has been
exacerbated by a shortage of IT professionals. Until recently, implementation of
Internet applications required development of in-house software applications or
the customization of existing packages. This made each implementation unique and
costly. It also made implementation time frames and costs unpredictable. We
believe that businesses of all sizes have a significant need to outsource the
hosting of these and other software applications to improve core business
processes, reduce costs and enhance their global competitive position.
THE INTERLIANT OPPORTUNITY
Today the hosting market is fragmented, consisting for the most part of:
- small local and regional providers who do not have the capital, resources
or capabilities to provide quality services at competitive prices;
- large national providers who focus on Internet connectivity rather than
hosting; and
- consulting and Web design firms for which hosting is not their core
competency.
29
<PAGE> 34
We believe that a significant market opportunity exists for a
nationally-recognized hosting solutions provider with the scale and expertise to
offer a wide range of value-priced services to businesses of all sizes.
Interliant believes that through the acquisition and consolidation of hosting
and enhanced Internet service businesses, a hosting provider can offer a full
range of services that enable businesses to deploy, use, expand and update their
Web sites and applications infrastructures more rapidly and cost-effectively
than internally developed solutions.
Web Hosting Opportunity. IDC estimates that the worldwide market for Web
hosting services will grow from $696 million in 1998 to $10.7 billion by 2002, a
98.0% compounded annual growth rate. The market for Web hosting services can be
segmented into virtual, dedicated and co-located hosting. Virtual hosting
primarily addresses the needs of small- to medium-sized businesses and includes
such services as disk space, shared connectivity and certain value-added
services such as e-mail hosting, e-commerce tools and other specialized
offerings. Dedicated and co-located hosting services primarily address the needs
of medium- to large-sized businesses. These services include dedicated server
equipment owned by either the hosting provider or the customer, with an emphasis
on network reliability, 24x7 monitoring, dedicated and redundant bandwidth,
flexibility to scale rapidly and high-end, value-added services such as
consulting services, systems integration and links to legacy systems. We believe
we are well positioned to take advantage of the opportunities which exist for a
nationally-recognized Web hosting solutions provider with the scale and
expertise to offer a wide range of value-priced services to businesses of all
sizes.
Application Hosting Opportunity. Forrester Research, Inc. reports that the
worldwide market for outsourcing application software products will grow from
approximately $1.0 billion in 1997 to over $21.0 billion by 2001, a 111.1%
compounded annual growth rate. Traditionally, enterprises faced with the issues
of internal development and maintenance of application hosting capabilities have
sought solutions from a variety of information technology providers including
system integrators, Internet service providers, hardware and software vendors
and telecommunication companies. Thus, these companies have had to work with at
least three independent suppliers: a software applications provider, a systems
integrator and a site hosting provider, or have had to support implementation
with in-house resources. There are inherent conflicts and difficulties with this
approach, as each supplier is dedicated to providing its own specific product or
service with only limited knowledge of the bundle of products and services
required to provide the complete business solution. Interliant believes that
these trends create a substantial market opportunity for a single-source
solution that combines software from multiple vendors, hardware, systems
integration and Internet-based communications in an integrated service offering.
Interliant believes it is well-positioned to take advantage of these
opportunities as companies realize the value a single-source hosting service
provider can offer in facilitating deployment and improving management of their
corporate intranet and extranet solutions as well as mission-critical
applications.
THE INTERLIANT SOLUTION
Interliant is a provider of hosting solutions that enable its customers to
deploy and manage their Web sites and network-based applications more
effectively than internally developed solutions and to take advantage of a
single-source solution for their Internet-enabled application software needs.
Interliant offers a unique blend of technological expertise, partnering ability
and understanding of the business and licensing models which it believes are
essential to succeed in the hosting marketplace. Interliant believes it has
developed the infrastructure, resources, application management expertise and
industry relationships required to capitalize on this emerging market
opportunity.
Interliant provides the following advantages to its customers:
Comprehensive Hosting Solutions. Interliant is able to provide Web hosting
services that meet its customers' needs as their Web sites evolve from low-end
marketing "brochures" to more complex, interactive Web sites and finally to
mission-critical applications. In addition, our application hosting services
such as groupware hosting and application outsourcing can provide our customers
with continuously available remote access to mission-critical applications and
data. Finally, Interliant offers consulting services and a broad range of
enhanced Internet services such as e-commerce capabilities, multimedia hosting
and community hosting.
30
<PAGE> 35
Performance and Reliability. Interliant's hosting solutions help to ensure
that its customers' Web sites and networking applications are continuously
online and deliver data rapidly to users. Interliant's state-of-the-art data
centers in Atlanta and Houston provide high-quality performance and reliability
through features such as a redundant, high-speed, secure network architecture,
continuous monitoring, alternate power sources, environmental controls, regular
data back-ups and a fault tolerant hosting platform. Interliant's Network
Operations Centers ("NOCs") monitor Interliant's network on a 24x7 basis and
allow its staff to minimize service interruptions.
Cost Savings. Interliant's customers benefit from its focus on hosting and
the capital and labor investments that Interliant has made to support hosting
and enhanced Internet services. For customers to replicate Interliant's
performance and reliability would require them to make significant expenditures
for equipment, personnel and dedicated bandwidth. Interliant believes that its
hosting solutions are significantly more cost-effective and reliable than
in-house solutions, both for businesses with low-end application requirements as
well as for those businesses whose Internet operations are mission-critical and
require sophisticated application support.
Customer Service. Interliant is dedicated to providing the highest quality
customer service. Interliant endeavors to provide rapid and accurate responses
through customer service personnel who can answer questions over the telephone
or via e-mail. In addition, Interliant's customer service organizations in
Atlanta and Houston can address technical problems on a 24x7 basis. Interliant
has invested in advanced customer service software and call routing technology
to streamline the customer service process. Interliant also offers customers who
are hosted in its Atlanta data center a self-service customer support
alternative which provides online access to account and billing data and site
statistics (e.g., disk storage capacity and bandwidth utilization).
STRATEGY
Interliant's objective is to become the industry benchmark in the hosting
services market by providing businesses with cost-effective, innovative
solutions that will allow them to capitalize on the potential of the Internet.
To achieve this objective, Interliant's strategy includes the following key
elements:
Build the Interliant Brand. Interliant believes it has established a
strong brand identity within the application hosting industry. Our brand will be
enhanced as we begin marketing Web hosting products under the Interliant brand
and will be further enhanced as acquired companies are assimilated under the
Interliant brand. Interliant intends to continue to build on the equity of the
Interliant brand and strengthen brand recognition by marketing its full range of
services through an integrated marketing communications program using public
relations, print and online advertising campaigns and other strategic
initiatives as well as cooperative promotions with key hardware and software
vendors.
Continue Acquisition Program. Interliant intends to continue its
acquisition program to capitalize on consolidation opportunities in the hosting
and enhanced Internet services market in the United States and overseas.
Interliant expects that these acquisitions will also result in substantial
operating synergies, greater internal growth and cost savings. Further,
Interliant plans to capitalize on certain "best practices" it may identify
within acquired companies to maintain its competitive advantage and to ensure
ongoing delivery of high quality hosting services to its customers.
Expand Multiple Sales Channels. Interliant reaches its customers through
multiple sales channels including a direct sales force, indirect sales through
numerous resellers and referral partners, inbound and outbound telesales and Web
marketing programs. Interliant intends to continue expanding these channels to
further enhance its ability to attract customers of all sizes. As an example,
Interliant recently launched its business partner program, creating standard
incentives across the entire Interliant product line to foster growth of its
business partner network.
Leverage the Interliant Customer Base. Interliant intends to capitalize on
the enhanced revenue potential of the customer bases of its acquired companies,
leveraging the numerous cross-selling opportunities of its expanded line of
branded service offerings. Interliant will use its multiple sales channels,
including its
31
<PAGE> 36
direct sales force, to target specific customer segments within its diverse
customer base with relevant new Interliant offerings to realize increased
revenues. For example, Interliant believes that it can grow its revenues by
cross-selling existing Web hosting customers with application hosting and
consulting services. Further, Interliant believes that by coordinating the sales
efforts of its combined Web hosting, application hosting and consulting sales
forces, it can increase customer leads and referrals. Finally, Interliant
intends to assimilate the customer bases of its acquired companies into a
unified customer information management system to facilitate sophisticated
analysis and segmentation of its total customer base and thus enable it to
maximize marketing and sales opportunities.
Develop Strategic Relationships. Interliant has established and continues
to seek strategic relationships that enhance its infrastructure and distribution
capabilities and broaden its product offerings. Interliant believes that its
strategic alliances with companies such as IBM Corporation, Lotus Development
Corporation, Microsoft Corporation, UUNET Technologies, Inc., Equant, N.V.,
Allaire Corporation, Elemental Software, Inc. and iMall, Inc. enable it to
provide complete, scalable and reliable hosting solutions to its customers,
resellers and referral partners.
SERVICES
Interliant's service offerings comprise three main areas: Web hosting,
application hosting and consulting.
WEB HOSTING SERVICES
Interliant offers a comprehensive suite of solutions to meet the current
and future Web hosting needs of its customers. We provide virtual, dedicated and
co-located hosting services.
<TABLE>
<CAPTION>
HOSTING WEB SITE CUSTOMER
SERVICES PRICE* PROFILE KEY FEATURES BENEFITS
- -------- ------------ ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Virtual $25-$350 Static Web Shared space on Economical
per month Pages, Interliant-owned
Moderately server
Accessed Sites
Dedicated $100-$5,000 Dynamic Web Dedicated server Greater server
per month Content, Heavily in shared rack resources
Accessed Sites requiring
minimal
customer
maintenance
Co-Located $500-$40,000 Mission-critical Secure cabinet Greater
per month Applications for customer- customer
owned server control/access
to hardware
</TABLE>
- ---------------
* Prices are representative for products marketed under the Interliant brand
and may not be representative for our products marketed under other brand
names.
All product offerings hosted in the Atlanta and Houston data centers are
designed to achieve optimal performance through features such as:
- sophisticated monitoring, notification and diagnosis;
- 24x7 customer support through the NOCs and customer service centers;
- remote access management and reporting tools;
- redundant and high-speed network;
32
<PAGE> 37
- uninterruptible power supply, including back-up generators capable of
sustaining server operations for more than one week;
- firewall, intrusion monitoring and site security auditing;
- full daily back-ups with off-site storage;
- air-conditioned, static and humidity controlled environment; and
- high level of physical security.
It is our intention that all product offerings marketed under the Interliant
brand and hosted at data centers other than Atlanta and Houston also have the
above features. Customers generally pay monthly, quarterly or annual fees for
the services used, as well as one-time fees for installation and any equipment
purchased by the customer.
Virtual Hosting. Our virtual hosting solution provides customers with all
the elements needed to establish a basic presence on the Web at a reasonable
cost. This entry-level service is known as virtual hosting because the
customer's home page has its own domain name (www.mycompany.com), and appears to
exist as a stand-alone server. It operates with the speed and efficiency of
Interliant's high-speed connections and its location at Interliant's facility
remains invisible to Web site visitors. Customers are able to have their own Web
site with a domain name at a fraction of the cost of maintaining it themselves.
As a result, virtual hosting is an economical solution for relatively simple or
moderately accessed Web sites. Because customers do not need to invest in costly
hardware or personnel to accommodate future growth, we believe this solution
also maximizes the customers' flexibility.
For these accounts, we host the site on a UNIX or Windows NT server that is
shared by multiple customers. Prices for virtual hosting products marketed under
the Interliant brand range from $25 to $350 a month, depending on the data
transfer limit, storage capacity, number of e-mail accounts provided and
additional functionality requested such as e-commerce capabilities, multimedia
hosting and community hosting. For certain customers of acquired businesses, the
price range may be lower depending upon the functionality of the services and
reflecting a lower level of services requested by such customers. In 1998, our
average virtual hosting customer paid approximately $20 per month. We derive a
substantial majority of our Web hosting revenues from virtual hosting.
Dedicated Hosting. As companies increase the complexity, level of traffic
or reliance on their Web sites, they may prefer to host their Web site on a
dedicated server, which is typically owned and maintained by Interliant. A
dedicated server provides greater server and network resources to our customers
than virtual hosting and allows them to configure their hardware to optimize
site performance. Customers receive a high level of site security, maintenance,
and technical support without the prohibitive costs of setting up and
maintaining their own server and Internet connection. Interliant supports most
leading Internet hardware and software system vendor platforms, including
Solaris (Sun Microsystems, Inc. platform), Microsoft Windows NT (Intel/PC
platform) and Linux (Cobalt Networks, Inc.).
Prices for dedicated hosting products marketed under the Interliant brand
range from $100 to $5,000 a month, depending upon the hardware configuration,
bandwidth requirements and additional features that may be requested by our
customers. For certain customers of acquired businesses, the price range may be
lower. In 1998, our average dedicated hosting customer paid $1,000 per month.
Co-located Hosting. Interliant currently provides co-located hosting
services in its Atlanta and Washington, D.C. area data centers for customers
with sophisticated, mission-critical applications. This solution allows the
customer to own and access their servers on a 24x7 basis while delegating the
day-to-day management of their Web site to Interliant's IT specialists. In
addition, co-located servers are housed in separate, limited-access rooms in our
data center. Prices for co-located products marketed under the Interliant brand
range from $500 to $40,000 a month, which incorporates fees such as bandwidth
charges and space. For certain customers of acquired businesses, the price range
may be lower. In 1998, our average co-located customer paid $750 per month.
33
<PAGE> 38
We also provide the following enhanced Internet services to our Web hosting
customers:
E-commerce Capabilities. Through its reseller relationships, Interliant
offers a variety of e-commerce solutions to help businesses create and maintain
a successful Web storefront. Representative offerings include:
- a full suite of Internet payment solutions offered by CyberCash, Inc.,
including payment services for credit card, micropayment and Internet
check transactions;
- ShopSite from Open Market, Inc. which allows users to build quickly a
simple catalog and begin taking orders; and
- SoftCart from Mercantec which allows users to create sophisticated
e-commerce Web sites that includes order taking, credit card processing
and order fulfillment.
Multimedia Hosting. Interliant allows its customers to include various
multimedia capabilities in their Web sites, including streaming audio and video
hosting. With the acquisition of Telephonetics International, Inc., Interliant
has added audio production and hosting capabilities to the suite of Internet
services available to its customers. In addition, Interliant provides its
customers with the ability to include Real Networks and Microsoft NetShow
content within their Web sites.
Community Hosting. Interliant allows customers of all sizes to include
community-building features such as e-mail and chat hosting. We provide POP
("Post Office Protocol") e-mail boxes that can be used to send and receive
e-mail from any connection to the Internet and include unlimited aliases,
forwarding and auto-responders. We also offer chat hosting through our
relationship with eShare Technologies.
APPLICATION HOSTING SERVICES
Interliant offers application hosting services which consist of groupware
hosting and application outsourcing solutions that provide its customers with
24x7 remote access to mission-critical applications and data.
Groupware Hosting. Interliant offers its customers a broad spectrum of
groupware hosting solutions for Lotus Notes/Domino, the industry-leading
groupware platform. Interliant's groupware hosting services provide
infrastructure for the following:
- feature-rich e-mail and other types of messaging for internal and
external communication;
- workgroup and project team collaboration and document sharing;
- business process automation and workflow;
- sophisticated, collaborative Web-based intranets and extranets; and
- proprietary or custom applications built for the groupware platform.
Interliant seeks to provide the following benefits to its customers hosting
their groupware implementations with Interliant;
- reduced deployment time and risk;
- reduced day-to-day operational responsibility, allowing in-house IT
departments to focus on creating strategic value;
- lower ongoing cost;
- no capital investment in servers, facilities and other infrastructure;
- access to emerging technologies and improved responsiveness to change;
and
- 24x7 operations, high availability, rapid scalability and robust
security.
Customers generally pay monthly fees for the services offered, as well as
one-time fees for installation and deployment services. Customers typically sign
one- to three-year service contracts. Interliant's customers have
34
<PAGE> 39
the option of using shared or dedicated servers in an Interliant data center for
their groupware hosting services, or can have their on-premise server managed by
Interliant's customer-managed server offering. Prices for Interliant's groupware
hosting services range from $1,500 to over $100,000 a month.
Interliant provides hosting for Lotus Notes/Domino on both shared and
dedicated servers at an Interliant data center or on the customer's premises.
The hosted servers support connections to:
- geographically dispersed Lotus Domino servers for messaging and
replication;
- Lotus Notes clients for remote access to e-mail and Lotus Notes
applications; and
- Web browsers for intranets and extranets.
Customers can connect to servers at Interliant using the Internet or a
variety of private network options, including frame relay, dedicated lines and
local dialup access in more than 160 countries. Interliant provides messaging
gateway services for Lotus Domino, including:
- Internet e-mail;
- X.400 mail;
- Lotus cc:Mail;
- fax; and
- a variety of pager networks.
In addition, Interliant and certain customers have established a Lotus
Domino/Microsoft Exchange messaging interoperability technology pilot program
which will allow users of both systems to communicate electronically, and
Interliant is considering further expansion of this program to enhance its
Microsoft Exchange hosting offering.
As part of its groupware hosting implementation process, Interliant starts
with best-practice system configurations and works with its customers to modify
them to the customer's specific needs. Customers may choose from a wide variety
of hardware capacity and availability options, including RAID (Redundant Array
of Inexpensive Disks) storage and full server clustering. Once installed,
Interliant not only monitors server hardware, operating system and
application-level system performance, but also can provide full server
administration services including adding or deleting users, database
installation, access control changes and other required server administration
tasks.
This groupware hosting service is also available for custom implementations
in conjunction with Interliant's consulting service offerings.
Application Outsourcing. Interliant's application outsourcing offers
customers an integrated solution that combines packaged application software
with managed hosting services. Interliant believes it is an industry leader in
forging strategic relationships with leading application developers and other
key partners to deliver these best-of-breed solutions. Through such strategic
relationships, Interliant enables businesses of all sizes to capitalize on the
latest Internet-enabled technologies while outsourcing non-core competencies
such as deployment and migration strategies and maintenance or software upgrades
to a third party. Interliant's branded application hosting services address the
following major business process areas:
- Legal Automation. Interliant's legal automation solutions offer
customers a suite of collaborative applications that assist attorneys in
securely and reliably managing litigation, intellectual property matters
and general workflow within corporate legal departments and law firms.
These applications can be customized, deployed, supported and fully
managed on dedicated or shared servers at Interliant's data centers.
Interliant has entered into strategic alliances with application
providers such as Caseworks, Tripoint Systems Development Corp., Occam's
Razor Technologies and First Use Registration, L.L.C. to deliver a
variety of legal automation solutions to the marketplace. Interliant
believes that these solutions provide an effective and secure extranet
for lawyers, including those who already have other applications in
place. The legal automation suite of applications currently
35
<PAGE> 40
encompasses both Web-based and client server applications that are priced
from $100 to $300 per user per month, as well as Internet rental
applications that are priced as low as $20 per user per month.
- Sales Automation. Interliant's sales automation services provide
geographically distributed sales and marketing organizations with all the
elements needed to quickly deploy a sales automation solution at a
reasonable cost. These solutions include modules for opportunity
management, contact and account management, revenue forecasting reports,
an integrated group calendar, automated proposal generator, pricing
information, telesales campaign management and correspondence and
fulfillment in a shared hosting environment. Interliant believes that
selling this solution as a service, rather than a technology, reduces the
customer's initial capital investment, thereby making it easier to
minimize the customer's technology risk. Accordingly, it also allows
Interliant to engage clients in long-term contracts with fixed monthly
payments. The application solution is customized, deployed, and fully
managed and supported by Interliant, providing a single-source solution
to customers. Interliant partners with leading packaged commercial
software vendors, hardware vendors and system integrators to deliver
these solutions.
Interliant's sales automation services can be accessed through
Interliant's secure network using a variety of dial-up or dedicated
access methods on a 24x7 basis, leading to more efficient practices and
effective communications. The solution can be easily configured to the
customer's selling methodology and can be deployed within 30 days. The
solutions range in price from $100 to $200 per user per month depending
upon the application features, hardware configuration and amount of disk
storage needed.
- Distributed Learning. Distributed Learning over the Web represents a
broad, horizontal market for Interliant, with opportunities to deliver
online training in virtually all market segments. Working with leading
software technology vendors, best-of-breed content providers and business
partners, Interliant offers comprehensive solutions for corporate,
academic, and non-profit customers. These solutions encompass
browser-based, asynchronous (any time, any place) and synchronous (same
time, any place) learning technologies, sophisticated course and student
management systems, online facilitation, application sharing and
whiteboard functionality. In addition, Interliant's distributed learning
solutions leverage its core competencies: Web hosting, multimedia
technology and e-commerce, to deliver a complete package to the
Interliant customers.
Layering distributed learning know-how and functionality on top of
its existing infrastructure services allows Interliant to quickly deliver
cost-effective solutions. Interliant's Distributed Learning services are
priced on a "per user, per course", or a "per person, per year" basis,
with the typical cost of instruction per user per course in the range of
$20 to $75. Costs are driven largely by the course's duration and
complexity, as well as by the range of application level services that
the customer desires. Deployment of existing courses is very rapid, with
students typically able to access courses within a few days following
registration.
- Rental Applications. Interliant is working to create a new generation of
100% Web-based application solutions that are designed to be delivered as
services over the Internet. No installation is required as users need
only a Web browser and an Internet connection to select, set up,
configure and use a rental application. Pricing models vary based on
application usage models, but are all inclusive of the fees for
application licensing, hosting, and basic support. Interliant establishes
partnerships with software vendors to create these application services,
many of which will be based on Lotus Domino Instant!Host, a platform for
application hosting service providers co-developed by Interliant and
Lotus. Interliant has established a portal site, www.appsonline.com, that
contains a catalog for these Internet rental applications.
Interliant's first Internet rental application is Lotus Instant!TEAMROOM,
a "teamware" collaboration tool available for a $14.95 monthly fee per
end user which allows distributed teams to discuss issues, share
documents, and track action items. Additional rental application services
in development include teamware for specific vertical market segments, an
application which allows companies to hold private auctions online, and
more sophisticated collaboration tools for project management,
calendaring and scheduling and document management.
36
<PAGE> 41
CONSULTING SERVICES
Interliant provides consulting services for Intranet, extranet and
application hosting solutions, as well as for internal networking
implementations and back-end Web development projects. In addition, Interliant
provides support for its customers' enterprise networking needs. Interliant's
consulting services are scaled to meet each client's needs. Interliant addresses
the complete spectrum of services, including:
- desktop and network server support;
- network architecture and design;
- local area network, wide area network and virtual private network design;
- strategic technology planning;
- application development and implementation; and
- Web hosting.
ACQUISITION PROGRAM
Since inception, Interliant has acquired 16 companies and intends to
continue its acquisition program. Specifically, Interliant seeks to identify
businesses which will generate a positive return on investment and:
- expand its customer base;
- complement and expand its product and service offerings;
- enhance its engineering and technical capabilities;
- strengthen its reseller and referral partner relationships; and/or
- broaden its management team.
Interliant believes that the integration of acquired companies will create
economies of scale and generate significant operating efficiencies. Because of
our ongoing acquisition strategy, Interliant expects that at all times some
portion of its acquired companies will be in various stages of integration.
Interliant seeks to identify areas in which acquired companies outperform its
competitors and adopt their "best practices." Once Interliant acquires a
company, a multi-disciplinary team begins the four-step integration process:
Technical Integration. Technical integration begins with the physical move
of the acquired company's equipment into an Interliant facility. Generally, the
customers of the acquired company are then migrated onto the Interliant hosting
platforms. Migration entails duplicating the server contents onto a new server,
which runs in parallel for a test period, before being switched over. For Web
sites with real-time databases or customized applications, the process can
become significantly more complex. Interliant's platform is typically more
robust than that of the acquired company and standardization allows Interliant
to manage the servers more efficiently. In certain circumstances, however,
Interliant finds that it is not strategic or cost-effective to migrate customers
to the Interliant platform.
Customer Service Integration. Interliant integrates its customer service
operations for its acquired Web hosting customers at its data center in Atlanta
and for its application hosting customers in Houston. By centralizing hosting
customer service, Interliant believes that it can improve performance while
reducing costs. In Atlanta, Interliant has implemented the Vantive Support
system, a customer/asset management tracking application, which enables a
customer service representative to view a customer's entire account, including
past and recent interactions with the customer. Further, the Vantive Support
system provides a resolution database that recognizes and documents support
records into a central repository that can be accessed by all customer service
personnel.
Business Systems Integration. Many of the businesses Interliant acquires
do not have adequate back-office systems or procedures. As a result, Interliant
is in the process of transitioning acquired companies onto the PORTAL Infranet
billing system. With PORTAL Infranet, Interliant's resellers, referral partners
and
37
<PAGE> 42
customers will be able to obtain monthly statements delivered electronically
which Interliant believes will provide them with easy access to and accurate
tracking of their hosting expenditures. In particular, Interliant believes that
PORTAL will allow resellers and referral partners to add new products and
services, as well as pricing discounts and incentive programs, in a timely and
cost-effective manner.
Product Integration. Interliant expects to integrate the majority of its
acquired companies into the Interliant product line, with uniform branding,
pricing strategies and distribution channels. In certain cases, however, where
an acquired company's brand is already established, Interliant may for a period
of time continue to market certain products and services under the existing
brand in order to capitalize on the competitive advantages the acquired brand
name may bring to Interliant. Our long-term goal, however, is to migrate most
product offerings to the Interliant brand.
The following chart identifies the 16 hosting and Internet-related service
companies acquired by Interliant, or from which Interliant has acquired
significant assets.
<TABLE>
<CAPTION>
DATE NAME PRIMARY FOCUS LOCATION
- ---- ---- ------------- --------
<S> <C> <C> <C>
February 13, 1998.... Omnetrix, Inc. (dba "DirectNet") Web hosting Los Angeles, CA
April 7, 1998........ Clever Computers, Inc. Web hosting Atlanta, GA
April 30, 1998....... Server and Network connectivity Web hosting McLean, VA
assets from Knowledgelink
Interactive, Inc.
May 1, 1998.......... Tri-Star Web Creations, Inc. Web hosting New York, NY
June 10, 1998........ HostAmerica, a division of HomeCom Web hosting Atlanta, GA
Communications, Inc.
June 29, 1998........ All Information Systems, Inc. Web hosting Dallas, TX
July 1, 1998......... Software Business Technologies, Inc. Web hosting San Rafael, CA
Web Hosting Business Unit
July 1, 1998......... DevCom (division of Nextron, Inc.) Web hosting San Jose, CA
July 30, 1998........ BestWare, Inc. (dba "Maikon") Web hosting Dallas, TX
August 31, 1998...... B.N. Technologies, Inc. (dba "ICOM") Web hosting Los Angeles, CA
September 16, 1998... GEN International Inc. Web hosting St. Petersburg, FL
(Global Entrepreneur's Network, Inc.)
December 17, 1998.... Dialtone, Inc. Web hosting Pembroke Pines, FL
February 4, 1999..... Digiweb, Inc. Web hosting College Park, MD
February 4, 1999..... Telephonetics International, Inc. Multimedia Miami, FL
February 17, 1999.... Net Daemons Associates, Inc. Consulting Woburn, MA,
Burlingame, CA
and Boulder, CO
March 10, 1999....... Interliant Texas Application Houston, TX and
hosting London, England
</TABLE>
CUSTOMERS
Interliant has established a diversified customer base across its service
offerings. Our customers include a variety of business types, ranging from SOHO
("small office/home office") companies through Fortune 500 companies. In
addition, our customers also include resellers of our services such as Web
consulting firms, Internet service providers, network integration companies and
system integrators who sell our services to their customers.
Web Hosting Customers. Our contracts with our Web hosting customers
generally cover services for a period ranging from one month to two years. We
provide hosting solutions to more than 37,000 customers, representing more than
65,000 active domains. The following is a list of selected Web hosting
customers:
Adtronics
Atlanta Public Schools
Cadin.com
Gy Digital
38
<PAGE> 43
Net.Capital
Powerize.com
Searchtech
The Audio Works Group
Application Hosting Customers. Our contracts with our application hosting
customers generally cover services for a period ranging from one to three years.
We host more than 10,000 customized Lotus Notes/ Domino based applications for
more than 1,300 customers, including:
Abbott Laboratories
NationsBanc Services, Inc.
Four Seasons Hotels Limited
Jones, Day, Reavis & Pogue
Panasonic
Swiss Reinsurance Company
SmithKline Beecham Pharmaceuticals R&D
The Rank Group Plc
Consulting Customers. Our contracts with our consulting customers
generally cover services on a project-by-project basis, with project periods
typically ranging from six months to one year. We provide consulting services to
more than 300 customers, including:
Hitachi Computer Products America Inc.
TMP Worldwide, Inc.
O'Reilly and Associates, Inc.
Phoenix Technologies Ltd.
Forrester Research, Inc.
Edify, Inc.
Solbright, Inc.
Stratus Computer, Inc./Ascend
Communications, Inc.
STRATEGIC RELATIONSHIPS
Interliant's strategic relationships and partnerships with leading
technology companies allow it to provide a wide range of services to meet its
customers' needs. The following is a list of selected companies with whom
Interliant has a strategic relationship:
IBM Corporation. Interliant is an IBM BESTeam partner and began offering
the IBM Net.Commerce Hosting Server product in January 1999. IBM currently lists
Interliant on its Web site as one of a select group of partners that are able to
offer this product. Interliant intends to introduce Net.Commerce hosting
services to our large reseller community as a world-class end-to-end e-commerce
solution. Interliant is also hosting IBM Net.Commerce Pro solutions for
dedicated server customers who maintain large e-stores and require large scale
implementations. IBM or Interliant can terminate this relationship at any time.
Lotus Development Corporation. Interliant is a leading partner of IBM's
Lotus software division and is a Lotus Net Service Provider, Lotus Net Service
Provider/Alliance Partner, as well as a Lotus Premier Business Partner.
Interliant provides a variety of messaging and hosting services for Lotus
Notes/Domino Internet, intranet and extranet applications. Interliant is
currently listed by Lotus on several sections of Lotus' Web site as one of a
select group of partners that provide hosting services for Lotus Notes/Domino
and other Lotus application solutions. Interliant has twice been recognized with
Lotus' highest recognition, the Lotus Beacon Award, most recently in January
1999.
Interliant and Lotus Development Corporation are parties to a Joint
Development Agreement, dated April 27, 1998, which has a term of two years and
is automatically renewed for successive one year terms unless terminated by
either party upon prior written notice. Under this agreement, Lotus and
Interliant co-develop Lotus' Domino Instant!Host platform, which enables
application developers to deploy and offer Web-based collaborative applications.
Microsoft Corporation. Interliant is a Microsoft Certified Solution
Partner (MCSP) and is currently engaged in several strategic initiatives with
Microsoft. Interliant and Microsoft have entered into a co-marketing and
promotion agreement whereby Microsoft will include Interliant's advertisements
in a catalog that is inserted into every FrontPage 2000 product box that is
packaged for retail sale. Microsoft has also agreed that it will issue a press
release on its Web site highlighting Interliant and its involvement in the
promotion of FrontPage 2000. In return, Interliant offers incentives on certain
of its services to induce the public to host a FrontPage 2000 Web site and has
agreed to feature Front Page 2000 on its Web site with greater frequency and
visibility than any competing product. This agreement remains in effect until
the earlier of the initial release of the next version of FrontPage, Microsoft
ceasing to produce FrontPage, or December 31, 2000.
39
<PAGE> 44
Interliant is also participating in a Microsoft initiative called the
Complete Commerce program. In conjunction with selected other MSCP Partners,
Interliant will incent customers seeking to engage in e-commerce activities on
the Web to enter into this program by offering a specially priced, all inclusive
storefront hosting package integrating shipping, credit card processing and tax
elements. The service will also include consulting and development of the
storefront application Web site, back-end integration and hosting activities.
Microsoft will provide resources to help Interliant market this program,
including promotional activities, marketing activities and participation in the
customer engagement activities. Our marketing activities for the Complete
Commerce program are scheduled to commence in April 1999. Interliant also
intends to develop services based on Microsoft's Commercial Internet Server.
Microsoft or Interliant can terminate this relationship at any time.
UUNET Technologies, Inc. Interliant has entered into an agreement with
UUNET to be Interliant's primary connectivity provider on a worldwide basis.
UUNET has agreed to provide minimum levels of connectivity from 100 Mbps to 600
Mbps of bandwidth. UUNET has agreed to significant discounts and competitive
pricing assurances over the term of the agreement. The connectivity may range in
capacity from T-1 to DS-3 to OC-12. At our Atlanta data center, we are currently
installing four OC-3 connections to diverse hubs in UUNET's network utilizing
diverse fiber for redundancy. Interliant may be subject to certain penalties
under its agreement with UUNET if certain usage requirements are not met. The
agreement has a three-year term and will be renewed automatically for an
additional year unless either party notifies the other of its intent not to
renew. In addition to the connectivity provisions, Interliant and UUNET have
agreed to develop and implement a joint marketing program including (i) allowing
Interliant to resell UUNET services through its network of resellers, (ii)
cooperating on mutually beneficial hosting and co-located remarketing agreements
and (iii) cooperating on international co-location facilities agreement.
Equant, N.V. Interliant has entered into an agreement in which Equant,
N.V. provides worldwide local dialup (X.25 and PPP) and dedicated (frame relay)
connectivity from more than 160 countries. Equant, N.V. provides significant
discounts to Interliant and competitive pricing assurances. In addition, Equant,
N.V. has entered into a distribution agreement with Interliant, in which Equant,
N.V.'s worldwide sales force is able to offer Interliant's groupware and
application hosting services to its customers. This agreement terminates on
December 19, 1999 unless the parties agree to renew the agreement by June 19,
1999.
Allaire Corporation. Allaire markets and distributes proprietary
commercial computer software products such as Cold Fusion Enterprise Application
Server, Cold Fusion Professional Application Server and Home Site. Interliant
has a worldwide non-exclusive fee-bearing license to (i) reproduce exact copies
of these software products onto its servers and to allow its customers to use
these products, (ii) reproduce exact object code copies of the products and
(iii) market and distribute the products as stand-alone products or bundled with
other Interliant product offerings. Interliant has agreed to certain minimum
purchase level commitments in its agreement with Allaire. In addition to the
fees Interliant pays for these licenses, Interliant has agreed to promote and
market actively Allaire's products. Interliant and Allaire have also agreed to
participate in certain joint marketing and promotional activities. Interliant's
one-year agreement with Allaire will be automatically renewed for another year
unless either party notifies the other that it elects not to renew within sixty
days of the original termination date.
Elemental Software, Inc. Interliant has been granted a non-exclusive
license to market and resell Drumbeat(TM) 2000. By working with a Drumbeat(TM)
2000 ISP Hosting Partner such as Interliant, organizations will be able to
publish data-driven Active Server Pages (ASP) applications without the need to
set up and administer Web servers locally. As an ISP Hosting Partner, Interliant
also provides hosting accounts for trial Drumbeat(TM) 2000 users. The agreement
provides for Interliant to become a Drumbeat(TM) 2000 reseller for which it will
receive preferred pricing on each sale of Drumbeat(TM) 2000 generated through
the Elemental Software/ Interliant e-commerce Web site. Interliant and Elemental
have agreed to undertake certain cross marketing activities to promote the
launch of their partnership, including press releases, Web advertising and a
special promotion by Interliant of Drumbeat(TM) 2000. In addition, Interliant
has been given the opportunity to provide an insert card to be included in the
Drumbeat(TM) 2000 product packaging promoting its services. This agreement may
be terminated by either Elemental or Interliant with thirty days prior notice to
the other.
40
<PAGE> 45
iMALL, Inc. iMALL operates an Internet shopping mall and has created a
suite of e-commerce tools labeled iSTORE(TM) and Bolt-on e-commerce(TM).
Interliant and iMALL have agreed to use iMALL's experience and technical
infrastructure to create a mall where Interliant's customers can sell their
products and services online. Under the terms of the agreement, Interliant pays
iMALL for the use of the Bolt-on e-commerce(TM) solution and iSTORE(TM) at
various discounted rates based on the number of iMALL accounts created by
Interliant. In addition, Interliant and iMALL have agreed to determine in good
faith by April 23, 1999 a minimum number of merchants Interliant is to have
using iSTORE(TM) in order for the terms of this agreement to remain in effect.
Interliant's agreement with iMALL states that it is intended to establish a
long-term relationship between Interliant and iMALL and as such has a three-year
term.
SALES AND DISTRIBUTION
Interliant sells its hosting services to its customers through a variety of
sales channels. The following schematic represents Interliant's sales approach.
The prices set forth below are for product offerings marketed under the
Interliant brand.
[FLOW CHART]
Interliant has historically used a variety of marketing and sales
techniques, including Internet marketing, telesales, indirect sales channels
(such as resellers and referral partners) and direct sales in order to increase
its market share. Interliant's acquisition strategy has facilitated the
integration of different indirect and direct distribution channel models used by
acquired companies and has enabled Interliant to customize them to fit the needs
of specific markets in which it competes.
Internet Marketing. Interliant's Internet marketing sales program offers
an automated online sales interface to its customers that enables them to
purchase hosting services on a 24x7 basis from its Web site at
www.interliant.com or purchase Internet rental application services at
www.appsonline.com.
41
<PAGE> 46
Telesales. In the telesales area, Interliant currently acquires, and plans
to develop further, its hosting accounts through inbound calls generated through
traditional media and outbound telesales to pre-qualified potential customers.
Indirect Sales. In the indirect sales channel area, Interliant's goal is
to develop the leading reseller and referral partner program in the industry
through its recently introduced business partner program. Interliant's target
partners include reseller and referral partners (such as Web consulting firms,
Internet service providers, independent software vendors, network integration
companies and system integrators) that have an established relationship with
Interliant's prospective customer base as well as a sales force capable of
selling Internet services. The benefits to Interliant of using these indirect
sales channels include greater market reach without fixed overhead costs and the
ability to use the partners to assist in the delivery of complete solutions to
meet customer needs. Interliant offers its partners a discount from Interliant's
retail price on both products and services.
Interliant believes that its business partner program offers its reseller
and referral partners a wide variety of benefits such as:
- financial incentives including volume discounts and/or royalties, waived
set up fees and advantageous software leasing opportunities;
- access to Interliant's hosting services and applications;
- advanced technical support;
- sales and marketing support services; and
- training and support programs.
Direct Sales. Interliant has a sales group dedicated to selling hosting
and consulting solutions to large enterprises and other businesses whose
Internet operations are mission-critical.
As of the date hereof, Interliant has 52 employees engaged in distribution
and sales.
MARKETING
Interliant markets its full range of branded hosting solutions via an
integrated marketing program. Interliant will continue to invest in building
greater equity of the Interliant brand worldwide, using a variety of marketing
techniques including print advertisements in key industry publications,
broadcast advertising, direct marketing and online advertising, such as general
rotation and keyword-specific Web banner advertisements. The focus of these
branding efforts is primarily to reinforce Interliant's position as a full
service hosting provider. In addition, Interliant will also employ a number of
other marketing tactics and communications vehicles, such as product literature,
trade shows, promotions with key hardware and software vendors, direct response
programs and Interliant's Web site to generate greater numbers of qualified
leads and to further increase awareness of the Interliant brand.
When an acquired company's brand is already well-established, Interliant
may for a period of time continue to market certain products and services under
that brand to capitalize on the competitive advantages the acquired brand may
bring to Interliant. Interliant's long-term goal, however, is to migrate most of
its acquired product offerings to the Interliant brand. Interliant products are
available from its primary Web site at www.interliant.com as well as at
www.appsonline.com.
Interliant expects to increase its marketing expenditures in order to
support its brand marketing and lead-generation efforts. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMER SERVICE
Interliant views customer service as a critical part of its business
strategy. Interliant's customer service group has 129 employees who are mainly
located in its Atlanta and Houston data centers. The customer
42
<PAGE> 47
service group is responsible for providing customer service to all of
Interliant's customers as well as its resellers and referral partners, including
helping customers to initially set up their Web sites, answering technical
questions or helping customers use Interliant's application hosting solutions
and other enhanced offerings. Through Interliant's customer service systems,
customer service representatives can generally resolve any issues in a timely
manner via e-mail or Interliant's toll-free number.
Web Hosting Customer Service. Interliant's Web hosting customers are
primarily serviced through its Atlanta data center. To ensure that each Web
hosting customer is connected with the customer service representative best able
to address its needs, Interliant's call center routing system, provided by
Aspect Communications, directs calls based on the phone number dialed or the
menu choice selected. In addition, the Vantive Support system, a customer/asset
management tracking application, enables a customer service representative to
view a customer's entire account, including past and recent interactions with
such customer. Further, the Vantive Support system provides a resolution
database that recognizes and documents support records into a central repository
that can be accessed by all customer service personnel. This database
categorizes all reported problems so that if a particular problem recurs,
customer service representatives can view its prior resolution and provide
timely and accurate customer service. The Vantive Support system is also linked
to the Vantive Sales Force Automation module which helps sales staff get current
information on the status of accounts, recent problems or account issues prior
to calling customers to pursue new business opportunities.
In addition to the Aspect and Vantive systems, Interliant is in the process
of implementing the PORTAL Infranet billing system. With PORTAL Infranet,
Interliant's resellers, referral partners and customers will be able to obtain
monthly statements delivered electronically which Interliant believes will
provide them with easily accessible and accurate tracking of their hosting
expenditures. In particular, Interliant believes that PORTAL will allow
resellers and referral partners to add new products and services, as well as
pricing discounts and incentive programs, in a timely and cost-effective manner.
Application Hosting Customer Service. Interliant's application hosting
customers are primarily serviced through its Houston data center. Customers
serviced in Houston can contact a Technical Support Engineer on a 24x7 basis to
address issues including registration, mail routing, connectivity or
enhancements to a customer account such as rolling out new databases and
changing access control lists. Certain customer accounts also have access to
dedicated support engineers who are familiar with each unique configuration or
requirement a larger customer may have. A focused support team handles all the
application hosting support requirements via several mechanisms including a
facilitated discussion database environment available over the Internet where
customers, application developers and support technicians can discuss pertinent
issues and build a relevant knowledge base. Customers may also access support
staff through e-mail as well as through a toll-free number.
On-line Customer Service. Interliant also provides resellers and customers
who are hosted in its Atlanta data center the opportunity to access an online
control panel which serves as a personalized, virtual customer service
representative. When fully implemented through PORTAL, this online control panel
will enable customers to find information they need such as billing histories,
orders and account profiles in a timely manner. In addition, at that time, the
online control panel will offer viewing of real-time billing statements and
invoices, the ability to order new or additional services, access to an online
Web development library, free applications and step-by-step guidance through
common Web publishing procedures. Thus, Interliant resellers, referral partners
and end users hosted in Atlanta will have the option of accessing account and
services information themselves online or by calling the customer service
centers.
TECHNOLOGY AND NETWORK OPERATIONS
Interliant has developed a secure, reliable, high-performance, and scalable
hosting solution, which it believes provides a significant competitive advantage
in the market. This solution is comprised of multiple hosting platforms that
incorporate automated functionality and a network infrastructure that includes
multiple Internet data centers and is monitored on a 24x7 basis by Interliant's
personnel in Atlanta and Houston.
43
<PAGE> 48
Interliant's strategy in developing its hosting solution focuses on utilizing
internally created technological innovations that it integrates with leading
software and hardware providers.
Web Hosting Platform. Although industry-standard Web servers are adequate
for basic Web hosting, Interliant believes that efficiently managing large
numbers of Web sites and users on a single server requires significant
technological innovations. Accordingly, Interliant has focused its technology
development efforts on creating various operating system level tools to
facilitate a high customer to server ratio. Interliant has developed multiple
Web hosting platforms that permit efficient hosting of more than 5,000 Web sites
on a Sun Microsystems, Inc. Solaris server. Interliant has also developed Web
server applications designed to improve performance in a virtual server
environment and implemented resource monitoring tools designed to report and
address scarcity of shared computer processing units and memory resources.
Interliant's solution is scalable, allowing servers to be added while being
monitored centrally independent of where they are located. To address the
diverse requirements of its customers, Interliant offers Web hosting services on
a range of operating systems and computing platforms including Solaris (Sun
Microsystems, Inc. platform), Microsoft Windows NT (Intel/PC platform) and Linux
(Cobalt Networks, Inc.).
Application Hosting Platform. Interliant maintains a state-of-the-art data
center in Houston from which it manages its application hosting services. This
facility features separate, redundant fiber and power connections, diesel
generators, cooling systems and uninterruptible power supplies designed to
provide on site power for up to four weeks. Quality and security are paramount
concerns for Interliant's customer base. Consequently Interliant employs several
security measures including 24x7 building guards, electronic surveillance,
limited access electronic card key measures, as well as the physical separation
of servers from administrative workstations. The Houston facility includes
high-end Compaq servers equipped with multiple power supplies and RAID
technology. Other strategic providers include Sun Microsystems, Microsoft, and
Lotus. Interliant offers connectivity to its systems from virtually anywhere in
the world, enabling customers to deploy global solutions. Customers can access
Interliant via the Internet, or through X.28 connections provided by Compuserve
and Equant, N.V. in more than 160 countries, or over Frame Relay through AT&T
Corp., Sprint Corporation, and MCI WorldCom, Inc. or domestically via a
toll-free number. Interliant uses two DS-3 connections to the Internet
provisioned directly off a SONET ring. Internally developed management and
monitoring systems provide insight into the performance of the entire Interliant
network, as well as consistency of security measures across all of its current
hosting platforms.
Network Operations. In order to provide its customers with high-quality
service, Interliant has invested substantial resources in building its network
infrastructure. Interliant has designed its network to minimize the effect of
any interruptions. Interliant has also implemented security measures and
monitoring systems to ensure that Interliant's network is protected, identify
potential sources of failure, limit downtime and notify staff of any problems.
Although Interliant has attempted to build redundancy into its network and
hosting facilities, its data centers are currently subject to various single
points of failure, and a problem with one of its routers or switches could cause
an interruption in the services Interliant provides to some of its customers.
Interliant's NOCs are responsible for monitoring Interliant's entire
network on a 24x7 basis. Interliant monitors each piece of equipment, including
routers, switches and servers. The NOCs also monitor all Internet and
telecommunications connections and ensures that they are functional and properly
loaded. The design of the NOCs enables systems administrators and support staff
to be promptly alerted to problems, and Interliant has established procedures
for rapidly resolving any technical problems that arise. The NOCs are fully
integrated into Interliant's customer service facilities.
Interliant currently has two primary data centers located in Atlanta and
Houston. These data centers are fitted with continuous monitoring capabilities,
back-up generators and environmental controls to ensure high-quality service
with minimal interruptions. The Atlanta data center is Interliant's primary Web
hosting facility and the Houston data center is Interliant's primary groupware
and application outsourcing facility. The customer service and network
monitoring infrastructures are based in Atlanta and Houston.
The Washington, D.C. area data center currently serves as a co-location
facility. Interliant has recently entered into a ten-year lease for
approximately 13,000 square feet of space in the Washington, D.C. area.
Interliant intends to use a portion of the proceeds from this offering to build
out this space and create a third
44
<PAGE> 49
state-of-the-art data center for hosting and providing customer service. Once
the construction of this new space is completed, all of Interliant's Washington,
D.C. area operations will be moved into the new space. See " -- Facilities" and
"Use of Proceeds."
COMPETITION
The market served by Interliant is highly competitive. Although barriers to
entry and continued growth are increasing, there are still few substantial
barriers to entry, particularly with respect to virtual hosting, and Interliant
expects that it will face additional competition from existing competitors and
new market entrants in the future. The principal competitive factors in this
market include:
- quality of service, including network capability, scalability,
reliability and functionality;
- customer service and support;
- variety of services and products offered;
- price;
- brand name;
- Internet system engineering and technical expertise;
- timing of introductions of additional value services and products;
- network security;
- financial resources; and
- conformity with industry standards.
Interliant may not have the resources, expertise or other competitive
factors to compete successfully in the future.
Interliant's current and potential competitors include:
- other Web hosting and Internet services companies such as AboveNet
Communications, Inc., Exodus Communications, Inc., Frontier GlobalCenter,
Globix Corporation and local and regional hosting providers;
- national and regional Internet service providers such as Concentric
Network Corporation, MindSpring Enterprises, Inc., UUNet Technologies,
Inc., PSINet Inc. and Verio Inc.;
- global telecommunications companies including AT&T Corp., British
Telecommunications plc, Telecom Italia SpA and Nippon Telegraph and
Telephone Corp.;
- regional and local telecommunications companies, including the regional
Bell operating companies such as Bell Atlantic Corporation and US West,
Inc.;
- companies that focus on application hosting such as USinternetworking,
Inc. and IBM Global Services; and
- audio and video content hosting companies such as broadcast.com.
Many of Interliant'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 Interliant. As a result, certain of these competitors may be able
to develop and expand their network infrastructures and service offerings more
rapidly, 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
services and adopt more aggressive pricing policies than can Interliant. In
addition, these competitors have entered and will likely continue to enter into
joint ventures or consortia to provide additional services competitive with
those provided by Interliant.
45
<PAGE> 50
In an effort to gain market share, certain of Interliant's competitors have
offered hosting services similar to those of Interliant at lower prices than
those of Interliant or with incentives not matched by Interliant. In addition,
certain of Interliant's competitors may be able to provide customers with
additional benefits, which could reduce the overall costs of their services
relative to those of Interliant. Interliant may not be able to reduce the
pricing of its services or offer incentives in response to the actions of its
competitors without a material adverse impact on its operating results.
Interliant also believes that the market in which it competes is likely to
encounter consolidation in the near future, which could result in increased
price and other competition that could have an adverse effect on Interliant's
business.
INTELLECTUAL PROPERTY RIGHTS
Interliant relies on a combination of copyright, trademark, service mark,
trade secret laws and contractual restrictions to establish and protect certain
proprietary rights in its services. Interliant has no patented technology that
would preclude or inhibit competitors from entering Interliant's market. The
steps taken by Interliant to protect its intellectual property may not prove
sufficient to prevent misappropriation of Interliant's technology or to deter
independent third-party development of similar technologies. The laws of certain
foreign countries may not protect Interliant's services or intellectual property
rights to the same extent as do the laws of the United States. Interliant also
relies on certain technologies that it licenses from third parties. These
third-party technology licenses may not continue to be available to Interliant
on commercially reasonable terms. The loss of the ability to use such technology
could require Interliant to obtain the rights to use substitute technology,
which could be more expensive or offer lower quality or performance, and
therefore have an adverse effect on Interliant's business.
To date, Interliant has not been notified that its services infringe on the
proprietary rights of third parties, but third parties could claim infringement
by Interliant with respect to current or future services. From time to time,
Interliant is notified that the content of one of its customer's sites infringes
on a third party's trademark. In response, Interliant informs the customer of
such claim and, if necessary, will terminate a customer's service. Interliant
expects that participants in its markets will be increasingly subject to
infringement claims as the number of services and competitors in Interliant's
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service installation delays
or require Interliant to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to
Interliant or at all. As a result, any such claim could have an adverse effect
upon Interliant's business.
GOVERNMENT REGULATION
Interliant is not currently subject to direct federal, state or local
government regulation, other than regulations that apply to businesses
generally. Only a small body of laws and regulations currently applies
specifically to hosting and commerce activities, or access to the Internet. Due
to the increasing popularity and use of the Internet, however, it is possible
that laws and regulations with respect to the Internet may be adopted at
international, federal, state and local levels, 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. Although sections of the Communication Decency Act of
1996 (the "CDA") that, among other things, proposed to impose criminal penalties
on anyone distributing "indecent" material to minors over the Internet were held
to be unconstitutional by the U.S. Supreme Court, similar laws may be proposed,
adopted and upheld. The nature of future legislation and the manner in which it
may be interpreted and enforced cannot be fully determined and, therefore,
legislation similar to the CDA could subject Interliant and/or its customers to
potential liability, which in turn could have a material adverse effect on
Interliant's business, results of operations and financial condition. The
adoption of any such laws or regulations might decrease the growth of the
Internet, which in turn could decrease the demand for the services of Interliant
or increase the cost of doing business or in some other manner have an adverse
effect on Interliant's business.
We currently do not collect sales or other taxes with respect to the sale
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states
46
<PAGE> 51
we have offices and are required by law to do so. One or more jurisdictions have
sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more jurisdictions that we should collect sales or other taxes on our products
and services, or remit payment of sales or other taxes for prior periods, could
have an adverse effect on our business.
In addition, applicability to the Internet of existing laws governing
issues such as property ownership, copyright and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the advent of the Internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the Internet and related technologies. Changes to such laws intended
to address these issues could create uncertainty in the marketplace that could
reduce demand for the services of Interliant or increase the cost of doing
business as a result of costs of litigation or increased service delivery costs,
or could in some other manner have an adverse effect on Interliant's business.
Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to Interliant's
business, could have an adverse effect on Interliant's business.
EMPLOYEES
As of the date hereof, Interliant has 489 employees (including 19 on a
contract basis), of which 86 are in sales, distribution and marketing, 174 are
in engineering and service development, 129 are in customer service and
technical support, 92 are in finance and administration and 8 in acquisition
integration. Interliant believes that its future success will depend in part
upon its continued ability to attract, hire and retain qualified personnel.
Although Interliant believes it has thus far been successful in this endeavor
(including a high retention rate of key employees from acquired companies), the
competition for such personnel is intense, and Interliant may not be able to
identify, attract and retain such personnel in the future. None of Interliant's
employees are represented by a labor union, and management believes that its
employee relations are good.
FACILITIES
Interliant's executive offices are located in Cambridge, Massachusetts and
consist of approximately 7,800 square feet that are leased pursuant to an
agreement that expires in June 1999. Interliant also leases approximately 15,740
square feet in Atlanta, Georgia under an agreement that expires in June 2003 and
approximately 1,000 square feet of space in the Washington, D.C. area under a
lease that expires in July 2001. Interliant also leases 59,885 square feet of
space in Houston, Texas under an agreement that expires in August 2001 and
office space in London, England. In addition, Interliant has recently leased
approximately 13,000 square feet of space in the Washington, D.C. area under a
lease that expires in 2009. A portion of the proceeds of this offering will be
used by Interliant to build-out this space. Once the construction of this space
is completed, all of Interliant's Washington D.C. area operations will be moved
into this space. See "Use of Proceeds" and "Business -- Technology and Network
Operations."
47
<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Interliant are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Leonard J. Fassler......................... 67 Co-Chairman, Secretary, Director
Bradley A. Feld............................ 33 Co-Chairman, Director
Stephen W. Maggs........................... 45 Chief Executive Officer, President,
Treasurer and Director
James M. Lidestri.......................... 38 Executive Vice President
Francis J. Alfano.......................... 37 Senior Vice President, Mergers and
Acquisitions
Rajat Bhargava............................. 25 Senior Vice President, Chief Operating
Officer Web Hosting
Jesse J. Bornfreund........................ 43 Senior Vice President, Business Development
Edward A. Cavazos.......................... 30 Senior Vice President, Legal and Business
Affairs
Paul E. Chollett........................... 39 Senior Vice President, Finance and
Administration
Bruce S. Klein............................. 39 Senior Vice President, General Counsel
Jennifer J. Lawton......................... 35 Senior Vice President, Consulting and
Technology
Kristian Nelson............................ 35 Senior Vice President, Service Development
and Delivery
William A. Wilson.......................... 53 Chief Financial Officer
Merril M. Halpern.......................... 64 Director
Thomas C. Dircks........................... 41 Director
Patricia A. M. Riley....................... 56 Director
Jay M. Gates............................... 33 Director
Charles R. Lax............................. 39 Director
</TABLE>
Each director holds office until a successor has been duly elected and
qualifies, or until his or her earlier death, resignation or removal.
Interliant's executive officers are appointed annually by the Board of Directors
and serve at the discretion of the Board of Directors.
Certain of the directors of Interliant serve on the Board of Directors
pursuant to contractual arrangements. See "Description of Capital Stock -- The
WEB Hosting Organization Investment", "-- The Interliant Acquisition" and
"-- The SOFTBANK Investment."
Leonard J. Fassler is a co-founder of Interliant and has been Co-Chairman,
Secretary and a Director of Interliant since its formation in December 1997.
From 1992 to 1996, Mr. Fassler was a Co-Chairman of AmeriData Technologies, Inc.
("AmeriData"), a New York Stock Exchange listed company that was acquired by
General Electric Capital Corporation in 1996. Mr. Fassler was a co-founder of
AmeriData which grew to a company with sales in excess of two billion dollars a
year and locations in ten countries at the time that it was acquired. Mr.
Fassler holds a bachelor's degree in business administration from City College
of New York and a law degree from Fordham Law School.
Bradley A. Feld is a co-founder of Interliant and has been Co-Chairman and
a Director of Interliant since its formation in December 1997. Since 1995, Mr.
Feld has been the President of Intensity Ventures Inc., a company that helps to
establish, advise and operate software companies. From 1993 to 1995, Mr. Feld
was the chief technology officer of AmeriData. From 1985 to 1993, he was
president of Feld Technologies, Inc., a computer consulting firm founded by Mr.
Feld to develop and implement information technology solutions for a wide
variety of businesses, which was acquired by AmeriData in 1993. Mr. Feld earned
a bachelor of science degree and a master of science degree from Massachusetts
Institute of Technology. Since 1997, Mr. Feld has been a General Partner of
SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology
48
<PAGE> 53
Advisors Fund, L.P., venture capital funds. Mr. Feld is a director and
co-chairman of Message Media, Inc., and director of a number of privately held
companies.
Stephen W. Maggs is a co-founder of Interliant and has been the Chief
Executive Officer, President, Treasurer and a Director of Interliant since its
formation in December 1997. From December 1993 to December 1996, Mr. Maggs held
a variety of senior management positions with AmeriData, including serving as an
executive vice president of operations of AmeriData and Chairman of AmeriData
Canada. From February 1992 to December 1993, he was the owner of Mericom Systems
Inc., a reseller of personal computer hardware, which was acquired by AmeriData
in 1993. From 1984 to 1991, he held various executive positions at Inacom
Information Systems. Mr. Maggs received a bachelor of science degree from
Hillsdale College, Hillsdale, Michigan and is a Certified Public Accountant.
James M. Lidestri has served as Executive Vice President of Interliant
since March 1999. From March 1996 to March 1999, Mr. Lidestri was the President
and Chief Executive Officer of Interliant Texas. From February 1995 to March
1996, Mr. Lidestri was employed at IBM Corporation where he served as Group
Manager of the Collaborative Services Division. As Group Manager, Mr. Lidestri
was responsible for developing market and product strategies for network-based
collaborative services, with a primary focus on Lotus Notes. From November 1990
to February 1995, Mr. Lidestri served in a number of executive positions at
Sprint Corporation, including Director of Business Operations. Mr. Lidestri
holds a bachelor of science degree in computer science from Rensselaer
Polytechnic Institute and a masters degree in business administration from New
York University.
Francis J. Alfano has served as Senior Vice President, Mergers and
Acquisitions of Interliant since December 1998. From January 1997 to November
1998, Mr. Alfano was Vice President of Business Development at GE Capital
Information Technology Solutions, Inc. From July 1994 to December 1996, Mr.
Alfano was Director of Taxes at GE Capital Information Technology Solutions,
Inc. formerly, AmeriData Technologies, Inc. From January 1991 to June 1994, Mr.
Alfano was employed by Ernst & Young and was a senior manager in the tax
department at the time of his departure. From 1984 to 1990, Mr. Alfano was
employed as a Certified Public Accountant with various public accounting firms.
Mr. Alfano holds a bachelor of science degree in business administration from
the University of Arizona and is a Certified Public Accountant.
Rajat Bhargava is a co-founder of Interliant and has been Senior Vice
President, Chief Operating Officer Web Hosting since March 1999 and an Executive
Vice President of Interliant since its formation in December 1997. During the
period from January 1994 to June 1997, he served as Chairman, President and
Chief Executive Officer of Net.Genesis Corp., an Internet software company which
he founded. From 1991 to 1993, he worked in various engineering positions at
Intel Corporation. Mr. Bhargava received a bachelor of science degree in
electrical engineering and computer science from Massachusetts Institute of
Technology in 1995.
Jesse J. Bornfreund has served as Senior Vice President, Business
Development of Interliant since March 1999. From July 1996 until he joined
Interliant, Mr. Bornfreund was Senior Vice President, Strategic Alliances of
Interliant Texas. In such position, Mr. Bornfreund was responsible for managing
the strategic alliances of Interliant Texas and the development of its business.
From February 1996 through June 1996, Mr. Bornfreund served as a Corporate
Strategy Consultant at IBM Corporation, with primary responsibilities that
included the development of corporate business and technology strategies and
recommendations. From February 1994 to February 1996, Mr. Bornfreund was a
Program Manager for the Collaborative Services Group of IBM Corporation. As
Program Manager, Mr. Bornfreund was responsible for strategic planning, business
and market development activities and development and management of partner
relationships. Mr. Bornfreund holds a bachelor of science degree in biology from
Stockton State College.
Edward A. Cavazos has served as Senior Vice President, Legal and Business
Affairs of Interliant since March 1999. From March 1997 until he joined
Interliant, Mr. Cavazos was Senior Vice President, General Counsel of Interliant
Texas. From May 1994 until March 1997, Mr. Cavazos was an associate attorney at
the law firm of Andrews & Kurth, L.L.P. In addition, Mr. Cavazos served as an
Adjunct Professor at the University of Texas School of Law from January 1998
through May 1998 and as an Adjunct Professor at the
49
<PAGE> 54
University of Houston Law Center from September 1996 through December 1996 and
September 1997 through December 1997. Mr. Cavazos holds a bachelor of arts
degree in philosophy from the University of Texas and a law degree from the
University of Texas.
Paul E. Chollett has served as Senior Vice President, Finance and
Administration of Interliant since March 1999. From July 1996 until he joined
Interliant, Mr. Chollett was Senior Vice President and Chief Financial Officer
of Interliant Texas. From July 1993 to July 1996, Mr. Chollett was the Director
of Finance and Administration in the Audit Division of Arthur Andersen. In this
role, Mr. Chollett was responsible for managing the financial, risk management
and quality control aspects of the firm's audit practice. Mr. Chollett holds a
bachelor of science degree in accounting from the University of Houston at Clear
Lake City. Mr. Chollett is a Certified Public Accountant.
Bruce S. Klein has served as Senior Vice President, General Counsel of
Interliant since December 1998. From April 1998 to November 1998, he was General
Counsel and a Vice President of Interliant. In addition, from June 1998 to
present, Mr. Klein has been of counsel to the law firm of McCarthy, Fingar,
Donovan, Drazen & Smith, L.L.P. From January 1996 through March 1998, Mr. Klein
was of counsel to the law firm of Spitzer & Feldman P.C., prior to which he was
partner at the law firm of Halperin Klein & Halperin, in each case engaged in
the general practice of law, with experience in mergers and acquisitions and
general corporate and business law. Mr. Klein is admitted to practice law in New
York and Massachusetts and holds a bachelor's degree in business administration
from Rutgers University and a law degree from Western New England College School
of Law.
Jennifer J. Lawton has served as Senior Vice President, Consulting and
Technology of Interliant since February 1999. From May 1992 until she joined
Interliant, Ms. Lawton was the Chief Executive Officer of Net Daemons
Associates, Inc., a provider of Web development and system integration activity
for Internet and IT Networks which was acquired by Interliant in February 1999.
Ms. Lawton is a co-founder of Net Daemons Associates, Inc. Ms. Lawton holds a
bachelor of science degree in applied mathematics from Union College.
Kristian Nelson has served as Senior Vice President, Service Development
and Delivery of Interliant since March 1999. From July 1997 until he joined
Interliant, Mr. Nelson was Senior Vice President, Operations of Interliant Texas
and was responsible for the direction and control of all operational aspects of
Interliant Texas's business including product development, customer service and
application and data center services. From June 1996 through May 1997, Mr.
Nelson served as Vice President, Operations at GST Telecommunications. In this
role, Mr. Nelson was responsible for the oversight and control of such company's
Internet subsidiary, GST Internet Inc. From June 1995 to January 1996, Mr.
Nelson was a Senior Management Consultant in the Technology Strategy Practice
area at Gartner Group, Inc. where his responsibilities included providing
technical consulting services to Fortune 500 companies. From May 1986 to May
1995, Mr. Nelson was the Product Assurance Information Technology Director at
Lockheed Martin Corporation. As such, Mr. Nelson was responsible for developing
and implementing information technology strategic planning for the Product
Assurance Group. Mr. Nelson holds a bachelor of science degree in management
science from Orlando College.
William A. Wilson has served as Chief Financial Officer of Interliant since
September 1998. During the period from February 1998 to July 1998, Mr. Wilson
served as Vice President, Finance and Chief Financial Officer at XCOM
Technologies, Inc., a competitive local exchange carrier. From October 1997 to
February 1998, Mr. Wilson served as a consultant to several private companies.
From June 1997 to October 1997, Mr. Wilson served as Senior Vice President,
Finance and Chief Financial Officer of Computervision Corporation, a software
publishing and development company. Prior thereto, Mr. Wilson was Executive Vice
President and Chief Financial Officer of Arch Communications Group, Inc., a
wireless messaging company, from June 1996 to June 1997 and was Vice President,
Finance and Chief Financial Officer of Arch Communications Group, Inc. from
January 1989 to June 1996. Mr. Wilson received a bachelor of arts degree from
Luther College, a master of science degree from Northeastern University and a
masters degree in business administration from Babson College. Mr. Wilson is a
Certified Public Accountant.
50
<PAGE> 55
Merril M. Halpern has been a Director of Interliant since its formation in
December 1997 and is Chairman and Chief Executive of Charterhouse Group
International, Inc. ("Charterhouse"), which he founded in 1973. Mr. Halpern is a
director of Microwave Power Devices, Inc., and United Road Services, Inc., as
well as several private companies. He received a bachelor of science degree from
Rutgers University and a masters degree in business administration from Harvard
University.
Thomas C. Dircks has been a Director of Interliant since its formation in
December 1997 and is a Managing Director of Charterhouse. Mr. Dircks has been
employed as an officer of Charterhouse since 1983. He was previously employed as
a Certified Public Accountant at a predecessor of PricewaterhouseCoopers LLP. He
holds a bachelor of science degree in accounting and a masters degree in
business administration from Fordham University. He is a director of a number of
privately-held companies.
Patricia A. M. Riley has been a Director of Interliant since its formation
in December 1997 and is a Managing Director of Charterhouse and has been an
executive officer with the firm since 1977. She is a graduate of the Advanced
Management Program at Harvard Graduate School of Business Administration and
received a bachelor of arts degree from Hunter College.
Jay M. Gates has been a Director of Interliant since its formation in
December 1997 and is a Vice President of Charterhouse. He joined Charterhouse in
1994 as an Analyst. Mr. Gates was previously employed as a Senior Analyst in the
Financial Consulting Advisory Group of Arthur Andersen. Prior to that he was an
Assistant Treasurer at Bankers Trust Corporation. He holds a bachelor of arts
degree from the State University of New York at Binghamton and a masters degree
in business administration from New York University, Leonard N. Stern School of
Business. He is also a director of a number of privately-held companies.
Charles R. Lax has been a Director of Interliant since January 1999. He has
been a General Partner of SOFTBANK Technology Ventures IV, L.P. since November
1997. From March 1996 to November 1997, Mr. Lax was a Vice President of SOFTBANK
Holdings Inc. He was previously a venture partner at Vimac Partners LLC, a
venture capital firm specializing in investments in the information technology
and Internet-related industry. Mr. Lax holds a bachelor of science degree from
Boston University. He is a director of a number of privately-held companies.
DIRECTOR COMPENSATION
Directors receive no remuneration for serving on the Board of Directors of
Interliant.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit and Compensation Committees. The
Audit Committee consists of Mr. Thomas C. Dircks and Ms. Patricia A. M. Riley.
Among other functions, the Audit Committee makes recommendations to the Board of
Directors regarding the selection of independent auditors, reviews the results
and scope of the audit and other services provided by Interliant's independent
auditors, reviews Interliant's financial statements and reviews and evaluates
Interliant's internal control functions. The Compensation Committee consists of
Mr. Thomas C. Dircks, Ms. Patricia A. M. Riley and Mr. Charles R. Lax. The
Compensation Committee determines executive compensation and stock option grants
and makes recommendations to the Board of Directors concerning salaries and
incentive compensation for employees and consultants of Interliant.
EXECUTIVE COMPENSATION
Effective January 1, 1999, Interliant entered into one-year employment
agreements with each of Messrs. Fassler, Maggs and Bhargava pursuant to which
they each will receive a salary of $180,000 for the period ending December 31,
1999. Effective January 1, 1999, Interliant also entered into a one-year
consulting agreement with Mr. Feld through Intensity Ventures, Inc. pursuant to
which he will receive a consulting fee of $180,000. On March 10, 1999,
Interliant entered into an employment agreement with Mr. Lidestri (the "Lidestri
Agreement") for a term commencing on that date and terminating on March 1, 2001
unless sooner
51
<PAGE> 56
terminated in accordance therewith. The Lidestri Agreement provides for a
$150,000 signing bonus, two-thirds of which was paid in March 1999 and the
balance of which is payable on March 10, 2000, an annual base salary of $180,000
and a performance-based annual bonus of up to $70,000. See "-- Employment
Agreements." Interliant also has employment agreements with certain other senior
officers.
The following table sets forth the total compensation for fiscal 1998 of
the Chief Executive Officer and each of the other four most highly compensated
executive officers of Interliant whose total salary and bonus for fiscal 1998 is
estimated to exceed $100,000 (each a Named Executive Officer, and collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------- NUMBER OF
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- --------------------------- ---- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs..................... 1998 $130,232(1)
Chief Executive Officer,........... -- -- -- --
President, Treasurer and Director
Francis J. Alfano.................... 1998 $ 12,005(2) -- -- -- --
Senior Vice President,
Mergers and Acquisitions
Rajat Bhargava....................... 1998 $120,152
Senior Vice President,
Chief Operating Officer............ -- -- -- --
Web Hosting
Bruce S. Klein....................... 1998 $116,667(3) -- $15,635(4) -- --
Senior Vice President,
General Counsel
William A. Wilson.................... 1998 $ 48,894(5) -- -- -- --
Chief Financial Officer
</TABLE>
- ---------------
(1) Although Mr. Maggs commenced employment with Interliant on December 8, 1997,
he was not put on Interliant's payroll until January 1, 1998. As a result,
Mr. Maggs was paid $10,000 in 1998 as compensation for his employment in
1997.
(2) Reflects salary received by Mr. Alfano from the commencement of his
employment with Interliant on December 1, 1998 through December 31, 1998.
(3) Reflects salary received by Mr. Klein from the commencement of his
employment with Interliant on May 1, 1998 through December 31, 1998.
(4) Reflects income received by Mr. Klein in his capacity as a consultant to
Interliant prior to becoming an employee of Interliant.
(5) Reflects salary received by Mr. Wilson from the commencement of his
employment with Interliant on September 22, 1998 through December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
None of the Named Executive Officers were ever granted nor do any such
individuals own any options to purchase common stock of Interliant.
STOCK OPTION PLAN
The Board of Directors of Interliant has adopted and the stockholders of
Interliant have approved Interliant's 1998 Stock Option Plan (the "Plan"), under
which stock options may be granted to officers, employees and consultants of
Interliant and its subsidiaries. The Plan permits the grant of stock options
that
52
<PAGE> 57
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code and nonqualified stock options ("NSOs"), which do not so qualify.
Interliant has authorized and reserved up to 3,800,000 shares of the common
stock for issuance under the Plan. Interliant has issued options for the
purchase of approximately shares of the common stock under the
Plan. The shares may be unissued shares or treasury shares. If an option expires
or terminates for any reason without having been exercised in full, the
unpurchased shares subject to such option will again be available for grant
under the Plan. In the event of certain corporate reorganizations,
recapitalizations or other specified corporate transactions affecting Interliant
or the common stock, proportionate adjustments may be made to the number of
shares available for grant and to the number of shares and prices under
outstanding option grants made before the event.
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). Subject to the limitations set forth in the Plan,
the Committee has the authority to determine the persons to whom options will be
granted, the time at which options will be granted, the number of shares subject
to each option, the exercise price of each option, the time or times at which
the options will become exercisable and the duration of the exercise period. The
Committee may provide for the acceleration of the exercise period of an option
at any time prior to its termination or upon the occurrence of specified events,
subject to limitations set forth in the Plan. Subject to the consent of an
optionee, the Committee has the authority to cancel and replace stock options
previously granted with new options for the same or a different number of shares
and having a higher or lower exercise price, and may amend the terms of any
outstanding stock option to provide for an exercise price that is higher or
lower than the current exercise price.
All officers, employees and consultants of Interliant and its subsidiaries
are eligible to receive grants of stock options under the Plan, as selected by
the Committee. The exercise price of shares of common stock subject to options
granted under the Plan may not be less than 100% of the fair market value of the
common stock on the date of grant. The maximum term of options granted under the
Plan is 10 years from the date of grant. ISOs granted to any employee who is a
10% shareholder of Interliant are subject to special limitations relating to the
exercise price and term of the options. The value of common stock (determined at
the time of grant) that may be subject to ISOs that become exercisable by any
one employee in any one year is limited by the Internal Revenue Code to
$100,000. Options granted under the Plan will generally become vested and
exercisable over a four-year period in equal annual installments, unless the
Committee specifies a different vesting schedule. In the event of a "change in
control" of Interliant (as defined in the Plan), each option that was not then
vested will become fully vested and immediately exercisable.
All options granted under the Plan are nontransferable by the optionee,
except for transfers upon the optionee's death in accordance with his will or
applicable law. In the event of an optionee's death or permanent and total
disability, outstanding options that have become exercisable will remain
exercisable for a period of one year, and the Committee will have the discretion
to determine the extent to which any unvested options shall become vested and
exercisable in connection with death or disability. In the case of any other
termination of employment, outstanding options that have previously become
vested will remain exercisable for a period of 90 days, except for a termination
"for cause" (as defined in the Plan), in which case all unexercised options will
be immediately forfeited. Under the Plan, the exercise price of an option is
payable in cash or, in the discretion of the Committee, in common stock or a
combination of cash and common stock. An optionee must satisfy all applicable
tax withholding requirements at the time of exercise.
The Plan has a term of 10 years, subject to earlier termination or
amendment by the Board of Directors, and all options granted under the Plan
prior to its termination remain outstanding until they have been exercised or
are terminated in accordance with their terms. The Board of Directors may amend
the Plan at any time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dircks and Ms. Riley served as members of Interliant's Compensation
Committee during fiscal year 1998. During 1998, no committee member was an
officer or employee of Interliant. In addition, no interlocking relationship
exists between the Board of Directors of Interliant or Interliant's Compensation
53
<PAGE> 58
Committee and the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past.
EMPLOYMENT AGREEMENTS
Interliant has entered into employment agreements (the "Agreements") with
Messrs. Fassler, Maggs and Bhargava, pursuant to which each will receive annual
compensation of $180,000. The Agreements provide for a term of one year (with
automatic one-year renewals, subject to earlier termination as provided in the
Agreements). Under the Agreements, the employees are also entitled to
participate in the employee benefit plans of Interliant which are generally
available to the senior officers of Interliant.
The Agreements include provisions that are effective upon the termination
of employment of the employees under certain circumstances. In general, the
employees are entitled to severance upon termination by Interliant without
"cause". The severance shall be equal to the amount of the employee's base
salary yet to be paid for the unexpired portion of the term of the Agreement,
discounted based on a specified published interest rate. In the event of
termination due to death or disability for a specified period of time, the
employee or the employee's estate, as applicable, shall be entitled to receive
one-year's base salary, discounted based on a specified published interest rate
and Interliant shall continue to provide the employee, his spouse and minor
children, as applicable, with certain medical and other benefits through the end
of the term of the Agreement.
The Agreements include certain restrictive covenants for the benefit of
Interliant relating to non-disclosure by the employee of Interliant's
confidential business information, non-solicitation of Interliant's customers
and noncompetition by the employee with Interliant's business for a period of
two years following termination of employment with Interliant.
Mr. Feld, through Intensity Ventures, Inc., has entered into a one-year
consulting agreement with Interliant with identical terms to the Agreements
(including annual compensation), except (i) Mr. Feld is not entitled to
participate in Interliant's employee benefit plans and (ii) the annual
consulting fee will be paid to Intensity Ventures, Inc. on a gross basis as an
independent contractor.
Interliant has also entered into a two-year employment agreement with Mr.
Lidestri (the "Lidestri Agreement") which shall automatically be extended on a
month-to-month basis from the end of the term (subject to earlier termination as
provided in the Lidestri Agreement). The Lidestri Agreement provides for an
annual base salary of $180,000 and an annual bonus of up to $70,000 which amount
is determined based upon whether Mr. Lidestri meets or exceeds specified
performance objectives. In addition, under the Lidestri Agreement, Interliant is
obligated to pay Mr. Lidestri a signing bonus of $150,000 with $100,000 of such
bonus having been paid in March 1999 and the remaining $50,000 of which is
payable on the first anniversary of the Lidestri Agreement.
Under the Lidestri Agreement, Mr. Lidestri is entitled to participate in
the employee benefit plans of Interliant which are generally available to the
employees of Interliant. The Lidestri Agreement includes provisions that are
effective upon termination of Mr. Lidestri's employment under certain
circumstances. Upon termination of Mr. Lidestri's employment by Interliant
without cause or by Mr. Lidestri for certain reasons as set forth in the
Lidestri Agreement, Mr. Lidestri shall be entitled to severance equal to (i) any
remaining unpaid portion of his signing bonus plus (ii) the greater of (A) the
unpaid portion of his annual base salary and other compensation for the
remainder of the term of the Lidestri Agreement, including a pro rata portion of
the performance-based bonus for the year in which his employment is terminated
reflecting the portion of the year during which he was employed by Interliant or
(B) an amount equal to six months of his monthly base salary plus a pro rata
portion of the performance-based bonus for the year in which his employment is
terminated reflecting the portion of the year during which he was employed by
Interliant. If Interliant terminates the Lidestri Agreement for cause, Mr.
Lidestri shall be entitled to receive only the unpaid portion of his monthly
base salary and all vested benefits under any benefit programs, in each case,
through the date of termination. In addition, Mr. Lidestri shall be entitled to
participate in the benefit programs of Interliant for the longer of the
remainder of the term of the Lidestri Agreement or six months from the date of
termination. In the event of termination due to death or disability during the
term of the Lidestri Agreement, Mr. Lidestri or Mr. Lidestri's estate, as
applicable, shall be entitled to receive (i) any and
54
<PAGE> 59
all accrued and unpaid portions of his annual base salary to the date of death
or disability and (ii) employee benefits accrued but unpaid to the date of death
or disability.
The Lidestri Agreement includes certain restrictive covenants for the
benefit of Interliant relating to non-disclosure by Mr. Lidestri of Interliant's
confidential business information, non-solicitation of Interliant's customers
and non-competition by Mr. Lidestri with Interliant's business during the term
of the Lidestri Agreement and for a period of time following termination of Mr.
Lidestri's employment with Interliant which shall be either one year from such
termination or two years following the date of the Lidestri Agreement depending
upon the reason for termination.
CERTAIN TRANSACTIONS
Since Interliant's inception, Web Hosting Organization LLC ("WEB") and
SOFTBANK Technology Ventures and SOFTBANK Technology Advisors Fund L.P. ("the
SOFTBANK Purchasers") have each purchased securities from Interliant. WEB owns
25,200,000 shares of Interliant's common stock which were acquired from
Interliant in a series of six transactions in December 1997, May 1998, June
1998, September 1998, December 1998 and February 1999, in each case at a price
(giving effect to the 3-for-1 stock split effected in July 1998) of $1.67 per
share. The SOFTBANK Purchasers purchased from Interliant an aggregate of
2,647,658 shares of Interliant's redeemable convertible preferred stock and
warrants to purchase 749,625 shares of Interliant's common stock for an
aggregate purchase price of $13.0 million. The principal members of WEB are
Charterhouse Equity Partners III, L.P. ("CEP III") and WHO Management LLC
("WHO"). Leonard J. Fassler and Bradley A. Feld, Interliant's Co-Chairmen, are
the member managers of WHO. Bradley A. Feld is a Managing Director of the
SOFTBANK Purchasers. See "Description of Capital Stock -- The WEB Hosting
Investment" and " -- The SOFTBANK Investment."
Pursuant to the terms of the Limited Liability Company Agreement of WEB
dated as of November 26, 1997, as amended by Amendment No. 1, dated as of March
4, 1998, (the "WEB LLC Agreement") the members of WEB shall be entitled to
receive a distribution of all cash funds or other property of WEB available from
any source other than the ordinary operations of its subsidiaries, after payment
of all expenses of WEB due at the time of such distribution ("Total Proceeds").
The Total Proceeds shall be distributed to the members of WEB in tranches with
priority given to covering members' federal tax liability, followed by return of
capital and then to achieve specified internal rates of return. The management
distribution to WHO increases as the members of WEB realize these specified
internal rates of return on their investment in WEB. Certain members of
Interliant's senior management may receive distributions from WHO which are
based upon the amount of Total Proceeds received by WHO. As a result, certain
members of senior management may be deemed to have a direct and/or indirect
beneficial interest in WHO. No Total Proceeds have been distributed to date.
During 1998, in connection with certain of our acquisitions, Interliant
paid or accrued transaction fees of approximately $319,000 to Charterhouse,
which is an affiliate of CEP III. Such fees were paid pursuant to the terms of
the WEB LLC Agreement which require WEB or its affiliates (which includes
Interliant) to pay Charterhouse two percent (2%) of the total transaction costs
of each acquisition or investment by WEB or its affiliates (which includes
Interliant) in which Charterhouse or any of its affiliates directly or
indirectly provide all or a portion of the equity financing therefor.
During 1998, we paid consulting fees of $120,000 to each of Sage Equities,
Inc. and Intensity Ventures Inc, whose principals are Messrs. Fassler and Feld,
respectively, pursuant to consulting agreements with each of them. Effective
January 1, 1999, Interliant entered into employment agreements with Messrs.
Fassler, Maggs and Bhargava and a consulting agreement with Mr. Feld, through
Intensity Ventures, Inc., pursuant to which each will be paid annual
compensation of $180,000. See "Management -- Employment Agreements."
55
<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of , 1998 and as adjusted to
reflect the sale of the shares of common stock offered hereby by (i) each person
or entity known to Interliant to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each of Interliant's directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group. Unless otherwise indicated below, to the knowledge of
Interliant, all persons listed below have sole voting and investment power with
respect to their shares of common stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
--------------------- --------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------- ---------- ------- -------- --------
<S> <C> <C> <C> <C>
Web Hosting Organization LLC(2)..................... 25,200,000
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022
Mathew Wolf(3)...................................... 3,945,090
1001 Fannin Street
Suite 2000
Houston, TX 77002
SOFTBANK Technology Ventures IV, L.P................ 3,397,283(4)
333 West San Carlos
Suite 1225
San Jose, CA
Leonard J. Fassler(5)............................... -- -- -- --
Bradley A. Feld(5)(6)............................... -- -- -- --
Stephen W. Maggs(5)................................. -- -- -- --
Francis J. Alfano................................... -- -- -- --
Rajat Bhargava(5)................................... -- -- -- --
Bruce S. Klein...................................... -- -- -- --
William A. Wilson................................... -- -- -- --
Merril M. Halpern(8)................................ -- -- -- --
Thomas C. Dircks(8)(9)(10).......................... -- -- -- --
Patricia A.M. Riley(8)(9)(10)....................... -- -- -- --
Jay M. Gates(8)..................................... -- -- -- --
Charles R. Lax(7)(9)................................ -- -- -- --
All Directors and Executive Officers as a Group (5),
(6) and (7) (18 persons).......................... 316,770 * 316,770 *
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares of common stock subject to
warrants currently exercisable within 60 days of March , 1999 are deemed
outstanding for the purpose of computing the percentage of ownership of the
person holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.
(2) The principal members of WEB are CEP III and WHO. Their respective
ownership interest in WEB are as follows: CEP III: 95.2% and WHO 4.8%.
Leonard J. Fassler and Bradley A. Feld are the member managers of WHO and
Stephen W. Maggs and Rajat Bhargava are among the members. The general
partner of CEP III is CHUSA Equity Investors III, L.P., whose general
partner is Charterhouse Equity III, Inc., a wholly-owned subsidiary of
Charterhouse. As a result of the foregoing, all of the shares of
56
<PAGE> 61
Common Stock of Interliant held by the WEB would for purposes of Section
13(d) of the Securities Exchange Act of 1934, as amended, be considered to
be beneficially owned by Charterhouse.
(3) Includes 398,845 shares of common stock owned by the Ann Weltchek Wolf 1995
Marital Trust, 797,690 shares of common stock owned by the Mathew D. Wolf
Childrens Trust and 350,000 shares of common stock held in escrow until
March 31, 2000. Mr. Wolf disclaims beneficial ownership of all the shares
of common stock owned by both of the trusts named above.
(4) Includes 735,532 shares of common stock issuable upon exercise of warrants
held by SOFTBANK Technology Ventures IV, L.P. Also includes 49,776 shares
of Common Stock and 14,093 shares of Common Stock issuable upon exercise of
warrants owned by SOFTBANK Technology Advisors Fund, L.P., an affiliate of
SOFTBANK Technology Ventures IV, L.P.
(5) Excludes 25,200,000 shares held by WEB. Messrs. Fassler, Feld, Maggs and
Bhargava are members of WHO, which is a member of WEB. Each of Messrs.
Fassler, Feld, Maggs and Bhargava disclaim beneficial ownership of such
shares.
(6) Excludes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P. and
63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Feld, a
Co-chairman and Director of Interliant, is a General Partner of each of
SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology Advisors
Fund, L.P. Mr. Feld disclaims beneficial ownership of such shares.
(7) Excludes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P. and
63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Lax, a
director of Interliant, is a general partner of SOFTBANK Technology
Ventures IV, L.P. Mr. Lax disclaims beneficial ownership of such shares.
(8) Excludes 25,200,000 shares held by WEB. Messrs. Halpern, Dircks, Gates and
Ms. Riley are directors and/or officers of Charterhouse. Charterhouse is an
affiliate of CEP III which is a member of WEB. Each of Messrs. Halpern,
Dircks, Gates and Ms. Riley disclaim beneficial ownership of such shares.
(9) A member of the Compensation Committee of the Board of Directors.
(10) A member of the Audit Committee of the Board of Directors.
57
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description of Interliant's capital stock does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Amended and Restated Certificate of Incorporation and the
By-laws of Interliant, copies of which have been filed as exhibits to the
Registration Statement of which this prospectus is a part.
The authorized capital stock of Interliant consists of 100,000,000 shares
of common stock, par value $0.01 per share (the "Common Stock"), and
shares of undesignated preferred stock, par value $0.01 per share (the
"Preferred Stock").
COMMON STOCK
As of the date of this prospectus, and including 2,647,658 shares of Common
Stock to be issued upon the conversion of all outstanding Series A Redeemable
Convertible Preferred Stock upon the consummation of this offering (see "-- The
SOFTBANK Investment"), there are shares of Common Stock
outstanding, held of record by holders. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby will be, when
issued against the consideration set forth in this prospectus, fully paid and
nonassessable. Subject to the rights of any holders of Preferred Stock, each
holder of Common Stock is entitled to receive dividends out of funds legally
available therefor when, as and if declared by the Board of Directors of
Interliant (the "Board"). Dividends may be paid in cash, property or shares of
Interliant's capital stock.
The holders of Common Stock will possess exclusive voting rights in
Interliant, except to the extent that the Board shall have designated voting
power with respect to any issued and outstanding Preferred Stock. Each holder of
Common Stock is entitled, on each matter submitted for a vote of holders of
Common Stock, to one vote for each share of such stock registered in such
holder's name on the books of Interliant. Except as otherwise required by law
and subject to the rights of any holders of Preferred Stock, the presence in
person or by proxy of the holders of record of a majority of the shares entitled
to vote at a meeting of stockholders constitutes a quorum for the transaction of
business at that meeting. Actions requiring approval of stockholders will
generally require approval by a majority vote at a meeting at which a quorum is
present, except that at each stockholder meeting for the election of directors,
provided a quorum is present, directors will be elected by a plurality of votes
validly cast in the election. Stockholders will not have any right to cumulate
votes in the election of directors. Certain stockholders of Interliant have been
given the right to nominate persons for election as directors. See "-- The
SOFTBANK Investment" and "-- The Interliant Acquisition."
In the event of liquidation, dissolution or winding up of Interliant, the
holders of the Common Stock will be entitled to share ratably in the
distribution of all assets of Interliant remaining after payment of all of
Interliant's debts and liabilities and of all sums to which holders of any
Preferred Stock may be entitled. Holders of the Common Stock will not generally
be entitled to conversion, preemptive or other subscription rights with respect
to any shares of capital stock which may be issued by Interliant, and there are
no redemption or sinking fund provisions applicable to the Common Stock.
PREFERRED STOCK
Currently, excluding 2,647,658 shares of Series A Redeemable Convertible
Preferred Stock that will be converted into an equal number of shares of Common
Stock upon the consummation of this offering and which will then cease to exist
(see "-- The SOFTBANK Investment"), there are no shares of Preferred Stock
issued or outstanding. The Preferred Stock may be issued by the Board in one or
more series and may have such voting rights, if any, designations, preferences
and other special rights and such qualifications, limitations and restrictions,
as the Board (or a duly authorized committee thereof) may fix by resolution or
resolutions. Moreover, the Board may issue such Preferred Stock, from time to
time, in transactions without the approval of the stockholders of Interliant,
and the preferences, designations, voting and other rights of any
58
<PAGE> 63
such shares of Preferred Stock may materially limit or qualify the rights of the
outstanding shares of Common Stock.
The holders of Preferred Stock may be given the right to vote for the
election of directors generally or to elect a specified number or percentage of
the members of the Board. The number of directors that may be elected by the
holders of any class or series of Preferred Stock having the right to elect
directors may be in addition to the number of directors fixed by or pursuant to
the Amended and Restated Certificate.
One of the effects of undesignated Preferred Stock may be to enable the
Board to render more difficult or to discourage an attempt to obtain control of
Interliant by means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of Interliant's management. The issuance of
shares of Preferred Stock pursuant to the Board's authority described above may
adversely affect the rights of the holders of Common Stock. For example,
Preferred Stock issued by Interliant may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of Preferred Stock may discourage bids for the Common Stock
at a premium or may otherwise adversely affect the market price of the Common
Stock.
COMMON STOCK WARRANTS
Interliant has warrants outstanding for the purchase of 749,625 shares of
Common Stock at an exercise price of $6.67 per share. Warrants to purchase
735,532 shares of Common Stock at an exercise price of $6.67 per share were
issued to SOFTBANK Technology Ventures IV, L.P. and warrants to purchase 14,093
shares of Common Stock at an exercise price of $6.67 per share were issued to
SOFTBANK Technology Advisors Fund, L.P., each in connection with a Securities
Purchase Agreement dated as of January 28, 1999 between Interliant and the
SOFTBANK Purchasers. Such warrants are immediately exercisable and expire on the
earlier of (i) the date three years following the closing of the offering
contemplated by this prospectus and (ii) January 28, 2003. The exercise price
and number of shares of Common Stock issuable upon exercise of the
aforementioned warrants are subject to adjustment upon the occurrence of certain
events, including stock splits, stock dividends or other distributions,
reorganizations, recapitalizations, mergers, consolidations or sales. The shares
of Common Stock issuable upon exercise of the warrants are subject to certain
registration rights as described under "-- Registration Rights of Certain
Holders" below.
THE WEB HOSTING ORGANIZATION INVESTMENT
WEB owns 25,200,000 shares of Common Stock, approximately % of
Interliant's outstanding Common Stock following consummation of the offering
contemplated by this prospectus, acquired in accordance with a Subscription
Agreement dated as of December 8, 1997 between Interliant and WEB for an
aggregate purchase price of $42,000,000 (the "WEB Hosting Organization
Investment"). The shares were acquired in a series of 6 transactions in December
1997, May 1998, June 1998, September 1998, December 1998 and February 1999, in
each case at a price (giving effect to the 3-for-1 stock split effective in July
1998) of $1.67 per share. The principal members of WEB are (i) CEP III, which is
an affiliate of Charterhouse and (ii) WHO (collectively with CEP III, the "WEB
Members"), of which Leonard J. Fassler and Bradley A. Feld are the member
managers. WHO is the Managing Member of WEB under the terms of WEB's Limited
Liability Company Agreement. The WEB Members have agreed that WEB shall be under
the exclusive direction of a management committee comprised of seven members and
will vote such member's interest in WEB so that a majority of the members of
such management committee will be designees of Charterhouse. Pursuant to an
agreement dated November 26, 1997 among CEP III, Leonard J. Fassler and Bradley
A. Feld, the Board of Directors of Interliant will initially consist of three
designees of WHO and four designees of CEP III. The WHO designees are currently
Leonard J. Fassler, Bradley A. Feld and Stephen W. Maggs, and the CEP III
designees are currently Merril M. Halpern, Thomas C. Dircks, Patricia A. M.
Riley and Jay M. Gates. All of the CEP III designees are directors and/or
officers of Charterhouse. Pursuant to that agreement, unless CEP III and the
member managers agree, the only business Interliant will be involved in will be
acquiring and operating businesses in the Web hosting industry. WEB has certain
demand and incidental registration rights under the terms of (i) that certain
Investors Agreement dated as of January 28,
59
<PAGE> 64
1999 by and among Interliant, the SOFTBANK Purchasers and WEB (the "Investors
Agreement") and (ii) that certain Registration Rights Agreement dated as of
December 8, 1997 between Interliant and WEB (the "Registration Rights
Agreement"). See "-- Registration Rights of Certain Holders."
THE SOFTBANK INVESTMENT
On January 28, 1999, the SOFTBANK Purchasers purchased from Interliant an
aggregate of 2,647,658 shares of Redeemable Convertible Preferred Stock and
warrants to purchase 749,625 shares of Common Stock for an aggregate purchase
price of $13,000,000 (the "SOFTBANK Investment"). Upon the consummation of the
offering contemplated by this prospectus, all of the outstanding shares of
Redeemable Convertible Preferred Stock will automatically and without further
required action be converted into an equal number of shares of Common Stock, and
the SOFTBANK Purchasers will own approximately % of Interliant's
outstanding Common Stock. Bradley A. Feld, Co-Chairman and a director of
Interliant, is a general partner of the SOFTBANK Purchasers. See "Certain
Transactions." The SOFTBANK Purchasers have certain demand and incidental
registration rights under the terms of the Investors Agreement. See
"Registration Rights of Certain Holders." A majority in interest of the SOFTBANK
Purchasers also have the right, under the Investors Agreement, to nominate one
person for election as a director of Interliant and have the Board cause that
director to be a member of the Compensation Committee and/or the Audit Committee
of the Board. Such director will be subject to removal by the SOFTBANK
Purchasers at any time, with or without cause, and the SOFTBANK Purchasers will
have the right to call a special meeting of stockholders at any time for the
sole purpose of removing and replacing such director. WEB has agreed to vote its
shares in a manner consistent with these and the other terms of the Investors
Agreement. Mr. Charles R. Lax is currently serving as a director and a member of
the Compensation Committee of the Board of Directors of Interliant pursuant to
such provisions.
THE INTERLIANT ACQUISITION
On March 10, 1999, pursuant to an Asset Purchase Agreement (the "Purchase
Agreement") by and among Interliant, (formerly Sage Networks, Inc.), Interliant
Texas and the shareholders of Interliant Texas (the "Seller Shareholders"),
Interliant (partly through a wholly-owned subsidiary) acquired substantially all
of the assets and assumed specified liabilities of Interliant Texas for $100,000
in cash, 4,091,642 shares of Common Stock and the assumption of promissory notes
in favor of Mathew Wolf and Erving Wolf in the aggregate amount of $15.9
million. Upon the closing of the acquisition, the $7.9 million note in favor of
Erving Wolf was paid in full and the $8.0 million note issued by Interliant
Texas in favor of Mathew Wolf was canceled and replaced by the Wolf Note. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The 4,091,642 shares of Common Stock issued in connection with the
acquisition were delivered pursuant to an Agreement to Deliver Shares which
provided, among other things 3,608,863 shares of Common Stock to be delivered at
the closing of the acquisition to Seller Shareholders, 114,644 shares of Common
Stock to be delivered at the closing of the acquisition to another entity,
18,135 shares of Common Stock to be delivered on the first business day
following January 1, 2000 and 350,000 shares of Common Stock to be placed in
escrow to support the indemnification obligations of Interliant Texas and the
Seller Shareholders under the Purchase Agreement. Unless Interliant makes a
claim against the escrowed shares in accordance with the provisions of the
Purchase Agreement, the shares of Common Stock placed in escrow will be
distributed to Mathew Wolf, one of the Seller Shareholders, on March 31, 2000.
In addition, under the Purchase Agreement, Interliant issued options
to purchase shares of Common Stock ("Interliant Options") of Interliant at an
exercise price of $0.13 per share. All or a portion of such Interliant Options
are fully vested and exercisable.
The Shareholders have certain incidental registration rights under the
terms of the Shareholders Agreement, dated as of March 10, 1999 by and among all
of the Shareholders of Interliant (the "Shareholders Agreement"). See
"-- Registration Rights of Certain Holders."
60
<PAGE> 65
For so long as all of the parties who received shares of Common Stock
pursuant to the Agreement to Deliver Shares and certain holders of the
Interliant Options own in the aggregate 5% of more of the issued and outstanding
Common Stock, such parties shall have the right to nominate one person for
election as a director of Interliant. To date, such parties have not exercised
such rights.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of an aggregate of 27,847,658 shares of Common Stock and
749,625 shares of Common Stock issuable upon the exercise of warrants have been
granted by Interliant certain demand and incidental registration rights. The
SOFTBANK Purchasers have such registration rights under the Investors Agreement
with respect to (i) 2,647,658 shares of Common Stock to be received upon the
consummation of this offering from the conversion of an equal number of shares
of Redeemable Convertible Preferred Stock and (ii) 749,625 shares of Common
Stock receivable upon the exercise of warrants, each purchased as part of the
SOFTBANK Investment. WEB has such registration rights under the terms of each of
the Investors Agreement and the Registration Rights Agreement with respect to
25,200,000 shares of Common Stock purchased as part of the WEB Hosting
Organization Investment. The Seller Shareholders have such rights under the
terms of the Shareholders Agreement with respect to 3,608,863 shares of Common
Stock received as consideration for the sale of substantially all of the assets
of Interliant Texas and Broadview Holdings LLP has such rights with respect to
114,644 shares owned by it. The Shareholders Agreement provides that it shall be
amended as necessary to include any additional shares of Common Stock issuable
pursuant to the provisions in the Purchase Agreement regarding adjustment of
purchase price.
In general, the holders of the aforementioned registration rights are
entitled, if Interliant proposes (including in connection with any registration
request by another stockholder) to file a registration statement under the
Securities Act covering its Common Stock or any securities exercisable or
exchangeable for or convertible into its Common Stock (with the exception of an
offering pursuant to a registration statement on Form S-4 or Form S-8 or similar
forms in connection with an exchange offer or any offering of securities solely
to Interliant's existing stockholders or employees of Interliant and its
subsidiaries and other than in connection with the offering contemplated by this
prospectus), to require Interliant to include a requested amount of their Common
Stock in Interliant's registered offering on the same terms and conditions
applicable to the other equity securities included in such registration
statement (a "Piggyback Registration Right"), subject to reduction if the
managing underwriter determines that the inclusion of such shares would
materially and adversely affect the success of this offering. Interliant can be
required to maintain the effectiveness of the registration statement until the
earlier of (i) 180 days after its effective date or (ii) consummation of the
distribution of Common Stock by the stockholders whose shares of Common Stock
are included in such registration statement.
In addition to Piggyback Registration Rights, the holders of the
aforementioned registration rights other than the Seller Shareholders and
Broadview Holdings LLP are also entitled to require Interliant to include a
requested amount of their Common Stock in a registration statement on Form S-1,
Form S-2 or Form S-3 and to use its best efforts to register such shares under
the Securities Act of 1933, as amended (a "Demand Registration Right"), subject
to reduction based on the advice of the managing underwriter. A majority in
interest of the SOFTBANK Purchasers may exercise two Demand Registration Rights
with respect to the registration of shares of Common Stock on Form S-1, and
twenty percent in interest of the SOFTBANK Purchasers may exercise two Demand
Registration Rights with respect to the registration of shares of Common Stock
on Form S-3 at any time Interliant becomes eligible to use Form S-3. WEB may
exercise three Demand Registration Rights with respect to the shares of Common
Stock that it owns. However, Interliant is not obligated to effect Demand
Registration Rights at any time prior to the date six months following the
consummation of the offering contemplated by this prospectus, and Interliant may
also defer the effective date of a Demand Registration Right for a period of up
to 180 days under certain circumstances involving undisclosed material corporate
developments or transactions.
Each stockholder with the foregoing Piggyback Registration Rights and
Demand Registration Rights whose shares of Common Stock are included in a
registration statement must agree not to offer for public sale any shares of
Common Stock or securities exercisable or exchangeable for or convertible into
Common Stock,
61
<PAGE> 66
or effect any sale of securities pursuant to Rule 144 under the Securities Act
of 1933, as amended, during the ten days prior to and the 180 days after the
closing date of any underwritten offering unless such shares are covered by such
registration statement or a shorter period is agreed to by the managing
underwriter. Interliant is required to bear all related registration expenses
(excluding any underwriting discounts or commissions, if any), disbursements and
fees in connection with the exercise of Piggyback Registration Rights and Demand
Registration Rights.
In addition, in connection with the issuance to Mr. Steven C. Dabbs of
150,000 shares of Common Stock of Interliant in connection with the acquisition
of substantially all of the assets of Clever Computers, Inc. by Interliant,
Interliant agreed that in the event it grants registration rights with respect
to shares of Common Stock to any other employee of Interliant or its affiliates,
employed in a position comparable or junior to Mr. Dabbs, identical registration
rights shall be given to Mr. Dabbs.
LIMITATIONS ON DIRECTOR LIABILITY
Interliant's Amended and Restated Certificate contains a provision that is
designed to limit the directors' liability to the extent permitted by the
Delaware General Corporation Law and any amendments thereto. Specifically,
directors will not be held liable to Interliant or its stockholders for an act
or omission in such capacity as a director, except for liability as a result of:
(i) a breach of the duty of loyalty to Interliant or its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) payment of an improper dividend or improper
repurchase of Interliant's stock under Section 174 of the Delaware General
Corporation Law, or (iv) actions or omissions pursuant to which the director
received an improper personal benefit. The principal effect of the limitation on
liability provision is that a stockholder is unable to prosecute an action for
monetary damages against a director of Interliant unless the stockholder can
demonstrate one of the specified bases for liability. This provision, however,
does not eliminate or limit director liability arising in connection with causes
of action brought under the federal securities laws. Interliant's Amended and
Restated Certificate does not eliminate its directors' duty of care. The
inclusion of this provision in Interliant's Amended and Restated Certificate
may, however, discourage or deter stockholders or management from bringing a
lawsuit against directors for a breach of their fiduciary duties, even though
such an action, if successful, might otherwise have benefit Interliant and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care.
The By-laws also provide that Interliant will indemnify its directors and
officers to the fullest extent permitted by Delaware law. Interliant is
generally required to indemnify its directors and officers for all judgments,
fines, settlements, legal fees and other expenses incurred in connection with
pending or threatened legal proceedings because of the director's or officer's
position with Interliant or another entity that the director or officer serves
at Interliant's request, subject to certain conditions, and to advance funds to
its directors and officers to enable them to defend against such proceedings. To
receive indemnification, the director or officer must have been successful in
the legal proceeding or acted in good faith and in what was reasonably believed
to be a lawful manner in Interliant's best interest.
DELAWARE ANTI-TAKEOVER LAW
Interliant is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 prohibits an "interested
stockholder" of a Delaware corporation from engaging in certain business
combinations with the corporation, including mergers or consolidations or
acquisitions of additional shares of the corporation, for a period of three
years following the time that the stockholder becomes an "interested
stockholder." An "interested stockholder" is defined to include persons owning
directly or indirectly 15% or more of the outstanding voting stock of a
corporation. The prohibitions under Section 203 are not applicable in certain
circumstances, including those in which (i) the business combination or the
transaction which results in the stockholder becoming an "interested
stockholder" is approved by the corporation's board of directors prior to the
time the stockholder becomes an "interested stockholder", (ii) the "interested
stockholder" upon consummation of such transaction owns at least 85% of the
voting stock of the corporation outstanding prior to such transaction, (iii) at
or subsequent to the time the stockholder becomes
62
<PAGE> 67
an "interested stockholder", the business combination is approved by the
corporation's board of directors and authorized at an annual or special meeting
of stockholders by an affirmative vote of two-thirds of the outstanding voting
stock which is not owned by the "interested stockholder" or (iv) the corporation
has elected not to be governed by such prohibitions. The Board approved (i) the
acquisition of Common Stock by WEB as part of their approval of WEB Hosting
Organization Investment and (ii) the acquisition of Preferred Stock and warrants
by the SOFTBANK Purchasers as part of their approval of the SOFTBANK Investment
and, accordingly, the prohibitions under Section 203 will not apply to any
business combination with either WEB or the SOFTBANK Purchasers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Interliant will have
shares of Common Stock outstanding (assuming no exercise of outstanding stock
options after , 1998). Of these shares, the shares
of Common Stock sold in this offering will be freely tradable without
restriction under the Securities Act, except that any shares purchased by
"affiliates" of Interliant ("Affiliates"), as that term is defined in Rule 144
("Rule 144") under the Securities Act, generally may be sold only in compliance
with the limitations of Rule 144 described below.
SALES OF RESTRICTED SECURITIES
The remaining shares of Common Stock outstanding upon
completion of this offering are deemed "Restricted Shares" under Rule 144. Of
the Restricted Shares, up to shares will be eligible for sale in
the public market after this offering pursuant to Rule 144(k) under the
Securities Act; of these shares are subject to the 180-day Lock-up Agreements
described below, but will be eligible for sale in the public market beginning
180 days after the closing of this offering. Of the remaining Restricted Shares
outstanding, shares will be eligible for resale under Rule 144
commencing 90 days after the date of this prospectus; of these
shares are subject to the 180-day Lock-up Agreements.
In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who beneficially owns shares that were not acquired from Interliant or an
Affiliate within the previous one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (approximately shares
immediately after this offering) or the average weekly trading volume of the
Common Stock in the over-the-counter market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about Interliant. A person who is not deemed an Affiliate of
Interliant at any time during the three months preceding a sale and who
beneficially owns shares that were not acquired from Interliant or an Affiliate
within the previous two years is entitled to sell such shares under Rule 144(k)
without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information concerning
Interliant. In addition, Interliant's employees, directors, officers or
consultants who were issued shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701 which
permits non-affiliates to sell their Rule 701 shares without having to comply
with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the date of this prospectus.
OPTIONS
Interliant intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to Interliant's
stock option plans. Shares covered by these registration statements will
thereupon be
63
<PAGE> 68
eligible for sale in the public markets, subject to the 180-day Lock-up
Agreements described below, to the extent applicable.
LOCK-UP AGREEMENTS
Interliant and Interliant's executive officers and directors and all
existing stockholders have agreed, not to directly or indirectly (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for or repayable with
Common Stock, whether now owned or thereafter acquired by the person executing
the agreement or with respect to which the person executing the agreement
thereafter acquires the power of disposition, or file a registration statement
under the Securities Act with respect to the foregoing; (ii) enter into any swap
or other agreement that transfers, in whole or in part, the economic consequence
of ownership of the Common Stock whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise;
or (iii) make any demand for, or exercise any right with respect to, the
registration of any share of Common Stock or any securities convertible into or
exchangeable for Common Stock, without the prior written consent of Merrill
Lynch on behalf of the Underwriters for a period of 180 days after the date of
this prospectus. Notwithstanding the foregoing, the stockholders of Interliant
may (i) transfer the securities to a third party as a bona fide gift; provided
that any donee agrees to be bound by the provisions of the agreement or (ii)
pledge their securities to Interliant in consideration for a loan from
Interliant.
EFFECT OF SALES OF SHARES
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares for future sale will have
on the prevailing market price for the Common Stock. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and could impair
Interliant's future ability to raise capital through an offering of equity
securities.
64
<PAGE> 69
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Donaldson, Lufkin & Jenrette and CIBC Oppenheimer Corp. are acting as
representatives (the "Representatives") of each of the Underwriters named below
(the "Underwriters"). Subject to the terms and conditions set forth in a
purchase agreement (the "Purchase Agreement") among Interliant and the
Underwriters, Interliant has agreed to sell to the Underwriters, and each of the
Underwriters severally and not jointly has agreed to purchase from Interliant,
the number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Donaldson, Lufkin & Jenrette................................
CIBC Oppenheimer Corp.......................................
Total..........................................
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to each such agreement if any of the shares of
Common Stock being sold pursuant to such agreement are purchased. In the event
of a default by an Underwriter, the Purchase Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may be
increased or the Purchase Agreement may be terminated. The closing with respect
to the sale of shares of Common Stock to be purchased by the Underwriters are
conditioned upon one another.
The Representatives have advised Interliant that the Underwriters propose
initially to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per share
of Common Stock. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of Common Stock to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
Interliant has granted options to the Underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of additional
shares of Common Stock at the public offering price set forth on the cover page
of this prospectus, less the underwriting discount. The Underwriters may
exercise these options solely to cover over-allotments, if any, made on the sale
of the Common Stock offered hereby. To the extent that the Underwriters exercise
these options, each Underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of Common Stock
proportionate to such Underwriter's initial amount reflected in the foregoing
table.
The following table shows the per share and total public offering price,
underwriting discount to be paid by Interliant to the Underwriters and the
proceeds before expenses to Interliant. This information is presented assuming
either no exercise or full exercise by the Underwriters of their over-allotment
options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price.......................... $ $ $
Underwriting Discount.......................... $ $ $
Proceeds, before expenses, to Interliant....... $ $ $
</TABLE>
The expenses of the offerings (exclusive of the underwriting discount and
commissions) are estimated at $ and are payable by Interliant.
65
<PAGE> 70
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters 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.
At the request of Interliant, the Underwriters have reserved for sale, at
the initial public offering price, up to of the shares offered
hereby to be sold to certain directors, officers, employees, distributors,
dealers, business associates and related persons of Interliant. The number of
shares of Common Stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which are not orally confirmed for purchase within one day of the pricing of
this offering will be offered by the Underwriters to the general public on the
same terms as the other shares offered in this prospectus.
Interliant and Interliant's executive officers and directors and all
existing stockholders have agreed, subject to certain exceptions, not to
directly or indirectly (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for or repayable with Common Stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the Securities Act with respect to the
foregoing; (ii) enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of the Common Stock whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities, in cash or otherwise; or (iii) make any demand for, or
exercise any right with respect to, the registration of any share of Common
Stock or any securities convertible into or exchangeable for Common Stock,
without the prior written consent of Merrill Lynch on behalf of the Underwriters
for a period of 180 days after the date of this prospectus. Notwithstanding the
foregoing, the stockholders of Interliant may (i) transfer the securities to a
third party as a bona fide gift; provided that any donee agrees to be bound by
the provisions of the agreement or (ii) pledge their securities to Interliant in
consideration for a loan from Interliant. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no public market for the Common
Stock of Interliant. The initial public offering price will be determined
through negotiations between Interliant and the Representatives. The factors to
be considered in determining the initial public offering price, in addition to
prevailing market conditions, are expected to be price-earnings ratios of
publicly traded companies that the Representatives believe to be comparable to
Interliant, certain financial information of Interliant, the history of, and the
prospects for, Interliant and the industry in which it competes, and an
assessment of Interliant's management, its past and present operations, the
prospects for, and timing of, future revenues of Interliant, and the present
state of Interliant's development. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to this offering at or above the initial
public offering price.
The Underwriters do not expect sales of the Common Stock to be made to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Interliant has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect of
this offering.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Representatives are permitted
to engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
66
<PAGE> 71
If the Underwriters create a short position in the Common Stock in
connection with the offering contemplated hereby, i.e., if they sell more shares
of Common Stock than are set forth on the cover page of this prospectus, the
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment options described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither Interliant nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
Interliant nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Interliant by Dewey Ballantine LLP, New York, New York. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation.
EXPERTS
The consolidated financial statements of Sage Networks, Inc. at December
31, 1997 and 1998, and for the period December 8, 1997 (inception) to December
31, 1997 and the year ended December 31, 1998, and the financial statements of
Interliant, Inc. at December 31, 1997 and 1998, and for each of the three years
in the period ended December 31, 1998, appearing in this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon the authority of such firm as experts in
accounting and auditing.
The balance sheets of B.N. Technology, Inc. dba Internet Communications, as
of December 31, 1996 and 1997, and the related statements of operations and
accumulated deficit, and cash flows for the period April 15, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997 included in
this prospectus have been so included in reliance on the report of Frankel,
Lodgen, Lacher, Golditch, Sardi & Howard, independent accountants given on the
authority of said firm as experts in auditing and accounting.
The balance sheet of Clever Computers, Inc., as of December 31, 1996 and
1997 and the related statements of income, retained earnings, and cash flows for
the years then ended included in this prospectus have been so included in
reliance on the report of BSC&E, independent accountants given on the authority
of said firm as experts in auditing and accounting.
The statements of assets and liabilities as of December 31, 1996 and 1997,
and the statements of revenue and expenses and of cash flows for each of the
three years in the period ended December 31, 1997, of HostAmerica, a division of
HomeCom Communications, Inc., included in this prospectus, have been included
herein in reliance on the report, which includes an explanatory paragraph
regarding basis of presentation, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of Net Daemons Associates, Inc., for the years
ended December 31, 1997 and 1998 included in this prospectus and in the
registration statement have been audited by Deloitte & Touche
67
<PAGE> 72
LLP, independent accountants as stated in their report appearing herein and
elsewhere in the registration statement and is included in reliance upon the
report of such firm given upon the authority of said firm as experts in auditing
and accounting.
The financial statements of Telephonetics International, Inc. and Affiliate
included in this prospectus and registration statement have been audited by BDO
Seidman, LLP, independent certified public accountants to the extent and for the
periods set forth in their report appearing elsewhere herein and in this
registration statement and are included in reliance on such reports given upon
the authority of said firm as experts in auditing and accounting.
The balance sheets of Tri Star Web as of December 31, 1996 and 1997 and the
related statements of operations, and changes in retained earnings, and cash
flows for the years then ended, and the consolidated balance sheets of GEN
International Inc. and subsidiaries as of December 31, 1995, 1996 and 1997, and
the related consolidated statements of operations, changes in stockholders'
deficiency, and cash flows for the period April 4, 1995 (inception) through
December 31, 1995 and the years ended December 31, 1996 and 1997 and the balance
sheets of Digiweb, Inc. as of December 31, 1997 and 1998 and the related
statements of income, cash flows and changes in stockholders' equity for the
years then ended included in this prospectus have been so included in reliance
on the reports of Urbach Kahn & Werlin PC, independent accountants given on the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
Interliant has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to Interliant and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith. Statements contained in this
prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the offices of the Commission in Washington, D.C. 20549, and copies of all or
any part of the Registration Statement may be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 upon the payment of the fees
prescribed by the Commission. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as Interliant, that file
electronically with the Commission.
68
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SAGE NETWORKS, INC.
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-4
Consolidated Statements of Operations for the Period
December 8, 1997 (inception) to December 31, 1997 and the
Year Ended December 31, 1998.............................. F-5
Consolidated Statements of Stockholders' Equity for the
period December 8, 1997 (inception) to December 31, 1997
and the year ended December 31, 1998...................... F-6
Consolidated Statements of Cash Flows for the Period
December 8, 1997 (inception) to December 31, 1998 and the
Year Ended December 31, 1998.............................. F-7
Notes to Consolidated Financial Statements.................. F-8
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Statement of Operations.............. F-17
Pro Forma Consolidated Balance Sheet........................ F-18
Notes to Pro Forma Consolidated Financial Statements........ F-19
ACQUIRED COMPANY (CLEVER COMPUTERS, INC.)
Independent Auditors' Report................................ F-21
Balance Sheets as of December 31, 1996 and 1997............. F-22
Statement of Income for the Years Ended December 31, 1996
and December 31, 1997..................................... F-23
Statement of Retained Earnings for the Years Ended December
31, 1996 and December 31, 1997............................ F-24
Statement of Cash Flows for the Years Ended December 31,
1996 and December 31, 1997................................ F-25
Notes to Financial Statements............................... F-26
ACQUIRED COMPANY (TRI STAR WEB CREATIONS, INC.)
Independent Auditor's Report................................ F-28
Balance Sheets as of December 31, 1996 and 1997............. F-29
Statement of Operations and Changes in Retained Earnings For
the Years Ended December 31, 1996 and 1997................ F-30
Statements of Cash Flows for the Years Ended December 31,
1996 and 1997............................................. F-31
Notes to Financial Statements............................... F-32
ACQUIRED COMPANY (HOSTAMERICA DIVISION OF HOMECOM
COMMUNICATIONS, INC.)
Report of Independent Accountants........................... F-34
Statements of Assets and Liabilities as of December 31, 1996
and 1997.................................................. F-35
Statements of Revenues and Expenses......................... F-36
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997....................................... F-37
Notes to Financial Statements............................... F-38
ACQUIRED COMPANY (B.N. TECHNOLOGY, INC.)
Independent Auditor's Report................................ F-41
Balance Sheets as of December 31, 1996 and 1997............. F-42
Statements of Operations and Accumulated Deficit for the
Period from April 15, 1996 through December 21, 1996 and
the Year Ended December 31, 1997.......................... F-43
Statements of Cash Flows for the Period from April 15, 1996
through December 21, 1996 and the Year Ended December 31,
1997...................................................... F-44
Notes to Financial Statements............................... F-45
</TABLE>
F-1
<PAGE> 74
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACQUIRED COMPANY (GEN INTERNATIONAL, INC. AND SUBSIDIARIES)
Independent Auditor's Report................................ F-48
Balance Sheets as of December 31, 1995, 1996 and 1997....... F-49
Statements of Operations for the Period April 4, 1995
(inception) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997................................ F-50
Statements of Cash Flows for the Period April 4, 1995
(inception) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997................................ F-51
Statements of Changes in Stockholders' Deficiency for the
Period April 4, 1995 (inception) through December 31, 1995
and the Years Ended December 31, 1996 and 1997............ F-52
Notes to Financial Statements............................... F-53
ACQUIRED COMPANY (DIGIWEB, INC.)
Independent Auditor's Report................................ F-56
Balance Sheets as of December 31, 1997 and 1998............. F-57
Statements of Income for the Years Ended December 31, 1997
and 1998.................................................. F-58
Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997 and 1998.......................... F-59
Statements of Cash Flows for the Years Ended December 31,
1997 and 1998............................................. F-60
Notes to Financial Statements............................... F-61
ACQUIRED COMPANY (TELEPHONETICS INTERNATIONAL, INC. AND
STATE OF THE ART, INC
Report of Independent Certified Public Accountants.......... F-64
Combined Balance Sheet as of December 31, 1998.............. F-65
Combined Statements of Operations for the Years Ended
December 31, 1997 and 1998................................ F-66
Combined Statements of Capital Deficit for the Years Ended
December 31, 1997 and 1998................................ F-67
Combined Statements of Cash Flows for the Years Ended
December 31, 1997 and 1998................................ F-68
Summary of Significant Accounting Policies.................. F-69
Notes to Combined Financial Statements...................... F-71
ACQUIRED COMPANY (NET DAEMONS ASSOCIATES, INC.)
Independent Auditor's Report................................ F-74
Balance Sheets as of December 31, 1997 and 1998............. F-75
Statements of Income for the Years Ended December 31, 1997
and 1998.................................................. F-76
Statements of Stockholders' Deficit for the Years Ended
December 31, 1997 and 1998................................ F-77
Statements of Cash Flows for the Years Ended December 31,
1997 and 1998............................................. F-78
Notes to Financial Statements............................... F-79
ACQUIRED COMPANY (INTERLIANT, INC.)
Report of Independent Auditors.............................. F-84
Balance Sheets as of December 31, 1997 and 1998............. F-85
Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998....................................... F-86
Statements of Shareholders' Deficit for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-87
Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998....................................... F-88
Notes to Consolidated Financial Statements.................. F-89
</TABLE>
F-2
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sage Networks, Inc.
We have audited the accompanying consolidated balance sheets of Sage
Networks, Inc. (the Company) as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period December 8, 1997 (inception) to December 31, 1997 and the year ended
December 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sage Networks, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for the period December 8, 1997 (inception)
to December 31, 1997 and the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
February 15, 1999, except for the last paragraph of Note 12,
as to which the date is March 10, 1999
F-3
<PAGE> 76
SAGE NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 912,085 $ 6,813,360
Accounts receivable, net of allowance of $320,000......... 806,322
Prepaid expenses and other current assets................. 14,000 639,662
----------- -----------
Total current assets.............................. 926,085 8,259,344
----------- -----------
Furniture, fixtures and equipment, net.................... 27,063 5,103,123
Intangibles, net.......................................... 13,634,772
Other assets.............................................. 222,172
----------- -----------
Total assets...................................... $ 953,148 $27,219,411
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 84,389 $ 787,412
Accrued expenses.......................................... 26,507 2,301,507
Deferred revenue.......................................... 1,414,969
----------- -----------
Total current liabilities......................... 110,896 4,503,888
Stockholders' equity:
Common stock, par value $.01; 30,000,000 shares
authorized; 3,000,000 and 19,217,197 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 30,000 192,172
Additional paid-in capital................................ 4,970,000 34,160,334
Stock subscription receivable............................. (4,000,000)
Deferred compensation..................................... (1,769,429)
Accumulated deficit....................................... (157,748) (9,867,554)
----------- -----------
Total stockholders' equity........................ 842,252 22,715,523
----------- -----------
Total liabilities and stockholders' equity........ $ 953,148 $27,219,411
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
SAGE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
DECEMBER 8,
1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- ------------
<S> <C> <C>
Service revenues............................................ $ 4,905,027
Costs and expenses:
Cost of service revenues.................................. 3,236,385
Sales and marketing....................................... 2,555,035
General and administrative................................ $ 155,898 5,120,595
Depreciation.............................................. 1,850 696,039
Amortization of intangibles............................... 1,416,882
Start-up and acquisition integration costs................ 1,727,970
---------- -----------
157,748 14,752,906
---------- -----------
Operating loss.............................................. (157,748) (9,847,879)
Interest income............................................. 138,073
---------- -----------
Net loss.................................................... $ (157,748) $(9,709,806)
========== ===========
Net loss per share -- basic and diluted..................... $ (0.05) $ (1.10)
========== ===========
Weighted average shares outstanding......................... 3,000,000 8,799,432
========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
SAGE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL STOCK TOTAL
PAR PAID-IN SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL RECEIVABLE COMPENSATION DEFICIT EQUITY
---------- --------- ----------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales of common
stock............... 3,000,000 $ 30,000 $ 4,970,000 $(4,000,000) $ 1,000,000
Net loss.............. $ (157,748) (157,748)
---------- -------- ----------- ----------- ----------- ----------- -----------
Balance as of December
31, 1997............ 3,000,000 30,000 4,970,000 (4,000,000) (157,748) 842,252
Sales of common
stock............. 15,600,000 156,000 25,884,000 4,000,000 30,040,000
Deferred
compensation...... 475,000 4,750 2,600,750 $(2,602,250) 3,250
Amortization of
deferred
compensation...... 832,821 832,821
Issuance of common
stock in
connection with
acquisitions...... 142,197 1,422 705,584 707,006
Net loss............ (9,709,806) (9,709,806)
---------- -------- ----------- ----------- ----------- ----------- -----------
Balance as of December
31, 1998............ 19,217,197 $192,172 $34,160,334 $ -- $(1,769,429) $(9,867,554) $22,715,523
========== ======== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
SAGE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
DECEMBER 8, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................. $ (157,748) $(9,709,806)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for uncollectible accounts.................. 320,000
Depreciation and amortization......................... 1,850 2,112,921
Amortization of deferred compensation................. 832,821
Changes in operating assets and liabilities:
Accounts receivable................................. (980,391)
Prepaid expenses and other current assets........... (14,000) (602,457)
Accounts payable.................................... 84,389 639,607
Accrued expenses.................................... 26,507 1,140,135
Deferred revenue.................................... 246,502
---------- -----------
Net cash used in operating activities.................... (59,002) (6,000,668)
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment........... (28,913) (4,321,577)
Acquisitions of businesses, net of cash acquired......... (13,597,558)
---------- -----------
Net cash used in investing activities.................... (28,913) (17,919,135)
FINANCING ACTIVITIES
Proceeds from sale of stock.............................. 1,000,000 30,043,250
Offering costs........................................... (222,172)
---------- -----------
Net cash provided by financing activities................ 1,000,000 29,821,078
---------- -----------
Net increase in cash and cash equivalents................ 912,085 5,901,275
Cash and cash equivalents at beginning of period......... -- 912,085
---------- -----------
Cash and cash equivalents at end of period............... $ 912,085 $ 6,813,360
========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Stock issued in acquisitions............................. $ 707,006
Stock issued for compensation agreements................. 2,602,250
Stock subscription receivable............................ $4,000,000
</TABLE>
See accompanying notes.
F-7
<PAGE> 80
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BUSINESS
Sage Networks, Inc. (the Company) was organized under the laws of the State
of Delaware on December 8, 1997. Web Hosting Organization LLC (WEB), a Delaware
Limited Liability Company, is the majority and controlling shareholder of the
Company. WEB's investors are comprised of Charterhouse Equity Partners III, L.P.
and Chef Nominees Limited (collectively, CEP Members) and WHO Management, LLC
(WHO). As of December 31, 1998, CEP Members have invested $29,000,000, and WHO
has invested $2,000,000 in WEB. WEB has, in turn, invested $31,000,000 in the
Company. CEP Members have allocated an additional $11,000,000 to invest in WEB,
and have funded the remaining amount pursuant to a stock subscription agreement
(see Notes 7 and 12).
Since its formation, the Company has been in the process of developing a
Web hosting business. The Company continues to build its Web hosting business
primarily through the acquisition of the Web hosting assets of Internet service
providers, system integrators and Web hosting companies. The primary sources of
revenue are from recurring fees charged to customers for hosting their Web sites
on the Company's server systems. The Company focuses on delivering high-quality,
reliable and flexible Web hosting services.
Prior to 1998, the Company was in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Sage Networks Acquisition Corp. and B.N.
Technology, Inc., dba ICOM. All significant intercompany accounts and
transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity (at date of purchase) of three months or less to be the
equivalent of cash for the purpose of balance sheet and statement of cash flows
presentation. Cash equivalents, which consist primarily of money market
accounts, are carried at cost, which approximates market value.
Fair Value of Financial Instruments
Carrying amounts of financial instruments held by the Company, which
include cash equivalents, accounts receivable, accounts payable and accrued
expenses, approximate fair value due to their short duration.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are comprised principally of cash, cash
equivalents and accounts receivable. As of December 31, 1998, the Company's cash
and cash equivalents are deposited with various domestic financial institutions.
With respect to accounts receivable, the Company's customer base is dispersed
across many geographic areas. The Company monitors customer payment history,
generally does not require collateral and establishes reserves for uncollectible
accounts as warranted. In addition to individual customers, the Company also
provides Web hosting services to resellers, who, in turn, provide services to
their own customers.
F-8
<PAGE> 81
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent 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.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Major additions and
betterments are capitalized, while replacements, maintenance and repairs that do
not improve or extend the life of the assets are charged to expense.
Depreciation has been provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Network software and equipment............ 3 years
Furniture, fixtures and office 3 years
equipment...............................
Leasehold improvements.................... Lesser of remaining lease-term or useful
life
</TABLE>
Internally Developed Software
In 1998, the Company adopted Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1)
issued by the American Institute of Certified Public Accountants. SOP 98-1
permits the capitalization of certain internally developed costs related to the
development of internally used software. During 1998, the Company capitalized
approximately $650,000 of project costs related to software developed
internally.
Intangible Assets
Intangible assets consist primarily of customer lists, covenants not to
compete, other identifiable intangibles and goodwill, which arose from the
acquisitions of several Web hosting companies and are being amortized on a
straight-line basis over periods ranging from two to ten years (see Note 4).
Impairment of Long-Lived Assets
The Company continually reviews the carrying value of long-lived assets,
including furniture, fixtures and equipment, and intangible assets to determine
whether there are any indications of impairment losses. If indications of
impairment are present in long-lived assets, the estimated future undiscounted
cash flows associated with the corresponding assets would be compared to its
carrying amount to determine if a write-down to fair value is necessary.
Revenue Recognition
Revenues consist primarily of Web hosting and set-up fees. The Company
generally sells its Web hosting services for contractual periods ranging from
one to twelve months. Revenues from these services are recognized ratably over
the contractual period. Payments received and billings in advance of providing
services are deferred until the period such services are provided. Set-up fees,
which cover costs incurred by the Company to establish a customer's web site and
are non-refundable, are recognized when the set-up services are performed.
F-9
<PAGE> 82
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Expenses
All advertising costs are expensed as incurred. Advertising expenses for
the year ended December 31, 1998 amounted to $672,000. No advertising costs were
incurred in the period December 8, 1997 (inception) through December 31, 1997.
Start-Up and Acquisition Integration Costs
In connection with acquisitions made by the Company during the year ended
December 31, 1998 (see Note 4), the Company incurred payroll, consulting and
travel costs to start-up and integrate the acquisitions into the Company.
Income Taxes
The Company accounts for income taxes using the liability method under
which deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Net Loss Per Share
Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic
net loss per share is computed based on the weighted average number of shares of
common stock outstanding. Diluted loss per share does not differ from basic loss
per share since potential common shares to be issued upon exercise of stock
options are anti-dilutive for the periods presented.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan utilizing the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). The Company has adopted the disclosure provisions
only of Statement of Financial Accounting Standards No. 123, Accounting For
Stock-Based Compensation (SFAS 123).
Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Network software and equipment.............................. $18,073 $5,213,879
Furniture, fixtures and office equipment.................... 10,840 303,742
Leasehold improvements...................................... 283,391
------- ----------
28,913 5,801,012
Less accumulated depreciation and amortization............ 1,850 697,889
------- ----------
$27,063 $5,103,123
======= ==========
</TABLE>
Depreciation expense amounted to $1,850 and $696,039 in 1997 and 1998,
respectively.
F-10
<PAGE> 83
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
The Company has allocated the purchase price of acquired companies to
identifiable tangible assets and liabilities and intangible assets based on the
nature and the terms of the various purchase agreements and evaluation of the
acquired businesses. Amounts not allocated to tangible assets and liabilities
and identifiable intangible assets have been recorded as goodwill.
Intangible assets consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD
------------
<S> <C> <C>
Covenants not to compete................................... $ 3,759,202 2-3 Years
Customer lists............................................. 3,295,369 10 Years
Assembled work force....................................... 1,127,031 5 Years
Trade names................................................ 573,982 5 Years
Goodwill................................................... 6,296,070 10 Years
-----------
15,051,654
Less accumulated amortization.............................. 1,416,882
-----------
$13,634,772
===========
Amortization expense amounted to $1,416,882 in 1998.
</TABLE>
5. ACQUISITIONS
During the year ended December 31, 1998, the Company made the following
acquisitions, each of which was accounted for using the purchase method of
accounting. The operations of each of the acquired companies are included in the
operating results of the Company from the date of acquisition noted.
On February 13, 1998, the Company purchased certain Web hosting assets of
Omnetrix, Inc., dba DirectNet, a Web hosting provider, for cash of approximately
$78,000.
On April 7, 1998, the Company purchased the operating assets of Clever
Computers, Inc., a Web hosting company, for cash of approximately $2,500,000.
Pursuant to a three-year employment agreement, a shareholder of Clever received
150,000 shares of the Company's Common Stock, valued at $3.32 per share, which
vests and is being accounted for as compensation expense over the term of the
employment agreement.
On April 30, 1998, the Company purchased certain Web hosting assets from
KnowledgeLink Interactive, Inc. for cash of approximately $612,000.
On May 1, 1998, the Company purchased the operating assets of Tri Star Web
Creations, Inc., a Web hosting company, for cash of approximately $955,000 and
9,000 shares of the Company's Common Stock, having a valuation of $4.07 per
share.
On June 10, 1998, the Company purchased certain Web hosting assets of
HostAmerica, the Web hosting division of HomeCom Communications, Inc., for cash
of approximately $4,250,000.
On June 29, 1998, the Company purchased the operating assets of All
Information Systems, Inc., a Web hosting company, for cash of approximately
$171,000 and 115,707 shares of the Company's Common Stock, having a valuation of
$5.00 per share.
On July 1, 1998, the Company purchased certain Web hosting assets of
Software Business Technologies, Inc. for 12,000 shares of the Company's Common
Stock, having a valuation of $5.00 per share.
On July 1, 1998, the Company purchased certain Web hosting assets of
DevCom, the Web hosting division of Nextron, Inc., for cash of approximately
$600,000.
F-11
<PAGE> 84
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 30, 1998, the Company purchased certain Web hosting assets of
BestWare, Inc., dba Maikon, for cash of approximately $374,000 and 5,490 shares
of the Company's Common Stock, having a valuation of $5.38 per share.
On August 31, 1998, the Company purchased all of the outstanding stock of
B.N. Technology, Inc., dba ICOM, a Web hosting company, for cash of
approximately $2,000,000. The purchase agreement also provides for additional
payments of cash of up to $2,000,000 to the shareholders of ICOM if certain
earnings targets are achieved. As of December 31, 1998, the earnings targets for
periods then ended had been achieved and $1,000,000 has been accrued. This
amount has been recorded as an intangible asset and any future payments under
this agreement will be similarly recorded. Pursuant to one-year employment
agreements, two shareholders of ICOM received a total of 300,000 shares of the
Company's Common Stock valued at $6.47 per share, which vest and is being
accounted for as compensation expense over the terms of the agreements.
On September 16, 1998, the Company purchased certain Web hosting assets of
GEN International, Inc. (GEN) for cash of $455,000 and substantially all the
assets of Global Entrepreneurs Network, Inc. (a wholly-owned subsidiary of GEN)
for $295,000. Pursuant to a consulting agreement with a shareholder of GEN, the
Company issued 25,000 shares of the Company's Common Stock, having a valuation
of $6.66 per share, which vests and is being accounted for as compensation
expense over the term of the consulting agreement.
On December 17, 1998, the Company purchased certain Web hosting assets of
Dialtone, Inc. a Web hosting company for cash of $375,000.
The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the above acquisitions had
occurred on January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Service revenues......................................... $ 5,891,222 $ 8,893,389
Net loss................................................. (6,255,102) (11,211,583)
Net loss per share -- basic and diluted.................. $ (1.73) $ (1.23)
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Amounts due to former owners under contingent consideration
arrangements (see Note 5)................................. $1,000,000
Compensation................................................ 226,641
Communications costs........................................ 121,000
Other....................................................... $26,507 953,866
------- ----------
$26,507 $2,301,507
======= ==========
</TABLE>
7. STOCKHOLDERS' EQUITY
Common Stock
Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
the Company and WEB, WEB purchased 15,600,000 shares of the Company's Common
Stock during the year ended December 31, 1998 and 3,000,000 shares during the
period December 8, 1997 (inception) to December 31, 1997, all at $1.67 per
share. WEB is entitled to purchase an additional 6,600,000 shares at $1.67
pursuant to the Stock Subscription Agreement (see Note 12).
F-12
<PAGE> 85
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Board of Directors approved a three-for-one stock split of the
Company's Common Stock on July 28, 1998. The accompanying financial statements
have been retroactively restated to give effect to the stock split.
Stock Option Plan
On February 1, 1998, the Company adopted the Sage Networks, Inc. 1998 Stock
Option Plan (the Plan), which is administered by the Board of Directors (the
Committee). Under the terms of the Plan, the Committee may grant stock options
to officers, employees and consultants of the Company. The Plan permits the
grant of incentive stock options (ISOs) and nonqualified stock options (NSOs).
As of December 31, 1998, the Company has reserved 1,500,000 shares of Common
Stock for issuance under the Plan. Stock options may not be granted at less than
100% of the fair market value of the Common Stock on the date of the grant and
may not expire more than ten years from the date of the grant. Options granted
under the Plan generally will become exercisable over a four-year period in
equal annual installments unless the Committee specifies a different vesting
schedule. In the event of a change in control of the Company, each option
becomes immediately vested and exercisable. The Plan has a term of ten years,
subject to earlier termination or amendment by the Committee, and all options
under the Plan prior to its termination remain outstanding until they have been
exercised or terminated.
During the year ended December 31, 1998, the Company granted 440,500
options at prices ranging from $1.67 to $6.67 per share. The weighted-average
exercise price of the options granted was $4.11. No options were exercised,
canceled or forfeited during the year ended December 31, 1998. No options are
vested at December 31, 1998.
Stock-Based Compensation
As discussed in Note 2, the Company applies APB 25 and related
interpretations in accounting for its stock option plan. Accordingly, since the
Company grants stock options with exercise prices at least equal to fair value
at the date of grant, no compensation expense has been recognized relating to
option grants in 1998.
As required under FAS 123, the following pro forma net loss and net loss
per share presentations reflect the amortization of the option grant fair value
as expense. For purposes of this disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information follows for the year ended December 31, 1998:
<TABLE>
<S> <C>
Pro forma net loss.......................................... $(9,756,000)
Pro forma net loss per share -- basic and diluted........... $ (1.11)
</TABLE>
The weighted average grant date value was $0.83 for stock options issued in
1998, and the weighted-average remaining contractual life for options
outstanding as of December 31, 1998 is 9.4 years. Significant assumptions used
in determining this value include a risk free interest rate of 5.6%, expected
life of the options of four years, and a dividend rate of zero.
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures in future years as the
period presented includes only one year of option grants under the Plan.
8. INCOME TAXES
As of December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $7,700,000. The net operating loss
carryforwards will expire at various dates beginning in the years 2003 through
2018 if not utilized.
F-13
<PAGE> 86
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes consist of the following at December 31,
1998:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $3,063,000
Depreciation.............................................. (14,000)
Other, net................................................ 813,000
----------
Total deferred tax assets, net.............................. 3,862,000
Valuation allowance......................................... (3,862,000)
----------
Net deferred tax asset...................................... $ --
==========
</TABLE>
The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realization of
the deferred tax assets such that a full valuation allowance has been recorded.
The Company will continue to assess the realization of the deferred tax assets
based on actual and forecasted operating results.
9. LEASES
The Company leases its data centers and certain office space under
noncancelable operating leases, which expire at various dates through June 2009.
Some of the leases contain renewal options. Total rent expense for all operating
leases was approximately $7,000 and $420,000 for the period December 8, 1997
(inception) to December 31, 1997 and the year ended December 31, 1998,
respectively. In connection with one of the leases, the Company has given the
landlord a standby letter of credit in the amount of approximately $100,000 in
lieu of a security deposit.
Future minimum lease commitments for noncancelable operating leases are as
follows at December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 956,764
2000........................................................ 877,488
2001........................................................ 847,484
2002........................................................ 816,334
2003........................................................ 569,958
Thereafter.................................................. 2,079,107
----------
Total minimum lease payments...................... $6,147,135
==========
</TABLE>
10. RELATED-PARTY TRANSACTIONS
In connection with the acquisitions of certain Web hosting assets of
various entities (see Note 5), the Company paid or accrued transaction fees of
approximately $319,000 to Charterhouse Group International, Inc., a related
party of WEB. These fees are included in the respective purchase price
allocations as capitalized transaction costs.
The Company receives consulting services from Sage Equities, Inc. and
Intensity Ventures, Inc., whose principals are the co-chairmen of the Company
and members of WHO, for the purpose of identifying and executing potential
acquisitions. Sage Equities, Inc. and Intensity Ventures, Inc. are each paid
fees of $10,000 (plus expenses) per month for such services. For the period
December 8, 1997 (inception) to December 31, 1997 and the year ended December
31, 1998, the Company incurred costs under these agreements of $25,000 and
$120,0000, respectively, for Sage Equities, Inc., and $17,000 and $232,000 (of
which $112,000 were
F-14
<PAGE> 87
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expenses), respectively, for Intensity Ventures. At December 31, 1997, these
entities were owed a total of $84,959 by the Company for such consulting
services, which was paid in 1998.
The Company also receives consulting services from one other member of WHO.
During the period December 8, 1997 (inception) to December 31, 1997 and the year
ended December 31, 1998, the Company incurred costs relating to these services
totaling approximately $8,000 and $44,000, respectively.
11. EMPLOYEE BENEFIT PLAN
In 1998, the Company instituted a 401k Plan for all employees who have
attained age 21 and have been employed by the Company or by an acquired business
for one month. Participating employees may make contributions to the plan up to
15% of their compensation. The Plan provides that the Company may make
discretionary contributions to the Plan on behalf of participating employees.
The Company did not make any such contributions for the year ended December 31,
1998.
12. SUBSEQUENT EVENTS
On January 28, 1999, the Company's Board of Directors and Stockholders
approved an amendment to the Company's certificate of incorporation (Charter) to
increase the number of authorized shares to 35,000,000 shares of Common Stock
and up to 2,647,658 shares of Preferred Stock, all of which is designated as
Series A Convertible Preferred Stock (Series A Preferred).
On January 28, 1999, pursuant to a Securities Purchase Agreement (the
Purchase Agreement) the Company sold to Softbank Technology Ventures IV L.P. and
one of its affiliates (the Series A Investors), 2,647,658 shares of its Series A
Preferred at a price of $4.91 per Series A Preferred share and issued 749,625
Common Stock warrants of the Company for cash of $13,000,000. The Series A
Preferred is convertible at any time, at the option of the holder, into the
Company's Common Stock, subject to anti-dilution provisions as set forth in the
Charter. In the event of a qualifying public offering (as defined in the
Charter), however, the Series A Preferred is automatically converted into Common
Stock. If the Series A Preferred is not converted before January 28, 2006, a
majority in interest of the holders thereof may request the Company to redeem
the Series A Preferred at $4.91 per share plus any accrued but unpaid dividends
on such shares. Because of the redemption features of the Series A Preferred, it
will not be reported as a component of stockholders' equity. The warrants are
immediately exercisable at a price of $6.67 per share. The warrants expire on
the earlier of three years subsequent to the consummation of the Company's
initial public offering or January 28, 2003. The Company, the Series A Investors
and WEB have entered into an Investors Agreement dated January 28, 1999, which
provides the Series A Investors to nominate a director to the Company's Board of
Directors and grants the Series A Investors preemptive rights and certain
registration rights.
On February 9, 1999, pursuant to its stock subscription agreement, WEB
purchased the remaining 6,600,000 shares of the Company's Common Stock for an
aggregate of $11,000,000 (see Note 7).
The Company consummated the following acquisitions in the early part of
February 1999, each of which will be accounted for using the purchase method of
accounting:
The purchase of certain assets of Telephonetics International, Inc., a
provider of customized music and messages on hold recording services to
businesses utilizing on-hold telephone equipment. The purchase price
consists of cash of $3,000,000 and 140,000 shares of the Company's Common
Stock.
The purchase of all of the outstanding stock of Net Daemons
Associates, Inc. (NDA), a provider of Web development and system
integration activity for Internet and IP Networks. The purchase price
consists of cash of $500,000 and 425,000 shares of the Company's Common
Stock. In addition, the Company has agreed to pay certain officers of NDA
$2,371,000 to induce them to enter into non-compete agreements and to pay
approximately $436,000 to cancel certain NDA stock options. The agreement
also
F-15
<PAGE> 88
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provides for contingent purchase consideration of $500,000 in cash and
74,963 shares of the Company's Common Stock if specified gross revenue and
gross margin targets are achieved in the twelve-month period following the
acquisition. The payment of contingent consideration, if any, will be
recorded as additional purchase price.
The purchase of the Web hosting assets of Digiweb, Inc., a Web hosting
company. The purchase price consists of cash of approximately $5,000,000
and 450,000 shares of the Company's Common Stock. The agreement provides
for contingent purchase consideration of $1,000,000 if specified revenue
and earnings targets are achieved in the year ending December 31, 1999. The
payment of contingent consideration, if any, will be recorded as additional
purchase price.
In March 1999, the Company's stockholders approved an amendment to the
Company's certificate of incorporation to increase the number of authorized
shares of Common Stock to 100,000,000, and, on March 10, 1998, the Company
acquired substantially all of the assets and assumed specified liabilities of
Interliant, Inc., a provider of groupware hosting and application outsourcing
services. The purchase price consisted of $100,000 in cash and 4,091,642 shares
of the Company's Common Stock, and options to purchase up to 2,322,179 shares of
the Company's Common Stock. In addition, the Company paid $7,900,000 on an
outstanding note payable of Interliant, Inc. at closing and will pay the balance
of the note ($8,000,000) at the earlier of the completion of an initial public
offering of the Company's Common Stock or September 1999. The transaction will
be accounted for using the purchase method of accounting. In connection with
this acquisition, the Company changed its name to Interliant, Inc.
F-16
<PAGE> 89
SAGE NETWORKS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
During the period from inception through March 10, 1999, Sage Networks Inc.
("Sage" or the "Company") completed numerous business combinations, whereby the
Company acquired shares of common stock, or certain net assets of entities
operating in the Internet industry. Business combinations are accounted for
using the purchase method of accounting.
The unaudited pro forma consolidated balance sheet assumes that
acquisitions completed in 1999 occurred on December 31, 1998, and includes the
December 31, 1998 historical consolidated balance sheets of Sage and the
acquired businesses adjusted for the pro forma effects of these acquisitions,
including the payment of approximately $8.0 million of Interliant Texas' short
term notes payable on the date of the closing of the transaction. The unaudited
pro forma consolidated statement of operations for the year ended December 31,
1998 assumes that the acquisitions completed in 1998 and 1999 had occurred on
January 1, 1998, and includes the historical consolidated statements of
operations of Sage, adjusted for the pro forma effects of the acquisitions. The
unaudited pro forma consolidated balance sheet also reflects the sale in January
and February 1999 of the Series A Redeemable Convertible Preferred Stock and the
purchase of Common Stock by Web Hosting Organization LLC. (See notes 5 and 12 of
notes to the consolidated financial statements)
The unaudited pro forma consolidated statement of operations is not
necessarily indicative of the results of operations that would actually have
occurred if the transactions had been consummated as of January 1, 1998 and is
not intended to indicate the expected results for any future period. These
statements should be read in conjunction with the historical consolidated
financial statements and related notes thereto of Sage, and of certain acquired
businesses, included elsewhere in this prospectus. The unaudited pro forma
adjustments are based upon preliminary estimates and certain assumptions that
management of Sage believes are reasonable in the circumstances. The actual
adjustments may be revised upon completion of the purchase price allocations.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ACQUISITIONS COMPLETED IN 1999 (2)
SAGE 1998 COMPLETED ------------------------------------------------------ PRO FORMA
HISTORICAL ACQUISITIONS(1) TELEPHONETICS NET DAEMONS DIGIWEB INTERLIANT ADJUSTMENTS
----------- --------------- ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues......... $ 4,905,027 $ 3,988,362 $2,769,606 $5,770,024 $2,685,676 $21,172,869
Costs and expenses:
Cost of service
revenues............. 3,236,385 1,161,230 823,161 3,211,532 923,310 11,880,983
Sales and marketing.... 2,555,035 84,858 31,577 6,722,997
General and
administrative....... 5,120,595 3,578,842 2,605,725 2,161,094 578,993 4,137,686 $ 1,437,427(3)
Depreciation........... 696,039 142,099 74,758 135,129 246,329 2,525,530
Amortization of
intangibles.......... 1,416,882 11,739,645(4)
Start up and
acquisition costs.... 1,727,970
----------- ----------- ---------- ---------- ---------- ----------- ------------
Total costs and
expenses............... 14,752,906 4,967,029 3,503,644 5,507,755 1,780,209 25,267,178 13,177,072
----------- ----------- ---------- ---------- ---------- ----------- ------------
Operating income(loss)... (9,847,879) (978,667) (734,038) 262,269 905,467 (4,094,309) (13,177,072)
Interest
income(expense)........ 138,073 (180,987) (7,369) (101,485) (16,829) (715,643) 891,183(5)
Equity in loss of joint
venture................ (144,735)
Gain on litigation
settlement............. 600,000 (600,000)(6)
Income (loss) before
income tax............. (9,709,806) (1,159,654) (741,407) 160,784 888,638 (4,354,687) (12,885,889)
Provision for income
tax.................... 100,800 (100,800)(7)
----------- ----------- ---------- ---------- ---------- ----------- ------------
Net income(loss)......... $(9,709,806) $(1,159,654) $ (741,407) $ 59,984 $ 888,638 $(4,354,687) $(12,785,089)
=========== =========== ========== ========== ========== =========== ============
Net loss per
share -- basic and
diluted................
Number of shares.........
<CAPTION>
PRO FORMA
------------
<S> <C>
Service revenues......... $ 41,291,564
Costs and expenses:
Cost of service
revenues............. 21,236,601
Sales and marketing.... 9,394,467
General and
administrative....... 19,620,344
Depreciation........... 3,819,884
Amortization of
intangibles.......... 13,156,527
Start up and
acquisition costs.... 1,727,970
------------
Total costs and
expenses............... 68,955,793
------------
Operating income(loss)... (27,664,229)
Interest
income(expense)........ 6,843
Equity in loss of joint
venture................ (144,735)
Gain on litigation
settlement............. --
Income (loss) before
income tax............. (27,802,021)
Provision for income
tax.................... --
------------
Net income(loss)......... $(27,802,021)
============
Net loss per
share -- basic and
diluted................ $ (1.77)
Number of shares......... 15,749,406
</TABLE>
F-17
<PAGE> 90
SAGE NETWORKS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SAGE
HISTORICAL TELEPHONETICS NET DAEMONS DIGIWEB INTERLIANT
----------- ------------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...... $ 6,813,360 $ 106,812 $ 274,100 $134,343 $ 972,467
Accounts receivable............ 806,322 538,845 893,579 50,939 3,524,173
Prepaid Expenses............... 639,662 85,033 73,901 19,365 391,359
----------- ----------- ---------- -------- -----------
Total current assets.... 8,259,344 730,690 1,241,580 204,647 4,887,999
Furniture, fixtures and
equipment, net................ 5,103,123 68,598 222,749 653,493 5,661,351
Intangibles, net............... 13,634,772 -- --
Other assets................... 222,172 38,650 61,662 149,067
----------- ----------- ---------- -------- -----------
Total assets............ $27,219,411 $ 799,288 $1,502,979 $919,802 $10,698,417
=========== =========== ========== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable.................. $ 140,000 $ 38,411 $157,470 $15,152,919
Accounts payable............... $ 787,412 137,610 263,317 121,673 1,909,514
Accrued expenses............... 2,301,507 -- 405,858 6,087
Deferred revenue............... 1,414,969 1,583,570 52,127 66,381
----------- ----------- ---------- -------- -----------
Total current
liabilities............ 4,503,888 1,861,180 759,713 351,611 17,062,433
Long term debt................. 1,014,712 110,009
Redeemable, convertible
preferred stock...............
Stockholders' equity:
Common stock................... 192,172 7,000 (770,108) 20,000 100,000
Additional paid in capital..... 34,160,334 557,815 -- -- 400,000
Deferred compensation.......... (1,769,429) -- -- --
Accumulated deficit............ (9,867,554) (1,626,707) 498,662 548,191 (6,974,025)
----------- ----------- ---------- -------- -----------
Total stockholders'
equity................. 22,715,523 (1,061,892) (271,446) 568,191 (6,474,025)
----------- ----------- ---------- -------- -----------
Total liabilities and
stockholders' equity.......... $27,219,411 $ 799,288 $1,502,979 $919,802 $10,698,417
=========== =========== ========== ======== ===========
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
ACQUISITIONS EQUITY(10) PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...... $(20,269,269)(8)(9) $24,000,000 $ 12,031,813
Accounts receivable............ (50,939)(9) 5,762,919
Prepaid Expenses............... (104,398)(9) 1,104,922
------------ ----------- ------------
Total current assets.... (20,424,606) 24,000,000 18,899,654
Furniture, fixtures and
equipment, net................ 11,709,314
Intangibles, net............... 63,643,676(8) 77,278,448
Other assets................... (61,662)(9) 409,889
------------ ----------- ------------
Total assets............ $ 43,157,408 $24,000,000 $108,297,305
============ =========== ============
LIABILITIES AND STOCKHOLDERS' E
Current liabilities
Notes payable.................. $ (8,207,200)(8)(9) 7,281,600
Accounts payable............... (91,981)(9) 3,127,545
Accrued expenses............... (6,087)(9) 2,707,365
Deferred revenue............... 3,117,047
------------ ----------- ------------
Total current
liabilities............ (8,305,268) 16,233,557
Long term debt................. 1,124,721
Redeemable, convertible
preferred stock............... 13,000,000 13,000,000
Stockholders' equity:
Common stock................... 709,410(8) 66,000 324,474
Additional paid in capital..... 43,199,387(8) 10,934,000 89,251,536
Deferred compensation.......... (1,769,429)
Accumulated deficit............ 7,553,879(8) (9,867,554)
------------ ----------- ------------
Total stockholders'
equity................. 51,462,676 11,000,000 77,939,027
------------ ----------- ------------
Total liabilities and
stockholders' equity.......... $ 43,157,408 $24,000,000 $108,297,305
============ =========== ============
</TABLE>
F-18
<PAGE> 91
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Set forth below are the pre acquisition operations of acquired businesses
completed in 1998 from January 1, 1998 through the date of acquisition.
<TABLE>
<CAPTION>
HOST AMERICA,
DIVISION OF HOME-
CLEVER COMPUTERS TRISTAR WEB COME COMMUN- B.N. TECHNOLOGY, GEN INTERNATIONAL
INC. CREATIONS, INC. CATIONS, INC. DBA ICOM INC.
---------------- --------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Service revenues......... $554,020 $256,953 $ 533,159 $ 982,376 $ 776,503
-------- -------- --------- ---------- ---------
Cost of service
revenues............... 102,197 103,232 230,435 48,714 323,518
Sales and marketing...... 52,770 32,088
General and
administrative......... 387,236 183,521 629,727 1,089,428 785,972
Depreciation............. 9,557 63,642 10,817 26,496
-------- -------- --------- ---------- ---------
489,433 296,310 976,574 1,148,959 1,168,074
-------- -------- --------- ---------- ---------
Operating income(loss)... 64,587 (39,357) (443,415) (166,583) (391,571)
Interest income
(expense).............. (368) (156,399) (4,051) (12,557)
-------- -------- --------- ---------- ---------
Net income(loss)......... $ 64,587 $(39,725) $(599,814) $ (170,634) $(404,128)
======== ======== ========= ========== =========
<CAPTION>
OTHER TOTAL 1998
ACQUISITIONS ACQUISITIONS
------------------ ------------
<S> <C> <C>
Service revenues......... $885,351 $ 3,988,362
-------- -----------
Cost of service
revenues............... 353,134 1,161,230
Sales and marketing...... 84,858
General and
administrative......... 502,958 3,578,842
Depreciation............. 31,587 142,099
-------- -----------
887,679 4,967,029
-------- -----------
Operating income(loss)... (2,328) (978,667)
Interest income
(expense).............. (7,612) (180,987)
-------- -----------
Net income(loss)......... $ (9,940) $(1,159,654)
======== ===========
</TABLE>
(2) Represents the results of operations for businesses acquired in 1999 for
the year ended December 31, 1998.
(3) To record amortization of stock based compensation awarded to employees
and owners of acquired businesses in connection with employment and/or
consulting agreements.
(4) To record amortization of intangibles arising as a result of acquisitions
for the period from January 1, 1998 to acquisition date based on
amortization periods ranging from two to ten years.
<TABLE>
<S> <C>
Intangibles from 1998 acquisitions...................... $15,051,654
Intangibles from 1999 acquisitions...................... 63,643,676
-----------
$78,695,330
===========
Amortization:
1998 acquisitions from January 1, 1998 to respective
dates of acquisition, (amortization period 2-10
years).................................................. $ 1,104,999
1999 acquisitions for the year ended December 31, 1998
(amortization period 5 years for covenant and 6 year
average for unallocated intangibles).................... 10,634,646
-----------
$11,739,645
===========
</TABLE>
(See Note 4 of Notes to Consolidated Financial Statements)
(5) To record elimination of interest expense incurred by certain acquired
businesses since all acquisitions were funded from cash realized on sale
of the Company's Common Stock or the issuance of the Company's Common
Stock to former owners. Interest incurred on debt assumed has not been
eliminated.
(6) To record elimination of gain on litigation settlement as it is not a
recurring item.
(7) To record elimination of income tax provision due to consolidated pre tax
loss.
F-19
<PAGE> 92
NOTES TO PRO FORMA BALANCE SHEET
(8) To reflect payment of cash and issuance of the Company's Common Stock for
acquisitions completed in 1999, elimination of acquired companies' net
equity and recording the estimated intangible assets arising from the
acquisitions as follows:
<TABLE>
<S> <C>
Purchase consideration:
Cost including transaction costs.......................... $12,082,000
Common stock (6,630,210 shares including 1,523,568 shares
issuable upon exercise of substitute options issued in
connection with the Interliant Texas acquisition)...... 44,223,500
-----------
Total............................................. 56,305,500
Allocated to intangible assets............................ 63,643,676
-----------
Allocated to tangible assets.............................. $(7,338,176)
===========
Payment of debt of seller at closing...................... $ 8,000,000
</TABLE>
(9) To record elimination of assets and liabilities excluded from the purchase
transactions.
(10) To record sale of 2,647,658 shares of the Company's Series A Redeemable,
Convertible Preferred Stock in January 1999 and the receipt of cash upon
the sale of the Company's Common Stock pursuant to a subscription
agreement.
F-20
<PAGE> 93
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Clever Computers, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheet of Clever Computers, Inc. as
of December 31, 1996 and 1997 and the related statements of income, retained
earnings, and cash flows for the years then ended. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the 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 audit provides 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 Clever Computers, Inc. as of
December 31, 1996 and 1997 and the results of their operations and their cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
BSC & E
Atlanta, Georgia
March 19, 1998
F-21
<PAGE> 94
CLEVER COMPUTERS, INC.
ATLANTA, GEORGIA
BALANCE SHEET
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash -- operating......................................... $ 72,263 $ 50,425
Cash -- payroll........................................... 50,655 42,693
Accounts receivable, net of allowance for doubtful
accounts of $16,199 in 1997............................ 25,659 91,792
Prepaid expenses.......................................... 3,127 6,485
Prepaid income taxes...................................... 878
Deferred income taxes..................................... 4,050
--------- ---------
Total current assets.............................. 151,704 196,323
--------- ---------
Property and Equipment
Furniture................................................. 1,868 2,617
Computer equipment........................................ 231,871 422,105
Computer software......................................... 30,101 34,365
--------- ---------
263,840 479,087
Accumulated depreciation and amortization................. (115,387) (231,264)
--------- ---------
148,453 247,823
--------- ---------
Other Assets
Other assets.............................................. 14,782 4,668
Organization costs, net of accumulated amortization of
$292 and $391.......................................... 196 97
--------- ---------
14,978 4,765
--------- ---------
$ 315,135 $ 448,911
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 33,941 $ 66,808
Accrued consulting fee.................................... 34,000 100,000
Deferred revenues......................................... 95,536 127,324
Income taxes payable...................................... 15,906
Accrued payroll and payroll taxes......................... 42,363 35,249
Advances to stockholder................................... 22,520 2,358
--------- ---------
Total current liabilities......................... 244,266 331,739
--------- ---------
Stockholder's Equity
Common stock, no par value; 10,000 shares authorized;
1,000 shares issued and outstanding.................... 5,000 5,000
Retained earnings......................................... 65,869 112,172
--------- ---------
70,869 117,172
--------- ---------
$ 315,135 $ 448,911
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-22
<PAGE> 95
CLEVER COMPUTERS, INC.
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenues.................................................... $1,128,108 $2,156,982
Operating expenses.......................................... 1,045,357 2,088,928
---------- ----------
Income from operations.................................... 82,751 68,054
Other income and (expense).................................. 185 (937)
---------- ----------
Income before provision for income taxes.................. 82,936 67,117
Provision for income taxes.................................. 15,906 20,814
---------- ----------
Net income................................................ $ 67,030 $ 46,303
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-23
<PAGE> 96
CLEVER COMPUTERS, INC.
STATEMENT OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<S> <C>
Balance, December 31, 1995.................................. $ (1,161)
Add net income............................................ 67,030
--------
Balance, December 31, 1996.................................. 65,869
Add net income............................................ 46,303
--------
Balance, December 31, 1997.................................. $112,172
========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-24
<PAGE> 97
CLEVER COMPUTERS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 67,030 $ 46,303
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes.................................. (4,050)
Bad debts.............................................. 16,199
Gain on sale of assets................................. (1,426)
Depreciation and amortization.......................... 61,884 117,401
Changes in operating assets and liabilities:
Accounts receivable.................................. (24,218) (82,332)
Prepaid expenses..................................... (3,127) (3,358)
Prepaid income taxes................................. (878)
Other assets......................................... (11,217) 10,114
Accounts payable..................................... 11,931 16,961
Accrued consulting fees.............................. 34,000 66,000
Deferred revenues.................................... 90,536 31,788
Income taxes payable................................. 15,906
Accrued payroll and payroll taxes.................... 30,454 (7,115)
Advances to stockholder.............................. 12,436 (20,162)
--------- ---------
Net cash provided by operating activities......... 285,615 185,445
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment..................... (185,856) (219,206)
Proceeds from sale of assets.............................. 3,961
--------- ---------
Net cash used in investing activities............. (185,856) (215,245)
--------- ---------
Cash flows from financing activities........................ -- --
--------- ---------
Increase (decrease) in cash................................. 99,759 (29,800)
Cash, beginning of year..................................... 23,159 122,918
--------- ---------
Cash, end of year........................................... $ 122,918 $ 93,118
========= =========
Cash paid during the year for:
Interest.................................................. $ 51 $ 2,500
Income taxes.............................................. -- 36,931
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-25
<PAGE> 98
CLEVER COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Clever Computers, Inc. was incorporated October 25, 1993 in the State of
Georgia. The Company is engaged in the business of Internet Web hosting.
Property and equipment
Property and equipment are recorded at cost. Depreciation is provided over
the estimated useful lives of the assets by accelerated and straight line
methods.
Statement of cash flows
The Company considers instruments with a maturity of three months or less
to be cash equivalents for purposes of the statement of cash flows.
Income taxes
Income taxes are accounted for in accordance with provisions of Statement
of Financial Accounting Standards No. 109. Deferred income taxes have been
provided for the difference in bad debt expense for income tax and financial
statement reporting purposes.
Organization costs
Organization costs are being amortized on a straight line basis over five
years.
Deferred revenues
As part of their standard service agreements with customers, the Company
bills for all services for three months in advance. As a result, a portion of
revenues collected and billed for as of year end relates to services not yet
performed. The deferred revenue associated with these services is recognized on
the balance sheet as a current liability.
Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could differ from those
estimates.
NOTE 2. LEASES
The Company leases office facilities and certain equipment. Renewal options
are available on some of these leases.
Future minimum lease payments required on noncancelable operating leases
having initial or remaining terms in excess of one year as of December 31, 1997,
are as follows:
<TABLE>
<S> <C>
1998...................................................... $175,923
1999...................................................... 33,555
2000...................................................... 1,600
--------
$211,078
========
</TABLE>
F-26
<PAGE> 99
CLEVER COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense of $40,508 and $97,655 in 1996 and 1997, respectively, is
included in operating expenses in the accompanying statements of income.
NOTE 3. INCOME TAXES
The Company's provision for income taxes consisted of the following
amounts:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------
1996 1997
------- -------
<S> <C> <C>
Current.................................................. $11,860 $24,864
Deferred benefit............................... (4,046) (4,050)
------- -------
Provision for income taxes..................... $15,906 $20,814
======= =======
</TABLE>
NOTE 4. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company was approached by certain
parties regarding the potential sale of the Company. As of the report date, no
formal agreement was in place and negotiations were ongoing.
F-27
<PAGE> 100
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sage Networks, Inc.
We have audited the accompanying balance sheets of Tri Star Web Creations,
Inc. as of December 31, 1996 and 1997, and the related statements of operations,
and changes in retained earnings, and cash flows for the years then ended. 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 from
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 Tri Star Web Creations, Inc.
as of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Urbach Kahn & Werlin PC
New York, New York
July 13, 1998
F-28
<PAGE> 101
TRI STAR WEB CREATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------ --------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 391 $ 997
Accounts receivable, net of an allowance for doubtful
accounts of $6,000 and $9,747.......................... 9,125 41,770
Prepaid expenses.......................................... -- 3,365
------ --------
Total current assets.............................. 9,516 46,132
Other assets................................................ -- 4,182
Fixed assets, net of accumulated depreciation............... -- 95,036
------ --------
Total assets...................................... $9,516 $145,350
------ --------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Notes payable to related parties, current................. $ -- $ 18,510
Equipment purchase/obligations............................ -- 55,236
Accounts payable.......................................... 1,500 42,771
Deferred revenue.......................................... 2,420 26,131
------ --------
Total current liabilities......................... 3,920 142,648
------ --------
Long-term Liabilities
Note payable to related party, net of current portion..... -- 1,795
------ --------
Total liabilities................................. 3,920 144,443
------ --------
Stockholders' Equity
Capital stock, no par value; 100 shares authorized, 3
shares issued and outstanding.......................... 100 100
Retained earnings......................................... 5,496 807
------ --------
Total stockholder's equity........................ 5,596 907
------ --------
Total liabilities and stockholder's equity........ $9,516 $145,350
====== ========
</TABLE>
See Notes to Financial Statements
F-29
<PAGE> 102
TRI STAR WEB CREATIONS, INC.
STATEMENT OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Service revenues............................................ $51,492 $178,251
------- --------
Selling expenses............................................ 7,727 25,234
General and administrative expenses......................... 23,021 140,972
------- --------
30,748 166,206
------- --------
Operating income............................................ 20,744 12,045
Interest expense............................................ -- 1,424
------- --------
Net income........................................ 20,744 10,621
Retained earnings (accumulated deficit), beginning of
year...................................................... (420) 5,496
Distributions............................................... (14,828) (15,310)
------- --------
Retained earnings, end of year.............................. $ 5,496 $ 807
======= ========
</TABLE>
See Notes to Financial Statements
F-30
<PAGE> 103
TRI STAR WEB CREATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 20,744 $ 10,621
Adjustments to reconcile net income to net cash provided
by operating activities:
Bad debts.............................................. 6,000 3,747
Depreciation........................................... -- 4,337
Changes in:
Accounts receivable.................................. (15,125) (36,392)
Prepaid expenses..................................... -- (3,365)
Other assets......................................... -- (4,182)
Accounts payable..................................... 180 41,271
Deferred revenue..................................... 2,420 23,711
-------- --------
Net cash provided by operating activities......... 14,219 39,748
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets.................................. -- (37,603)
-------- --------
Net cash used in investing activities............. -- (37,603)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party borrowings.................... -- 25,000
Principal payments on related party borrowings and
equipment purchase obligations......................... -- (11,229)
Cash distributions paid................................... (14,828) (15,310)
-------- --------
Net cash used in financing activities............. (14,828) (1,539)
-------- --------
Net increase (decrease) in cash................... (609) 606
Cash, beginning of year..................................... 1,000 391
-------- --------
Cash, end of year........................................... $ 391 $ 997
======== ========
Supplemental disclosures of cash flow information
Cash payments for:
Interest............................................... $ -- $ 1,424
-------- --------
Supplemental schedule of noncash investing and financing
activities
Equipment purchase obligations incurred for use of
equipment.............................................. $ -- $ 61,770
-------- --------
</TABLE>
See Notes to Financial Statements
F-31
<PAGE> 104
TRI STAR WEB CREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. DESCRIPTION OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Operations: Tri Star Web Creations, Inc. (the "Company") is
primarily engaged in the business of providing web hosting services for
companies and individuals nationwide placing websites on the Internet.
Summary of Significant Accounting Policies
Revenue Recognition: The Company recognizes service revenues ratably as
hosting services are provided.
Concentrations of Credit Risk: The Company extends credit based on an
evaluation of the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
Fixed Assets: Fixed assets are carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets which range from five to seven
years.
Income Taxes: The Company, with the consent of its stockholders, has
elected to be taxed under sections of the federal and state income tax laws
which provide that, in lieu of corporation income taxes, the stockholder
separately accounts for the Company's items of income, deduction, losses and
credits. Therefore, no provision or liability for Federal tax is reflected in
the financial statements. A provision for state taxes is included in operating
expenses.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
NOTE 2. FIXED ASSETS
Fixed assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Computers.......................................... $98,369
Furniture and fixtures............................. 1,004
-------
99,373
Less accumulated depreciation...................... 4,337
-------
$95,036
=======
</TABLE>
NOTE 3. NOTES PAYABLE, RELATED PARTIES
Loans from related parties at December 31, 1997 are represented by a
$15,305 obligation secured by substantially all assets of the Company with
interest at 8.25% and an unsecured non-interest bearing obligation of $5,000.
F-32
<PAGE> 105
TRI STAR WEB CREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Notes payable, related parties at December 31, 1997 mature as follows:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Total.............................................. $20,305
Less amounts due currently......................... 18,510
-------
Amounts maturing in 1999........................... $ 1,795
=======
</TABLE>
NOTE 4. EQUIPMENT PURCHASE OBLIGATIONS
The Company finances a portion of its computer equipment under twelve month
equipment purchase obligations.
NOTE 5. OPERATING LEASE
The Company leases its office facility under an operating lease which
expires in January 2003. In addition to base rent, the leasing arrangements
obligate the Company to pay all taxes, insurance, utilities and maintenance
costs. The future minimum base rent payments under the lease are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1998.............................................. $ 21,281
1999.............................................. 22,961
2000.............................................. 23,556
2001.............................................. 24,169
2002.............................................. 25,936
--------
$117,903
========
</TABLE>
NOTE 6. SUBSEQUENT EVENT
In May 1998, the Company sold substantially all of its assets to Sage
Networks, Inc. ("Sage") for cash and assumption of certain of its liabilities
and common stock in Sage. The net consideration for this sale exceeded the
carrying amounts of the related assets at December 31, 1997.
F-33
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
HomeCom Communications, Inc.
In our opinion, the accompanying statements of assets and liabilities and
the related statements of revenues and expenses and of cash flows present
fairly, in all material respects, the financial position of HostAmerica, a
division of HomeCom Communications, Inc., at December 31, 1996 and 1997, and the
results of its operations and its cash flows for the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. 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 of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been carved out of the
historical financial statements of HomeCom Communications, Inc. As such, these
financial statements represent a lesser business component and are not intended
to be a complete presentation of the financial position or the results of
operations or cash flows of the Company were it to operate on a stand-alone
basis. A description of the significant assumptions used to prepare the
carve-out financial statements is included in Note 1 to the financial
statements.
As discussed in Note 1 to the financial statements, substantially all the
assets of HostAmerica were sold to Sage Acquisition Corp. on June 9, 1998.
PricewaterhouseCoopers LLP
Atlanta, Georgia
August 18, 1998
F-34
<PAGE> 107
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
STATEMENTS OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for
uncollectibles......................................... $ 54,306 $ 55,421
-------- --------
Total current assets.............................. 54,306 55,421
Computer equipment, net..................................... 62,610 83,662
-------- --------
Total assets...................................... $116,916 $139,083
======== ========
LIABILITIES AND BUSINESS UNIT EQUITY (DEFICIT)
Current liabilities:
Deferred revenue.......................................... $ 62,063 $173,458
-------- --------
Total current liabilities......................... 62,063 173,458
-------- --------
Commitments and contingencies
Business unit equity (deficit).............................. 54,853 (34,375)
-------- --------
Total liabilities and business unit equity
(deficit)....................................... $116,916 $139,083
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-35
<PAGE> 108
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
STATEMENTS OF REVENUES AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
Hosting revenues........................................ $ 26,191 $ 304,399 $ 692,140
Cost of hosting revenues................................ 32,298 163,767 407,785
-------- --------- -----------
Gross margin............................................ (6,107) 140,632 284,355
-------- --------- -----------
Operating expenses:
Sales and marketing................................... 7,187 99,005 407,375
General and administrative............................ 13,617 183,524 876,121
Depreciation.......................................... 23,877 83,586
-------- --------- -----------
Total operating expenses...................... 20,804 306,406 1,367,082
-------- --------- -----------
Operating loss.......................................... (26,911) (165,774) (1,082,727)
Other expenses (income):
Interest expense...................................... 278 6,789 130,660
Other expense (income), net........................... (868) (22,431)
-------- --------- -----------
Excess of expenses over revenues........................ $(27,189) $(171,695) $(1,190,956)
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-36
<PAGE> 109
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Excess of expenses over revenues...................... $(27,189) $(171,695) $(1,190,956)
Adjustments to reconcile excess of expenses over
revenues to net cash used in operating activities:
Depreciation....................................... 23,877 83,586
Provision for bad debts............................ 1,014 26,090 198,364
Changes in assets and liabilities:
Accounts receivables............................. (6,032) (73,274) (201,583)
Unearned revenue................................. 4,899 57,164 111,396
-------- --------- -----------
Net cash used in operating activities......... (27,308) (137,838) (999,193)
-------- --------- -----------
Cash flows from investing activities:
Purchase of computer equipment........................ -- (77,147) (55,589)
-------- --------- -----------
Net cash used in investing activities......... -- (77,147) (55,589)
-------- --------- -----------
Cash flows from financing activities
Allocated charges paid by HomeCom Communications,
Inc., net of cash transferred...................... 27,308 214,985 1,054,782
-------- --------- -----------
Net cash provided by financing activities..... 27,308 214,985 1,054,782
-------- --------- -----------
Net increase (decrease) in cash......................... 0 0 0
Cash and cash equivalents at beginning of period........ 0 0 0
-------- --------- -----------
Cash and cash equivalents at end of period.............. $ 0 $ 0 $ 0
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-37
<PAGE> 110
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
HostAmerica is a trade name of HomeCom Communications, Inc. ("HomeCom")
under which HomeCom provides full service Internet Web site hosting services.
The Web hosting operations of HomeCom conducted under the HostAmerica trade name
are herein referred to as "HostAmerica" or "the Division".
On June 9, 1998, HomeCom sold certain assets of the Division, consisting
principally of hosting contracts, equipment and the trade name "HostAmerica" to
Sage Acquisition Corp. for $4,500,000. Pursuant to the terms of the Asset
Purchase Agreement (the "Agreement"), HomeCom retained all of the accounts
receivable of HostAmerica existing as of May 31, 1998, and retained certain
hosting contracts, and the right to perform hosting services in the future for
companies in the financial services industry. The Agreement required the deposit
of $250,000 of the proceeds to be held in escrow until May 1, 1999, for the
purpose of indemnifying Sage Acquisition Corp. for representations and
warranties made by HomeCom under the Agreement.
Basis of Presentation
Historically, financial statements were not prepared for the Division. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and have been "carved out" of the
financial statements of HomeCom for each of the periods, and as of each of the
dates presented. As such, these statements represent a lesser business component
and are not intended to be a complete presentation of the financial position or
the results of operations or cash flows of the Division were it to operate on a
stand-alone basis.
The accompanying financial statements exclude the assets, liabilities and
revenues related to certain premium hosting accounts referred to as Excluded
Customers in the Agreement. The statements of revenues and expenses of the
Division include all revenues and costs directly attributable to the Division
and also include allocations of corporate overhead from HomeCom. Expenses have
been allocated based on a variety of methods depending on the nature of the
expense. Such allocation methods include proportional HostAmerica revenues to
total HomeCom revenues, headcount equivalents and management estimates. The cost
of providing hosting services represents direct payroll and related costs of
those employees involved in providing hosting services and an allocation of
Internet connection services. An allocation of corporate marketing expenses and
corporate administrative functions (including data services, employee benefits,
legal, insurance, accounting and other corporate overhead) has been included in
the selling and marketing and general and administrative operating expenses in
the statements of revenues and expenses. Depreciation has been computed based
upon a computation of the direct expenses related to the assets sold under the
terms of the Agreement plus an allocation of general corporate depreciation.
Management believes these allocations are reasonable. These allocations are not
necessarily indicative of the costs and expenses that would have resulted if the
Division had been operated as a separate entity.
Accounts Receivable, Net
Accounts receivable represent amounts receivable from the class of hosting
customer subject to the Agreement and are shown net of the allowance for
doubtful accounts. The allowance was approximately $27,000 and approximately
$90,000 at December 31, 1996 and 1997, respectively.
Computer Equipment, Net
Computer equipment is recorded at cost less accumulated depreciation, which
is computed using the straight-line method over the estimated useful lives of
the related assets (three years). Maintenance and
F-38
<PAGE> 111
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
repairs are charged to expense as incurred. Upon sale, retirement or other
disposition of these assets, the cost and the related accumulated depreciation
are removed from the respective accounts and any gain or loss on the disposition
is included in income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
HostAmerica recognizes revenues ratably over the period for which the Web
site hosting services are provided. Deferred revenue, as reflected on the
accompanying statements of assets and liabilities, represents the amount of
billings recorded in advance of services being provided.
Advertising Expenses
All advertising costs are expensed when incurred. Advertising expenses
allocated to the Division were approximately $1,000, $32,000, and $384,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
Income Taxes
The Division is not a legal entity. The Division has been included in
HomeCom's consolidated federal income tax returns for all periods prior to June
9, 1998. The Division was not a party to any tax sharing agreement and,
accordingly, no benefit for income taxes has been reflected in the accompanying
statements of revenues and expenses.
2. COMPUTER EQUIPMENT
Computer equipment, net, represents the specific assets defined in the
agreement used in the provision of hosting services and is comprised of the
following as of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Computer equipment......................... $ 77,147 $132,736
Less: accumulated depreciation............. (14,537) (49,074)
-------- --------
$ 62,610 $ 83,662
======== ========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Division's software and equipment are vulnerable to computer viruses or
similar disruptive problems caused by customers or other Internet users.
Computer viruses or problems caused by third parties could lead to
interruptions, delays or cessation in service to the Division's customers.
Moreover, customers of the Division could use computer files and information
stored on or transmitted to Web server computers maintained by the Division to
engage in illegal activities that may be unknown or undetectable by the
Division, including fraud and misrepresentation, and unauthorized access to
computer systems of others. Furthermore, inappropriate use of the Internet by
third parties could also jeopardize the security of customers' confidential
information
F-39
<PAGE> 112
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
that is stored in the Division's computer systems. Any such actions could
subject the Division to liability to third parties. The Division does not have
errors and omissions, product liability or other insurance to protect against
risks caused by computer viruses or other misuse of software or equipment by
third parties. Although the Division attempts to limit its liability to
customers for these types of risks through contractual provisions, there can be
no assurance that these provisions will be enforceable.
Various legal proceedings may arise in the normal course of business.
Management does not believe that there are currently any asserted or unasserted
claims that will have a material adverse effect on the statements of assets and
liabilities, statements of revenues and expenses or cash flows of the Division.
4. CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Division to significant
concentrations of credit risk consist principally of accounts receivable.
Concentration of credit risk with respect to trade receivables is monitored
by the Division through ongoing credit evaluations of its customers' financial
condition. No customer accounted for more than 10% of the revenues of the
Division during 1995, 1996 or 1997.
F-40
<PAGE> 113
INDEPENDENT AUDITOR'S REPORT
Board of Directors
B.N. Technology, Inc.
dba Internet Communications
Los Angeles, California
We have audited the accompanying balance sheets of B.N. Technology, Inc.
dba Internet Communications as of December 31, 1996 and 1997, and the related
statements of operations and accumulated deficit, and cash flows for the period
April 15, 1996 (inception) through December 31, 1996 and for the year ended
December 31, 1997. 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 audit.
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 amount 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, the financial position of B.N. Technology, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period April 16, 1996 (inception) through December 31, 1996 and the year
ended December 31, 1997.
FRANKEL, LODGEN, LACHER, GOLDITCH, SARDI & HOWARD
September 11, 1998
F-41
<PAGE> 114
B.N. TECHNOLOGY, INC.
DBA INTERNET COMMUNICATIONS
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
ASSETS
Cash........................................................ $ 6,138 $ 14,982
Property and equipment, net................................. 20,076 33,861
Deposit..................................................... 1,100 1,100
Organization costs, net..................................... 1,445 1,105
Intangible costs, net....................................... 14,000 7,000
-------- ---------
$ 42,759 $ 58,048
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred revenue............................................ $ 15,787 $ 102,417
Accounts payable and accrued expenses....................... 7,217 36,883
Accrued payroll............................................. 8,861
Contract payable............................................ 5,664 4,033
Shareholders' loans......................................... 13,051 10,551
-------- ---------
41,719 162,745
-------- ---------
Shareholders' equity (deficit):
Common stock; no par value; 100,000 shares authorized,
issued and outstanding................................. 50,100 50,100
Accumulated deficit....................................... (49,060) (154,797)
-------- ---------
1,040 (104,697)
-------- ---------
$ 42,759 $ 58,048
======== =========
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE> 115
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15, 1996
(INCEPTION) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ------------
<S> <C> <C>
Revenue..................................................... $ 47,597 $ 497,445
Operating expenses.......................................... 94,974 601,278
-------- ---------
Loss from operations........................................ (47,377) (103,833)
-------- ---------
Interest expense............................................ (883) (1,104)
-------- ---------
Loss before provision for income tax........................ (48,260) (104,937)
Franchise tax............................................... (800) (800)
-------- ---------
Net loss.................................................... (49,060) (105,737)
Accumulated deficit, beginning of period.................... (49,060)
-------- ---------
Accumulated deficit, end of period.......................... $(49,060) $(154,797)
======== =========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE> 116
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15,
1996 (INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ----------------
<S> <C> <C>
Net loss.................................................... $(49,060) $(105,737)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation.............................................. 5,020 13,484
Amortization.............................................. 7,255 7,340
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Deposits............................................... (1,100)
Deferred revenue....................................... 15,787 86,630
Accounts payable and accrued expense................... 7,217 29,666
Accrued payroll........................................ 8,861
-------- ---------
Net cash provided (used) by operating activities............ (14,881) 40,244
-------- ---------
Cash flows from investing activities:
Acquisition of property and equipment..................... (18,518) (27,269)
Purchase of customer list................................. (21,000)
Organizational costs...................................... (1,700)
-------- ---------
Net cash provided (used) by investing activities............ 21,933 (27,269)
-------- ---------
Cash flows from financing activities:
Repayment of contract payable............................. (914) (1,631)
Proceeds from issuance of common stock.................... 50,100
Proceeds from shareholder loan............................ 13,051
Repayment of shareholder loan............................. (2,500)
-------- ---------
Net cash provided (used) by financing activities:........... 62,237 (4,131)
-------- ---------
Net increase in cash........................................ 6,138 8,844
Cash, beginning of period................................... 6,138
-------- ---------
Cash, end of period......................................... $ 6,138 $ 14,982
======== =========
Supplemental disclosure:
Interest paid............................................. $ 883 $ 1,104
======== =========
Income tax paid........................................... $ $ 1,600
======== =========
Supplemental schedule of non-cash investing and financing
activities:
During 1996, a contract payable in the amount of $6,578
was incurred to purchase a vehicle
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE> 117
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of B.N. Technology, Inc.
(the Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management, which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Business activity
The Company was incorporated on April 16, 1996, and is located in Los
Angeles, California. The Company is an Internet Web hosting service provider.
Revenue recognition
Revenue consists primarily of fees for hosting Web sites. Fees received are
earned according to the subscription period sold. Subscription periods are sold
on a monthly, quarterly and annual basis.
Deferred revenue represents fees received from quarterly and annual
subscriptions which extend beyond the current balance sheet date.
Property and equipment
Property and equipment is carried at cost. The cost is depreciated over the
estimated useful lives of the related assets. Depreciation is computed on the
straight-line method for financial reporting purposes and on the accelerated
cost recovery system method for income tax purposes.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $8,818
and $98,484 for the period ended December 31, 1996 and the year ended December
31, 1997, respectively.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that directly affect the results of reported assets, liabilities,
revenue and expenses. Actual results may differ from these estimates.
Income taxes
Current income taxes are based on the taxable income for the year, as
measured by the current year's tax returns. Deferred income taxes arise
primarily due to differences between the basis of deferred revenue used for
financial statements versus cash basis used for income tax reporting purposes.
F-45
<PAGE> 118
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Major classes of fixed assets are as follows:
<TABLE>
<CAPTION>
ESTIMATED
LIVES 1996 1997
--------- ------- -------
<S> <C> <C> <C>
Equipment and software........................ 5 years $10,677 $34,774
Furniture................................... 5 years 850 4,022
Automobile.................................. 5 years 13,569 13,569
------- -------
25,096 52,365
Accumulated depreciation.................... (5,020) (18,504)
------- -------
$20,076 $33,861
======= =======
</TABLE>
Depreciation expense totaled $5,020 and $13,484 for 1996 and 1997,
respectively.
3. INTANGIBLE COSTS
In 1996, the Company purchased from the majority stockholder a customer
listing and goodwill for $21,000. The cost is being amortized over a three year
period.
4. CAPITAL STOCK TRANSACTIONS
Capital stock transactions in 1996 are as follows:
<TABLE>
<CAPTION>
ISSUED
SHARES AMOUNT
------- -------
<S> <C> <C>
Sale of common stock..................................... 100,000 $50,100
======= =======
</TABLE>
5. CONTRACT PAYABLE
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
The Company has a contract payable dated May 1996, payable
in monthly installments at $222, including interest at
20.98%, commencing May 1996 through October 1999. The
contract is secured by the Company automobile. ........... $5,664 $4,033
Less current portion........................................ 1,631 2,008
------ ------
$4,033 $2,025
====== ======
</TABLE>
The following are maturities of contract payable:
<TABLE>
<CAPTION>
DECEMBER 31:
- ------------
<S> <C>
1998...................................................... $2,008
1999...................................................... 2,025
------
$4,033
======
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has transactions with certain shareholders and officers who
receive compensation in the form of wages from the Company. Officers' salaries
aggregated $0 and $84,591 for 1996 and 1997, respectively.
F-46
<PAGE> 119
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1996, the Company entered into an agreement with the majority
shareholder to purchase certain equipment, goodwill, and a customer listing for
$25,000.
Shareholders' loans payable are unsecured, non-interest bearing and due on
demand.
7. COMMITMENTS
The Company leases its office and marketing sales office under an operating
lease, commencing April 16, 1996 and expiring June 15, 1998. Under the terms of
the lease agreement, the Company has the option to extend the lease for an
additional three years. The Company is responsible to pay property taxes.
The expected future minimum lease payments are as follows:
<TABLE>
<S> <C>
1998....................................................... $28,682
1999....................................................... 29,137
2000....................................................... 30,012
2001....................................................... 10,102
-------
$97,933
=======
</TABLE>
Rent expense totaled $6,295 and $15,346 for 1996 and 1997, respectively.
8. SALE OF SHAREHOLDERS' INTERESTS
On August 31, 1998, the Company's shareholders entered into an agreement to
sell their respective stock to Sage Networks, Inc.
9. INCOME TAXES
The Company has $12,538 of a net operating loss available to offset future
federal taxable income through 2012.
Valuation allowances are established to reduce deferred tax assets to the
amount expected to be realized.
Provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Current................................................. $ 800 $ 800
Deferred benefit........................................ (2,368) (15,932)
Less valuation allowance................................ 2,368 15,932
------- --------
Total provision for income taxes........................ $ 800 $ 800
======= ========
</TABLE>
10. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company's management believes that all information technology included
in the operating system, together with all products and services provided to its
customers or for internal use, in coordination with technology shared with
customers, suppliers or vendors, will accurately process transactions from 1999
and through the Twenty-First Century, including leap year calculations. Neither
performance nor functionality of such technology will be affected by the year
2000 issue.
F-47
<PAGE> 120
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
GEN International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of GEN
International, Inc. and Subsidiaries (formerly Global Entrepreneurs Network,
Inc.) as of December 31, 1995, 1996 and 1997, and the related consolidated
statements of operations, changes in stockholders' deficiency, and cash flows
for the period April 4, 1995 (inception) through December 31, 1995, and the
years ended December 31, 1996 and 1997. 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 GEN International, Inc. and
Subsidiaries as of December 31, 1995, 1996 and 1997, and the results of their
operations and their cash flows for the period April 4, 1995 (inception) to
December 31, 1995, and the years ended December 31, 1996, and 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 9 to
the financial statements, the Company has incurred net losses, and has a working
capital deficiency and a stockholders' deficiency as of December 31, 1997. In
March 1998, Global Entrepreneurs Network, Inc., a wholly-owned subsidiary filed
a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans with regard to these matters are
discussed in Note 9. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Urbach Kahn & Werlin PC
New York, New York September 4, 1998
F-48
<PAGE> 121
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
BALANCE SHEETS
DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash.................................................. $ 362 $ 888 $
Prepaid expenses and other current assets............. 3,080 10,471 687
-------- --------- -----------
Total current assets.......................... 3,442 11,359 687
-------- --------- -----------
Equipment, net of related depreciation.................. 23,243 271,649
-------- --------- -----------
Security deposit........................................ 2,252 4,154 5,834
-------- --------- -----------
$ 5,694 $ 38,756 $ 278,170
-------- --------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Line of credit........................................ $ 50,000
Capital lease obligations -- current portion.......... 76,421
Accounts payable...................................... $ 45,425 147,524
Advances from stockholder............................. 12,260 82,319
Deferred revenue...................................... $ 12,624 93,185 237,378
Accrued interest -- stockholder....................... 7,611
Accrued expenses and other current liabilities........ 12,355 53,368 174,380
-------- --------- -----------
Total current liabilities..................... 24,979 204,238 775,633
-------- --------- -----------
Capital lease obligations -- non-current portion........ 112,632
-------- --------- -----------
Commitments
Stockholders' deficiency
Common stock, no par value, 25,000,000 shares......... 4,000 20,000 409,545
authorized (1,000,000 -- 1995; 5,325,000 -- 1996
and 11,816,943 -- 1997) issued and outstanding
Accumulated deficit................................... (23,285) (185,482) (1,019,640)
-------- --------- -----------
(19,285) (165,482) (610,095)
-------- --------- -----------
$ 5,694 $ 38,756 $ 278,170
======== ========= ===========
</TABLE>
See Notes to Financial Statements
F-49
<PAGE> 122
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
STATEMENTS OF OPERATIONS
PERIOD APRIL 4, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
AND YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD
APRIL 4, 1995
(INCEPTION) THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------------- ------------ -----------------
<S> <C> <C> <C>
Net revenues.................................. $198,503 $ 828,652 $1,130,764
Cost of revenues.............................. 68,558 345,502 914,093
-------- --------- ----------
Gross profit........................ 129,945 483,150 216,671
-------- --------- ----------
Operating expenses:
Selling, advertising and promotion.......... 76,741 301,978 425,621
General and administrative.................. 76,489 268,369 608,265
Interest expense............................ -- -- 16,943
Bad debt expense............................ -- 75,000 --
-------- --------- ----------
153,230 645,347 1,050,829
-------- --------- ----------
Net loss............................ $(23,285) $(162,197) $ (834,158)
======== ========= ==========
</TABLE>
See Notes to Financial Statements
F-50
<PAGE> 123
GEN INTERNATIONAL, AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
STATEMENTS OF CASH FLOWS
PERIOD APRIL 4, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
AND YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD
APRIL 4, 1995
(INCEPTION) THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................... $(23,285) $(162,197) $(834,158)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Common stock issued for services provided... 6,000 45,834
Depreciation expense........................ 1,977 33,924
Bad debt expense............................ 75,000
Changes in assets and liabilities:
Due from related parties.................... (75,000)
Prepaid expenses and other current assets... (3,080) (7,391) 9,784
Accounts payable............................ 45,425 102,099
Deferred revenue............................ 12,624 80,561 144,193
Accrued interest stockholder............... 7,611
Accrued expenses and other current
liabilities............................... 12,355 41,013 121,012
-------- --------- ---------
Net cash provided by (used in)
operating activities................. (1,386) 5,388 (369,701)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Security deposit............................... (2,252) (1,902) (1,680)
Purchase of equipment.......................... (25,220) (58,982)
-------- --------- ---------
Net cash used in investing
activities........................... (2,252) (27,122) (60,662)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from line of credit............. 50,000
Payments on capital lease obligations.......... (34,295)
Proceeds from sale of common stock............. 4,000 10,000 343,711
Advances from stockholder...................... 12,260 70,059
-------- --------- ---------
Net cash provided by financing
activities........................... 4,000 22,260 429,475
-------- --------- ---------
Net increase (decrease) in cash........ 362 526 (888)
CASH:
Beginning of period............................ 362 888
End of period.................................. $ 362 $ 888 $
======== ========= =========
</TABLE>
SUPPLEMENTAL CASH FLOW DISCLOSURES
In 1997, the Company entered into capital lease arrangements aggregating
$223,300 for the purchase of equipment.
Cash paid for interest was approximately $16,900 in 1997.
F-51
<PAGE> 124
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
PERIOD APRIL 4, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
AND YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
April 4, 1995..............................
Sale of common stock for cash to founding
stockholder.............................. 1,000,000 $ 4,000 $ 4,000
Net loss -- 1995........................... $ (23,285) (23,285)
---------- -------- ----------- ---------
Balance, December 31, 1995................. 1,000,000 4,000 (23,285) (19,285)
Sale of common stock for cash.............. 5,000 10,000 10,000
Issuance of common stock for services...... 60,000 6,000 6,000
Additional shares of common stock in
connection with stock split.............. 4,260,000
Net loss -- 1996........................... (162,197) (162,197)
---------- -------- ----------- ---------
Balance, December 31, 1996................. 5,325,000 $ 20,000 $ (185,482) $(165,482)
Exchange of Global Entrepreneurs Network,
Inc. common stock -- Note 1.............. (2,662,500)
Sale of common stock for cash.............. 586,590 242,709 242,709
Issuance of common stock for services...... 557,853 45,834 45,834
Shares issued on exercise of options....... 1,010,000 101,000 101,000
Acquisition of GEN Events, Inc., GEN
Network Operations, Inc., and GEN Europe,
Inc...................................... 7,000,000 2 2
Net loss -- 1997........................... (834,158) (834,158)
---------- -------- ----------- ---------
Balance, December 31, 1997................. 11,816,943 $409,545 $(1,019,640) $(610,095)
========== ======== =========== =========
</TABLE>
See Notes to Financial Statements
F-52
<PAGE> 125
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. ORGANIZATION, BUSINESS COMBINATIONS AND ACQUISITIONS, AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Organization: GEN International, Inc. (the "Company"), a successor entity
to Global Entrepreneurs Network, Inc. (Global), is located in St. Petersburg,
Florida and is a global network and information provider connected to the
Internet. The Company also offers storage, transfer, and Web hosting services to
its members worldwide, primarily small and medium sized businesses. The Company
was organized as a shell in June 1997. In this connection, Global, originally
incorporated in April 1995 exchanged its then outstanding common stock
(5,325,000 shares) for the common stock (2,662,500 shares) of the Company. The
Company also issued options to the former stockholders of Global. The financial
statements from inception (April 4, 1995) through the exchange in June 1997,
represent the accounts and activities of Global. In connection with this
exchange, Global became a wholly-owned subsidiary of the Company. The Company
also acquired in June 1997, the outstanding common stock of GEN Events, Inc.,
GEN Network Operations Center, Inc., and GEN Europe, Inc., shell entities with
no assets, liabilities or operations, whose shares were also substantially owned
by the principal shareholder of Global. Nominal consideration was assigned to
the 7,000,000 shares issued by the Company in this connection.
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company, and its wholly-owned subsidiaries as follows:
- Global Entrepreneurs Network, Inc.
- GEN Network Operations Center, Inc.
- GEN Europe, Inc.
- GEN Events, Inc.
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
Revenue Recognition: Recurring revenues consist primarily of monthly fees
charged to members for Web hosting services and are recognized at the beginning
of each month for which services are rendered. Other revenues generally
represent one-time set up fees and are recorded as earned. Deferred revenue
consists primarily of the unexpired portion of annual prepaid membership fees.
Property and Equipment: Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful life of the
assets, generally three years for computers and computer related equipment and
five years for other non-computer furniture and equipment. Leasehold
improvements are amortized over the term of the lease.
Capital Leases: The Company leases certain of its phone and other computer
related equipment under capital lease agreements. The assets and liabilities
under capital leases are recorded at the lesser of the present value of future
minimum lease payments, including estimated bargain purchase options, or the
fair value of the assets under lease. Assets under capital lease are amortized
over the lesser of their estimated useful lives of three to five years or the
term of the lease.
Income Taxes: Income taxes are computed using the asset and liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax
F-53
<PAGE> 126
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
bases of assets and liabilities and are measured using the currently enacted tax
rates and laws. There were no deferred taxes in 1995, 1996 and 1997.
Advertising: The Company expenses advertising costs as they are incurred.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Furniture and fixtures.................................. $ 1,482 $ 2,472
Computer equipment...................................... 23,736 303,455
Leasehold improvements.................................. -- 1,623
------- --------
25,218 307,550
Less: accumulated depreciation.......................... 1,975 35,901
------- --------
$23,243 $271,649
======= ========
</TABLE>
NOTE 3. LINE OF CREDIT
The Company has a line of credit with a financial institution amounting to
$50,000. The line bears interest at 2% above the prime lending rate and is due
on demand.
NOTE 4. ADVANCES FROM STOCKHOLDER
Advances from stockholder originally due in September 1996, bear interest
at 18% per annum. Repayment of the advances was extended until such time as the
Company has sufficient resources to satisfy the obligations. Interest expense
for the year ended December 31, 1997 was $7,611. Interest in 1996 was not
material.
NOTE 5. STOCK-BASED COMPENSATION
During 1997, the Company issued options to purchase 3,715,000 shares of
common stock of the Company to certain officers, directors, stockholders and
employees at exercise prices ranging from $0.10 to $1.00. The options are
exercisable upon certain vesting requirements and/or in the event the Company
has a public offering.
During 1997, 1,010,000 options not subject to vesting requirements were
exercised for $101,000. Options to purchase 2,705,000 shares of common stock
were outstanding at December 31, 1997 at a weighted average exercise price of
approximately $1.00. All outstanding options were exercisable at December 31,
1997.
In accordance with Accounting Principles Board Statement No. 25 (APB 25),
no compensation cost has been recognized in accounting for the stock options
issued during 1997. Because the Company's stock options have characteristics
significantly different than those of traded options, compensation cost for the
Company's 1997 grants, based upon the fair value method consistent with
Financial Accounting Statement No. 123, is not determinable.
F-54
<PAGE> 127
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. COMMITMENT
Lease: The Company had an operating lease for its corporate office, which
expired in January 1998, and was renewed through October 1998. Rent expense for
the years ending December 31, 1997 and 1996, and for the period April 4, 1995
(inception) through December 31, 1995 was $27,000, $29,445 and $5,524,
respectively.
NOTE 7. INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $1,020,000, which expire in 2010 through 2012. At December 31,
1997, the expected tax benefit from the future realization of this operating
loss carryforward of approximately $401,000 has been offset by an equivalent
valuation allowance, in view of the uncertainty as to ultimate realization.
NOTE 8. CAPITAL LEASES
During 1997, the Company entered into capital lease arrangements for
computer equipment and other office equipment. The leases, which expire in 1999
through 2000, require the Company to pay taxes, maintenance and insurance.
Annual minimum commitments under the lease arrangements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1998........................................................ $ 91,540
1999........................................................ 88,550
2000........................................................ 24,678
2001........................................................ 5,592
2002........................................................ 3,741
--------
Total minimum payments...................................... 214,101
Less amount representing interest at approximately 10%...... 25,048
Present value of future lease payments...................... 189,053
Less current portion........................................ 76,421
--------
$112,632
--------
</TABLE>
NOTE 9. GOING CONCERN
As indicated in the accompanying financial statements, the Company and its
wholly-owned subsidiaries, have incurred net operating losses, and as of
December 31, 1997, has a working capital deficiency of approximately $775,000
and a stockholders' deficiency of approximately $610,000. During March 1998,
Global Entrepreneurs Network, Inc. filed a voluntary petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code, and was authorized to continue
managing and operating the business as debtor in possession subject to the
control and supervision of the Bankruptcy Court.
Management of the Company is aggressively seeking additional sources of
capital and financing, and in August, 1998, the Company entered into a contract
with Sage Networks, Inc. for the sale of certain of its assets for cash and
assumption of certain of its liabilities, which sale was subsequently
consummated in September 1998. The ability of the Company to continue as a going
concern is dependent upon obtaining additional capital and financing. The
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
NOTE 10. SUBSEQUENT EVENTS
In March 1998, the Company effected a 2 for 1 stock split.
F-55
<PAGE> 128
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Digiweb, Inc.
We have audited the accompanying balance sheets of Digiweb, Inc. as of
December 31, 1997 and 1998, and the related statements of income, cash flows,
and changes in stockholders' equity, and for the years then ended. 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 Digiweb, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Urbach Kahn & Werlin PC
New York, New York
January 24, 1999
F-56
<PAGE> 129
DIGIWEB, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $115,643 $134,343
Accounts receivable, net of allowance for doubtful
accounts of $12,075 and $43,431........................ 36,728 50,939
Prepaid expenses and other current assets................. -- 19,365
-------- --------
Total current assets.............................. 152,371 204,647
-------- --------
Equipment, net of related depreciation...................... 505,946 653,493
-------- --------
OTHER ASSETS
Restricted cash............................................. 50,000 50,000
Security deposit............................................ 3,376 9,685
Other assets, net of amortization of $462 and $219.......... 2,220 1,977
-------- --------
Total other assets................................ 55,596 61,662
-------- --------
$713,913 $919,802
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable -- current portion........................... $ 17,411 $ 41,637
Capital lease obligations -- current portion.............. 2,910 13,030
Accounts payable.......................................... 44,834 121,673
Advances from stockholder................................. 4,966 4,966
Deferred revenue.......................................... 20,239 66,381
Accrued expenses and other current liabilities............ 12,344 6,087
-------- --------
Total current liabilities......................... 102,704 253,774
-------- --------
Note payable -- non-current portion......................... 83,627 42,605
Capital lease obligations -- non-current portion............ 30,661 55,232
-------- --------
Total long-term liabilities....................... 114,288 97,837
-------- --------
Commitments
Stockholders' equity
Common stock, no par value, 1,000 shares authorized,
issued and outstanding................................. 20,000 20,000
Retained earnings......................................... 476,921 548,191
-------- --------
496,921 568,191
-------- --------
$713,913 $919,802
======== ========
</TABLE>
See Notes to Financial Statements
F-57
<PAGE> 130
DIGIWEB, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net revenues................................................ $1,768,322 $2,685,676
Cost of revenues............................................ 729,157 1,118,913
---------- ----------
Gross profit...................................... 1,039,165 1,566,763
---------- ----------
Operating expenses:
Selling, advertising and promotion........................ 17,997 31,577
General and administrative................................ 397,691 586,288
Interest expense.......................................... 10,020 16,829
Bad debt expense.......................................... 12,075 43,431
---------- ----------
437,783 678,125
---------- ----------
Net income........................................ $ 601,382 $ 888,638
========== ==========
</TABLE>
See Notes to Financial Statements
F-58
<PAGE> 131
DIGIWEB, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1996........................ 1,000 $20,000 $ 39,470 $ 59,470
Stockholder distributions......................... (163,931) (163,931)
Net income -- 1997................................ 601,382 601,382
----- ------- --------- ---------
Balance, December 31, 1997........................ 1,000 $20,000 $ 476,921 $ 496,921
Stockholder distributions......................... (817,368) (817,368)
Net income -- 1998................................ 888,638 888,638
----- ------- --------- ---------
Balance, December 31, 1998........................ 1,000 $20,000 $ 548,191 $ 568,191
===== ======= ========= =========
</TABLE>
See Notes to Financial Statements
F-59
<PAGE> 132
DIGIWEB, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 601,382 $ 888,638
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense.................. 138,210 246,329
Bad debt expense....................................... 12,075 31,356
Changes in assets and liabilities:
Accounts receivable.................................... (9,873) (45,567)
Prepaid expenses and other current assets.............. 9,308 (19,365)
Accounts payable....................................... (44,505) 76,839
Deferred revenue....................................... (23,821) 46,142
Accrued expenses and other current liabilities......... 14,337 (6,257)
--------- ----------
Net cash provided by operating activities......... 697,113 1,218,115
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Costs paid for trademark.................................. (1,655) --
Security deposits paid.................................... (1,981) (6,309)
Deposits into cash reserve................................ (50,000) --
Purchase of equipment..................................... (302,257) (347,394)
--------- ----------
Net cash used in investing activities............. (355,893) (353,703)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on shareholder loans................... (136,578) --
Principal payments on capital lease obligations........... (5,054) (11,548)
Principal payments on notes payable....................... (9,931) (16,796)
Shareholder distributions................................. (163,931) (817,368)
--------- ----------
Net cash used in financing activities............. (315,494) (845,712)
--------- ----------
Net increase in cash.............................. 25,726 18,700
CASH:
Beginning of period....................................... 89,917 115,643
--------- ----------
End of period............................................. $ 115,643 $ 134,343
========= ==========
Supplemental Disclosure of Cash Flow Information
Cash payments for interest................................ $ 10,020 $ 16,829
--------- ----------
Capital Lease Obligations Incurred for Purchase of
Equipment................................................. $ 39,303 $ 85,542
--------- ----------
Note Payable Incurred for Leasehold Improvements............ $ 76,444 $ --
--------- ----------
</TABLE>
F-60
<PAGE> 133
DIGIWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
NOTE 1. ORGANIZATION, BUSINESS COMBINATIONS AND ACQUISITIONS, AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Organization: Digiweb, Inc. ("Digiweb" or the "Company") is a provider of
Web hosting and co-located services catering to small and medium sized
businesses. Based in College Park, Maryland, Digiweb offers three core services:
shared server Web hosting, dedicated server Web hosting and co-located.
Revenue Recognition: Recurring revenues consist primarily of monthly fees
charged to members for Web hosting services and are recognized ratably over the
periods for which services are rendered. Other revenues generally represent
one-time set up fees and are recorded as earned. Deferred revenue consists
primarily of the unexpired portion of annual prepaid membership fees.
Property and Equipment: Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful life of the
assets, generally three to five years for computers and computer related
equipment and seven years for other non-computer furniture and equipment.
Leasehold improvements are amortized over the term of the lease.
Capital Leases: The Company leases certain of its autos and other computer
related equipment under capital lease agreements. The assets and liabilities
under capital leases are recorded at the lesser of the present value of future
minimum lease payments, including estimated bargain purchase options, or the
fair value of the assets under lease. Assets under capital lease are amortized
over the lesser of their estimated useful lives of three to five years or the
term of the lease.
Income Taxes: No provision for income taxes has been recorded in the
financial statements due to the Company's S Corporation status. Individual
stockholders are taxed on their respective shares of the entities' income and
receive the benefits of the entities' income tax credits.
Advertising: The Company expenses advertising costs as they are incurred.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Leasehold improvements............................... $ 76,444 $ 76,444
Office equipment..................................... 37,318 71,053
Furniture and fixtures............................... 11,006 13,703
Computer equipment................................... 488,363 799,325
Equipment under capital leases....................... 39,303 85,542
Auto................................................. 36,262 36,262
-------- ----------
686,696 1,082,329
Less: accumulated depreciation....................... 182,750 428,836
-------- ----------
$505,946 $ 653,493
======== ==========
</TABLE>
F-61
<PAGE> 134
DIGIWEB, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. NOTE PAYABLE
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Note payable (auto) in 42 monthly payments of $615,
including interest at 11.15% and one balloon payment of
$22,142 maturing in December 1999. The loan is
collateralized by the automobile ......................... $30,753 $27,160
Note payable (leasehold improvements) in 60 monthly
installments of $1,596, including interest at 9.25%
maturing June 2002. ...................................... 70,285 57,082
------- -------
Total............................................. 101,038 84,242
Less amounts due currently........................ 17,411 41,637
------- -------
$83,627 $42,605
------- -------
</TABLE>
Future maturities of notes payable are as follows:
<TABLE>
<S> <C>
1999....................................................... $41,637
2000....................................................... 15,875
2001....................................................... 17,407
2002....................................................... 9,323
-------
$84,242
-------
</TABLE>
NOTE 4. CAPITAL LEASES
During 1996 and 1997, the Company entered into capital lease
arrangements for computer equipment and automobiles. These leases expire in
1999 through 2000. Annual minimum commitments under these arrangements are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C>
1999........................................................ $18,528
2000........................................................ 58,503
-------
Total minimum payments...................................... 77,031
Less amount representing interest at approximately 10%...... (8,769)
-------
Present value of future lease payments...................... 68,262
Less current portion........................................ 13,030
-------
$55,232
=======
</TABLE>
NOTE 5. COMMITMENT
Lease: The Company has an operating lease for its corporate office, which
expires in May 2004. Rent expense for the years ending December 31, 1997 and
1998, was $47,395 and $69,764, respectively, including tenant charges for
building improvements in 1998.
In January 1999, the Company executed an additional lease for office
expense which expires in December 2004.
The Company also has leases with two internet line service providers,
expiring in April 2000 and January 2002. Internet line service expense for the
years ending December 31, 1997 and 1998, was $199,746 and $325,787,
respectively.
F-62
<PAGE> 135
DIGIWEB, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, AMOUNTS
- ------------ ----------
<S> <C>
1999..................................................... $ 301,645
2000..................................................... 216,808
2001..................................................... 191,209
2002..................................................... 139,668
2003..................................................... 143,859
Thereafter............................................... 148,174
----------
$1,141,363
==========
</TABLE>
Total rental expense was $47,395 and $69,764 for the years ending December
31, 1997 and 1998, respectively.
NOTE 6. SUBSEQUENT EVENTS
In January 1999, the Company entered into a non-binding Letter of Intent
with Sage Networks, Inc. (Sage) for the sale of certain of its assets, at
amounts in excess of their carrying values, and assumption of certain of its
liabilities, for cash and stock in Sage.
F-63
<PAGE> 136
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Telephonetics International, Inc. and
State of the Art, Inc.
Miami, Florida
We have audited the accompanying combined balance sheet of Telephonetics
International, Inc. and Affiliate as of December 31, 1998, and the related
combined statements of operations, capital deficit and cash flows for each of
the two years in the period then ended. These combined financial statements are
the responsibility of the Companies management. Our responsibility is to express
an opinion on these combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Telephonetics
International, Inc. and Affiliate as of December 31, 1998, and the results of
their operations and their cash flows for each of the two years in the period
then ended in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Miami, Florida
January 15, 1999
F-64
<PAGE> 137
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 106,812
Accounts receivable, net of $94,100 allowance for doubtful
accounts (Notes 2 and 5)............................... 538,845
Inventories............................................... 50,836
Prepaid expenses and other current assets................. 34,197
-----------
Total current assets.............................. 730,690
Property and equipment, net (Note 1)........................ 68,598
-----------
$ 799,288
===========
LIABILITIES AND CAPITAL DEFICIT
Current liabilities
Note payable to bank (Note 2)............................. $ 90,000
Note payable to shareholder (Note 3)...................... 50,000
Accounts payable and accrued expenses..................... 137,610
-----------
Total current liabilities......................... 277,610
Deferred income............................................. 1,583,570
-----------
Total liabilities................................. 1,861,180
-----------
Commitments and Subsequent Event (Notes 7 and 10)
CAPITAL DEFICIT (Note 9)
Common stock, $.001 par value; 15,000,000 shares
authorized; 6,000,000 shares issued and outstanding,
Telephonetics International, Inc....................... 6,000
Common stock, $1.00 par value; 1,000 shares authorized,
issued and outstanding, State of the Art, Inc.......... 1,000
Additional paid-in capital................................ 557,815
Deficit................................................... (1,626,707)
-----------
Total capital deficit............................. (1,061,892)
-----------
$ 799,288
===========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-65
<PAGE> 138
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues (Note 5)........................................... $2,991,849 $2,769,606
Cost of sales............................................... 1,023,946 823,161
---------- ----------
Gross profit................................................ 1,967,903 1,946,445
Selling, general and administrative (Notes 4 and 8)......... 2,561,887 2,687,852
---------- ----------
Net loss.................................................... $ (593,984) $ (741,407)
========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-66
<PAGE> 139
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED STATEMENTS OF CAPITAL DEFICIT (NOTE 9)
<TABLE>
<CAPTION>
SUBSCRIBED ADDITIONAL TOTAL
COMMON COMMON PAID-IN TREASURY CAPITAL
STOCK STOCK CAPITAL DEFICIT STOCK DEFICIT
------- ---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... $ 8,375 $ -- $ 92,625 $ (71,139) $(31,185) $ (1,324)
Stock subscription............. -- 100 494,900 -- -- 495,000
Dividends -- cash.............. -- -- -- (220,177) -- (220,177)
Net loss....................... -- -- -- (593,984) -- (593,984)
------- ----- -------- ----------- -------- -----------
Balance at December 31, 1997... 8,375 100 587,525 (885,300) (31,185) (320,485)
Retirement of treasury stock,
1,475,000 shares at cost..... (1,475) -- (29,710) -- 31,185 --
Issuance of common stock....... 100 (100) -- -- -- --
Net loss....................... -- -- -- (741,407) -- (741,407)
------- ----- -------- ----------- -------- -----------
Balance at December 31, 1998... $ 7,000 $ -- $557,815 $(1,626,707) $ -- $(1,061,892)
======= ===== ======== =========== ======== ===========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-67
<PAGE> 140
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Operating Activities:
Net loss.................................................. $(593,984) $(741,407)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for losses on accounts and notes
receivable............................................ 20,850 110,000
Depreciation and amortization.......................... 31,451 74,758
(Increase) decrease in:
Accounts receivable.................................. (128,543) (135,292)
Inventories.......................................... 21,276 88,164
Prepaid expenses and other current assets............ 5,639 (24,232)
Other assets......................................... (1,840) 1,840
Increase in:
Accounts payable and accrued expenses................ 52,096 (96,962)
Deferred income...................................... 224,400 552,511
--------- ---------
Net cash used in operating activities....................... (368,655) (170,620)
--------- ---------
Investing Activities:
Proceeds from disposition of investments.................. 161,523 --
Additions to property and equipment....................... (5,960) (4,943)
Issuance of note receivable............................... (110,000) --
--------- ---------
Net cash (used in) provided by investing activities......... 45,563 (4,943)
--------- ---------
Financing Activities:
Proceeds from stock subscription.......................... 495,000 --
Proceeds from notes payable............................... 45,000 209,690
Payment of notes payable.................................. (44,889) (70,000)
Dividends................................................. (220,177) --
--------- ---------
Net cash provided by financing activities................... 274,934 139,690
--------- ---------
Net decrease in cash and cash equivalents................... (48,158) (35,873)
Cash, and cash equivalents at beginning of year............. 190,843 142,685
--------- ---------
Cash, and cash equivalents at end of year................... $ 142,685 $ 106,812
========= =========
Supplemental information:
Cash paid for:
Interest............................................... $ 2,600 $ 7,400
========= =========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-68
<PAGE> 141
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Telephonetics International, Inc. (Telephonetics) and State of the Art,
Inc. were incorporated in the State of Florida in 1982 and 1980, respectively,
for the purpose of providing customized audio programming for telephone hold
lines and other telecommunication applications. Presently such applications
include automated attendant, voice mail, integrated voice response and
computer/telephone integration applications, which collectively comprise the
Companies' sole business segment. The Companies' principle administrative,
production and sales facility is located in Miami, Florida.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Telephonetics
International, Inc. and its substantially inactive affiliate corporation, State
of the Art, Inc., collectively, the Companies. Telephonetics' majority
shareholder owns 85% of State of the Art, Inc.'s common stock and substantially
controls its operations. Intercompany advances and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Companies consider all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
REVENUE RECOGNITION
A typical sales agreement for services entitles a customer to receive and
requires the Companies to provide upon customer request specified programming
services over a one year period. Billings to customers for such services are
rendered at the date of the agreement and recognized as revenue on a
straight-line basis over the term of the agreement. Revenue from telephone
answering devices and accessory sales are recognized upon shipment to the
customer.
INVENTORIES
Inventories are stated at the lower of cost or market using the first in,
first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization
is computed by the straight line method based on the estimated useful lives of
the related assets. Leasehold improvements are amortized over the shorter of the
life of the asset or the lease.
INCOME TAXES
The Companies, with the consent of all of their shareholders, have elected
to be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Under those provisions, the Companies do not provide for or pay Federal and
certain State corporate income taxes on their taxable income. Instead, the
stockholders are liable for individual Federal and State income taxes, if any,
on their share of the Companies taxable income.
PREPARATION OF COMBINED FINANCIAL STATEMENTS
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the combined financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from estimated amounts.
F-69
<PAGE> 142
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Companies' credit risk relates to cash and cash equivalents and
accounts receivable. Cash and cash equivalents are primarily held in bank
accounts and overnight investments. These banks are insured up to $100,000 by
the FDIC. Periodically, cash balances may exceed this amount. The credit risk
associated with accounts receivable is minimal due to the Companies' customer
base and ongoing control procedures which monitor the credit worthiness of
customers.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The statement applies to
all entities and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Companies did not engage in derivative instruments or
hedging activities in any periods presented in the financial statements.
F-70
<PAGE> 143
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIFE(YEARS) 1998
----------- ------------
<S> <C> <C>
Office and other equipment................... 7 94,757
Studio and production equipment.............. 7 204,579
Furniture and fixtures....................... 7 82,120
Art work..................................... -- 5,475
-- ---------
386,931
Less: accumulated depreciation and
amortization............................... (318,333)
-- ---------
$ 68,598
== =========
</TABLE>
2. NOTES PAYABLE
At December 31, 1998, the Companies have a financing agreement with a
financial institution which provides for a demand revolving line of credit with
maximum borrowings of $150,000. Outstanding amounts under this facility bear
annual interest at 1% over the prime rate (8.75% at December 31, 1998), payable
monthly. Amounts borrowed under this facility are collateralized by
Telephonetics International, Inc.'s accounts receivable and guaranteed by the
Company's President and principal shareholder. At December 31, 1998, amounts
outstanding under the line of credit aggregate $90,000.
The revolving line of credit agreement, requires the Companies to comply
with certain covenants, the most restrictive of which requires the Companies to
maintain tangible net worth (as defined) of at least $500,000. At December 31,
1998, the Companies were not in compliance with this covenant and accordingly,
the obligation could be called for repayment.
3. NOTE PAYABLE TO SHAREHOLDER
On May 28, 1998, the Companies' principal shareholder loaned $70,000 to the
Companies for working capital purposes. The note bears interest at 10% annually
payable in monthly principal installments of $3,000 beginning September 1998. At
December 31, 1998, outstanding amount due to the principal shareholder
aggregated $50,000.
4. RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Companies paid rent to companies owned by the
Companies' principal officers in the amount of $38,500 and $104,000,
respectively.
5. SIGNIFICANT CUSTOMER
For the years ended December 31, 1997 and 1998, one customer accounted for
47% and 55% of revenues, respectively; at December 31, 1998, accounts receivable
from this customer amounted to approximately $337,600.
6. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including certificates of
deposit, accounts receivable, accounts payable and debt approximated fair value
due to the relatively short maturity.
F-71
<PAGE> 144
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
The Companies rent office space and warehouse under non-cancelable leases.
The minimum future rental commitment for leases in effect at December 31, 1998,
including leases to related parties, approximates the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999...................................................... $ 98,700
2000...................................................... 92,600
2001...................................................... 72,000
2002...................................................... 72,000
2003...................................................... 54,000
--------
$389,300
========
</TABLE>
Rent expense in 1997 and 1998 aggregated approximately $102,000 and
$160,000, including $38,500 and $104,000 to related parties, respectively.
The Companies are required to pay a fee for the use of custom audio
production. During 1997 and 1998, approximately $33,000 and $40,000 of royalties
were paid, respectively.
8. DEFERRED COMPENSATION PLAN
The Companies have a defined contribution plan established pursuant to
Section 401(k) of the Internal Revenue Code. Employees contribute to the plan a
percentage of their salaries, subject to certain dollar limitations and the
Companies match a portion of the employees' contributions. The Companies'
contributions to the plan for the years ended December 31, 1997 and 1998
aggregated $16,200 and $17,000, respectively.
9. CAPITAL DEFICIT
On December 15, 1997 at a special meeting of the stockholders, an action
was approved to recapitalize Telephonetics by reducing the par value of each
share of common stock from $1 per share to $.001 per share and increasing the
number of authorized shares of common stock from 100,000 shares to 15,000,000
shares. The then issued 100,000 shares of $1 par value common stock (comprised
of 80,000 outstanding shares and 20,000 shares of Treasury stock) were
subsequently exchanged (at a ratio of 73.75 to 1) for 7,375,000 shares of $.001
par value common stock, comprised of 5,900,000 outstanding shares and 1,475,000
shares of Treasury stock. All share and per share data in the accompanying
financial statements have been retroactively restated to give effect to the
recapitalization.
In July 1997, an investor subscribed for the purchase of 100,000 shares of
Telephonetics' recapitalized $.001 par value common stock for aggregate
consideration of $495,000. The shares were issued during 1998 following
consummation of the recapitalization.
During the year ended December 31, 1997, Telephonetics temporarily acquired
all of the outstanding shares of common stock of Quicklab Multimedia Centers,
Inc. in exchange for 2,950,000 shares of common stock. To facilitate the
transaction, for which the Company did not then have sufficient authorized and
unissued shares of common stock, the Company's then sole stockholder contributed
2,950,000 shares owned by him to the Company which were issued to the seller.
The acquisition was subsequently rescinded and the 2,950,000 shares of common
stock were returned to the stockholder. In connection with the rescinded
transaction, the Company loaned Quick Lab Multimedia Centers, Inc. $110,000
under the terms of an unsecured note receivable bearing interest at prime plus
1% (8.75% at December 31, 1998). During the year ended December 31, 1998, the
Company recorded a $110,000 provision for possible losses on the note.
F-72
<PAGE> 145
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT
In January 1999, the Companies entered into a letter of intent with Sage
Networks, Inc. (Sage) for the sale of substantially all their assets and
assumption of substantially all of their liabilities in exchange for $3,000,000
in cash and 140,000 shares of Sage common stock.
11. YEAR 2000 ISSUES (UNAUDITED)
Like other companies, the Companies could be adversely affected if the
computer systems we, our suppliers or customers use do not properly process and
calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such as
production equipment, elevators, etc.
The Companies are implementing a plan to modify their business technologies
to be ready for the year 2000 and are in the process of converting critical data
processing systems. The project is expected to be substantially complete by
June, 1999 and to cost between $125,000 and $150,000. The Companies do not
expect this effort to have a significant effect on operations.
F-73
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Net Daemons Associates, Inc.:
We have audited the accompanying balance sheets of Net Daemons Associates,
Inc. (the "Company") as of December 31, 1997 and 1998, and the related
statements of income, stockholders' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997 and 1998,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
February 2, 1999 (February 17, 1999 as to Note 10)
F-74
<PAGE> 147
NET DAEMONS ASSOCIATES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 47,659 $ 274,100
Accounts receivable, net of allowance of $19,400 for 1997
and $36,500 for 1998................................... 804,290 882,664
Notes receivable.......................................... 9,988 4,979
Stockholders' receivable.................................. 35,759 5,936
Prepaid expenses and other................................ 11,071 20,901
Deferred income taxes..................................... 19,700 53,000
---------- ----------
Total current assets.............................. 928,467 1,241,580
Property and Equipment, Net................................. 310,200 222,749
Deposits.................................................... 39,419 38,650
---------- ----------
Total............................................. $1,278,086 $1,502,979
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Note payable -- bank...................................... $ 150,000 $ --
Accounts payable.......................................... 129,297 263,317
Accrued salaries, wages and related benefits.............. 76,137 189,291
Accrued profit sharing.................................... 26,000 30,000
Accrued expenses.......................................... 15,590 83,612
Current portion of long-term debt......................... 20,375 38,411
Current portion of subordinated stockholder debt.......... 135,960 --
Deferred revenue.......................................... 62,910 52,127
Accrued income taxes...................................... 84,552 102,955
---------- ----------
Total current liabilities......................... 700,821 759,713
---------- ----------
Long-Term Liabilities:
Long-term debt............................................ 91,855 107,998
Subordinated stockholder debt............................. 804,040 885,214
---------- ----------
Total long-term liabilities....................... 895,895 993,212
---------- ----------
Deferred Income Taxes....................................... 12,800 21,500
---------- ----------
Total liabilities................................. 1,609,516 1,774,425
---------- ----------
Commitments (Note 8)
Stockholders' Deficit:
Preferred stock, $.01 per share par value, 21,389 shares
authorized............................................. -- --
Common stock, $.01 per share par value, 2,500,000 shares
authorized for 1997 and 2,578,611 shares authorized for
1998; 2,062,500 shares issued (Note 6)................. 20,625 20,625
Additional paid-in capital................................ 149,267 149,267
Retained earnings......................................... 438,678 498,662
Treasury stock, at cost -- 855,000 shares................. (940,000) (940,000)
---------- ----------
Total stockholders' deficit....................... (331,430) (271,446)
---------- ----------
Total............................................. $1,278,086 $1,502,979
========== ==========
</TABLE>
See notes to financial statements.
F-75
<PAGE> 148
NET DAEMONS ASSOCIATES, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenues.................................................... $4,656,975 $5,770,024
Costs of revenues........................................... 2,457,264 3,211,532
---------- ----------
Gross profit................................................ 2,199,711 2,558,492
General and administrative expenses......................... 2,021,064 2,293,060
---------- ----------
Income from operations...................................... 178,647 265,432
Other income (expense):
Interest income........................................... 408 4,350
Loss on sale of equipment................................. (503) (3,163)
Interest expense.......................................... (31,708) (105,835)
---------- ----------
Earnings before provision for income taxes.................. 146,844 160,784
Provision for income taxes.................................. 69,510 100,800
---------- ----------
Net income.................................................. $ 77,334 $ 59,984
========== ==========
</TABLE>
See notes to financial statements.
F-76
<PAGE> 149
NET DAEMONS ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TOTAL
------------------- ADDITIONAL OTHER TREASURY STOCK STOCKHOLDERS'
PAR PAID-IN RETAINED COMPREHENSIVE -------------------- EQUITY
SHARES VALUE CAPITAL EARNINGS INCOME SHARES COST (DEFICIT)
--------- ------- ---------- -------- ------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997..... 2,000,000 $20,000 $ 24,892 $361,344 $ -- -- $ -- $ 406,236
--------- ------- -------- -------- -------- -------- --------- ---------
Comprehensive income -- net
income................... -- -- -- 77,334 -- -- -- 77,334
Issuance of common
shares................... 62,500 625 124,375 -- -- -- -- 125,000
Purchase of common stock... -- -- -- -- -- (855,000) (940,000) (940,000)
--------- ------- -------- -------- -------- -------- --------- ---------
Balance, December 31, 1997... 2,062,500 20,625 149,267 438,678 -- (855,000) (940,000) (331,430)
Comprehensive income -- net
income................... -- -- -- 59,984 -- -- -- 59,984
--------- ------- -------- -------- -------- -------- --------- ---------
Balance, December 31, 1998... 2,062,500 $20,625 $149,267 $498,662 $ -- (855,000) $(940,000) $(271,446)
========= ======= ======== ======== ======== ======== ========= =========
</TABLE>
See notes to financial statements.
F-77
<PAGE> 150
NET DAEMONS ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 77,334 $ 59,984
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 104,245 135,129
Loss on sale of equipment.............................. 503 3,163
Accrued interest on subordinated stockholder debt...... -- 81,174
Deferred income taxes.................................. (10,390) (24,600)
Changes in assets and liabilities:
Accounts receivable.................................. (63,693) (78,374)
Prepaid expenses and other........................... 2,144 (9,830)
Accounts payable..................................... 61,626 134,020
Accrued salaries, wages and related benefits......... (33,863) 113,154
Accrued profit sharing............................... (39,000) 4,000
Accrued expenses..................................... (71,382) 68,022
Deferred revenue..................................... (30,270) (10,783)
Accrued income taxes................................. (18,528) 18,403
--------- ---------
Net cash provided by (used in) operating
activities...................................... (21,274) 493,462
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment.................................... (228,985) (51,792)
Proceeds from sale of equipment........................... 6,200 951
Deposits.................................................. (39,419) 769
--------- ---------
Net cash used in investing activities............. (262,204) (50,072)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings undernote payable -- bank..... 195,108 (150,000)
Notes and stockholder receivable.......................... (13,025) 34,832
Proceeds from long-term borrowings........................ -- 54,892
Repayments of subordinated stockholder and long-term
debt................................................... (4,138) (156,673)
Proceeds from issuance of common stock.................... 100,000 --
--------- ---------
Net cash (used in) provided by financing
activities...................................... 277,945 (216,949)
--------- ---------
Increase (decrease) in cash and equivalents................. (5,533) 226,441
Cash and equivalents, beginning of year..................... 53,192 47,659
--------- ---------
Cash and equivalents, end of year........................... $ 47,659 $ 274,100
========= =========
Supplemental disclosures:
Fiscal year 1997 noncash financing activities:
Issuance of 12,500 common shares for a $25,000 note
receivable from stockholder Repurchase of 855,000
common shares from stockholder for $940,000 note
payable
Cash paid during the year for:
Interest............................................... $ 31,708 $ 22,303
========= =========
Taxes............................................. $ 98,428 $ 108,997
========= =========
</TABLE>
See notes to financial statements.
F-78
<PAGE> 151
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Daemons Associates, Inc. ("NDA" or the "Company") specializes in
providing business with team-based network and system administration solutions.
NDA network and system services include outsourced network/system
administration; LAN/WAN design and implementation; network growth and transition
planning; Internet connectivity; security consulting; and customized network
solutions. In addition, NDA provides Web site development and network consulting
services.
NEW ACCOUNTING PRONOUNCEMENTS -- During the year, the Company adopted
Financial Accounting Standards Board ("FASB") Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. Comprehensive income encompasses all changes in
stockholders' equity (except those arising from transactions with stockholders).
The Company had no other components of comprehensive income. As this new
standard only requires additional information in the financial statements, it
does not affect the Company's financial position or results of operations.
USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of estimates.
These estimates include the allowance for doubtful accounts and certain accruals
and are based upon assumptions developed by management about the appropriate
carrying value of assets and liabilities. Actual results could differ from these
estimates.
REVENUE RECOGNITION -- Revenue from consulting services is recognized as
the services are rendered, provided that no significant obligations remain and
collection of the receivable is considered probable. Generally, contracts call
for billings on a time and materials basis; however, in instances when a fixed
fee contract is signed, revenue is recognized on a percentage-of-completion
basis. At December 31, 1997 and 1998, NDA had $62,910 and $52,127 of deferred
revenue recorded, respectively.
CONCENTRATION OF CREDIT RISK -- The majority of NDA's revenue is from
customers in high technology industries, who are not required to provide
collateral. NDA's customers are dispersed over a wide geographic area and are
subject to periodic review under the Company's credit policies. The Company does
not believe that it is subject to any unusual credit risks, other than the
normal level of risk attendant to operating its business.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost and
depreciated using the straight-line method over their estimated useful lives
(three to seven years). Leasehold improvements are amortized over the life of
the lease.
INCOME TAXES -- Deferred income taxes are provided for the tax consequences
of differences in bases between assets and liabilities for book and tax
purposes. Deferred taxes are measured using currently enacted tax rates which
are expected to be in effect when such differences reverse.
STOCK-BASED COMPENSATION -- Compensation cost associated with awards of
stock or options to employees is measured using the intrinsic-value method
prescribed by Accounting Principles Board Opinion No. 25 (see Note 6).
RECLASSIFICATIONS -- Certain amounts in the financial statements have been
reclassified to conform with the 1998 presentation.
F-79
<PAGE> 152
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. STOCKHOLDERS' RECEIVABLE
At December 31, 1998, stockholders' receivable consisted of $5,936 in notes
from NDA officers. The December 31, 1997 stockholders' receivable balance
consisted of a $25,000 note relating to the purchase of 12,500 shares of NDA's
common stock (paid on February 19, 1998) and $10,759 in notes from NDA officers.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and software...................... $ 329,241 $ 372,753
Furniture and fixtures............................... 50,632 54,194
Leasehold improvements............................... 13,939 13,939
Office equipment..................................... 28,405 33,124
Automobiles.......................................... 62,580 56,841
--------- ---------
Total...................................... 484,797 530,851
Less accumulated depreciation........................ (174,597) (308,102)
--------- ---------
Property and equipment, net.......................... $ 310,200 $ 222,749
========= =========
</TABLE>
4. NOTE PAYABLE -- BANK
Note payable -- bank represents the outstanding balance under a $400,000
working capital line of credit and a $100,000 line with a term conversion
feature ("the conversion line"). Interest on the lines are payable monthly based
on prime (7.75% at December 31, 1998). The lines are secured by and
cross-collateralized by substantially all assets of NDA, are personally
guaranteed by NDA's stockholders, and require the maintenance of customary
financial covenants including minimum retained earnings of $475,000. The lines
are subject to renewal annually and expires on July 1, 1999. The conversion line
is to be utilized to finance 80% of the purchase price of new equipment and
converts to a term loan in July 1999. After conversion, the loan will be payable
in 48 equal monthly installments of principal plus interest at the bank's then
prime rate. Amounts available under the lines were $500,000 at December 31,
1998.
5. LONG-TERM DEBT
EQUIPMENT LOAN -- The equipment loan requires monthly principal and
interest payments with principal payments based on a four-year straight-line
amortization schedule. Interest is based on prime (7.75% at December 31, 1998).
The equipment loan is secured by substantially all assets of NDA and is
personally guaranteed by NDA's stockholders.
TERM LOAN -- In connection with the acquisition of an automobile in June
1996, NDA entered into a term loan (the "term loan") with a bank for $23,504.
The term loan requires monthly payments of principal and interest (at 8.75%)
through May 2001.
STOCKHOLDER DEBT -- In connection with the repurchase of 855,000 shares of
common stock in December 1997, the Company entered into a $940,000 note payable
agreement (the "note payable"). This agreement calls for principal payments in
the amount of $125,333 to be made annually in 1999 through 2003 with a balloon
payment in 2004. However, NDA is only obligated to make payments, subject to
certain limitations, based on net profit as of the end of the fiscal year
preceding the relevant payment date. The note payable has an attached interest
rate of prime plus 1% (8.75% at December 31, 1998). The principal balance is
increased annually for the accrual of interest. The note payable is secured on a
pro rata basis by a security
F-80
<PAGE> 153
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
interest in the noted stock. Principal payments due under the equipment loan,
term loan and stockholder debt are as follows:
<TABLE>
<CAPTION>
EQUIPMENT STOCKHOLDER
YEAR ENDING DECEMBER 31, LOAN TERM LOAN DEBT TOTAL
- ------------------------ --------- --------- ----------- ----------
<S> <C> <C> <C> <C>
1999......................... $ 33,453 $ 4,958 $ -- $ 38,411
2000......................... 33,453 5,376 125,333 164,162
2001......................... 33,453 2,264 125,333 161,050
2002......................... 33,452 -- 125,333 158,785
2003......................... -- -- 125,333 125,333
Thereafter................... -- -- 383,882 383,882
-------- ------- -------- ----------
Total.............. $133,811 $12,598 $885,214 $1,031,623
======== ======= ======== ==========
</TABLE>
6. STOCKHOLDERS' DEFICIT
COMMON STOCK -- During fiscal year 1997, NDA issued 62,500 common shares at
a price of $2.00 per share. Of the $125,000 in proceeds due from the sale of
these shares, $100,000 had been collected, leaving an outstanding balance of
$25,000 at December 31, 1997. On February 19, 1998, the outstanding balance was
collected.
TREASURY STOCK -- In December 1997, NDA purchased 855,000 shares of common
stock. NDA's purchases of shares of common stock are recorded as "Treasury
Stock" and result in a reduction of "Stockholders' Deficit."
STOCK OPTION PLAN -- NDA's Incentive Stock Option Plan (the "Plan"),
established in December 1996, provides for grants of options to purchase up to
200,000 shares of common stock. Grants may be in the form of incentive stock
options or nonqualified options. Exercise prices and vesting periods are
determined by the Board on the date of grant. Options generally vest ratably
over a four-year period. A summary of activity in the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997.............................. 77,900 $0.20
Granted..................................................... 106,100 2.00
Cancelled................................................... (41,000) 0.20
-------
Outstanding at December 31, 1997............................ 143,000 $1.54
Granted..................................................... 116,560 3.08
Cancelled................................................... (60,300) 1.96
-------
Outstanding at December 31, 1998............................ 199,260 $2.31
=======
</TABLE>
F-81
<PAGE> 154
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information regarding options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER NUMBER AVERAGE
OF EXERCISE CURRENTLY REMAINING
OPTIONS PRICE EXERCISABLE LIFE
- ------- -------- ----------- ---------
<C> <C> <C> <S>
32,900 $0.20 23,800 8.0 years
66,160 2.00 33,784 8.6
100,200 3.20 35,600 9.5
- ------- ------
199,260 93,184
======= ======
</TABLE>
PRO FORMA DISCLOSURE -- As described in Note 1, NDA uses the
intrinsic-value method to measure compensation for equity awards to employees.
Had NDA used the fair-value method to measure compensation, reported net income
would have been $64,577 in 1997 and $9,097 in 1998.
The minimum-value method was used to measure the fair value of equity
awards in this disclosure. Key assumptions used to apply this pricing model were
average risk-free rates of 6% and expected option lives of ten years. The
estimated fair value of awards made in 1997 and 1998 were $94,710 and $190,332,
respectively.
RESERVED SHARES -- At December 31, 1997 and 1998, 200,000 shares of common
stock were reserved for issuance upon exercise of options.
7. INCOME TAXES
The provision for income taxes consisted of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Current:
Federal.............................................. $ 58,900 $112,000
State................................................ 21,000 26,500
-------- --------
Total........................................ 79,900 138,500
-------- --------
Deferred:
Federal.............................................. (9,039) (28,800)
State................................................ (1,351) (8,900)
-------- --------
Total........................................ (10,390) (37,700)
-------- --------
Provision for income taxes............................. $ 69,510 $100,800
======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets -- current:
Accrued vacation and benefits........................ $ 12,000 $ 38,000
Allowance for doubtful accounts...................... 7,700 15,000
-------- --------
Net deferred tax asset -- current...................... $ 19,700 $ 53,000
======== ========
Deferred tax liability -- noncurrent:
Depreciation......................................... $(12,800) $(21,500)
======== ========
</TABLE>
F-82
<PAGE> 155
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the statutory and effective tax rates for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Statutory tax rate.......................................... 34.0% 34.0%
State income taxes -- net of federal benefit................ 6.2 6.2
Nondeductible expenses...................................... 7.1 6.4
Change in prior year's tax estimate......................... -- 16.1
---- ----
47.3% 62.7%
==== ====
</TABLE>
8. COMMITMENTS
OPERATING LEASES -- The Company leases its office facilities and certain
equipment under noncancelable operating leases. Total rent expense was $169,609
and $200,098 for the years ended December 31, 1997 and 1998, respectively.
Future minimum payments under noncancelable operating leases for the years
ending December 31 are as follows:
<TABLE>
<S> <C>
1999.............................................. $222,523
2000.............................................. 44,918
2001.............................................. 13,375
</TABLE>
9. PROFIT-SHARING PLAN
NDA has a profit-sharing plan (the "plan") pursuant to Section 401(k) of
the Internal Revenue Code (the "Code"). The plan allows participants to make
pretax contributions not in excess of the maximum allowed under the Code. The
plan does not provide matching contributions by the employer. The profit-
sharing portion of the plan consists of contributions made by NDA at the
discretion of the Board. Profit-sharing expense was approximately $26,000 in
1997 and $30,000 in 1998.
10. SUBSEQUENT EVENT
On February 12, 1999 Sage Networks, Inc. ("Sage") agreed to purchase all
the outstanding stock of the Company. The purchase price consists of cash of
$500,000 and 425,000 shares of Sage common stock. In addition Sage has agreed to
pay certain officers of the Company $2,417,000 for non-compete agreements and to
pay approximately $441,000 for outstanding stock options of the Company. The
Agreement also provides for contingent consideration of $500,000 in cash and
74,963 shares of Sage common stock if certain gross revenue and gross margin
targets are met in the twelve months period following the acquisition. The
transaction closed on February 17, 1999. As a result of the acquisition, on
February 12, 1999, the Company paid all of its outstanding bank debt. In
connection with the repayment, all bank credit facilities and borrowing
availability was cancelled.
The Company had service revenue from Sage of approximately $94,000 in 1998.
* * * * * *
F-83
<PAGE> 156
REPORT OF INDEPENDENT AUDITORS
Shareholder
Interliant, Inc.
We have audited the accompanying balance sheets of Interliant, Inc. (the
"Company") as of December 31, 1997 and 1998, and the related statements of
operations, shareholder's deficit and cash flows for each of the three years in
the period ended December 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 Interliant, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 26, 1999,
except for Note 11, as to which the date is
March 10, 1999
F-84
<PAGE> 157
INTERLIANT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 917,566 $ 972,467
Accounts receivable, net of allowance of $103,940 in 1997
and $150,276 in 1998................................... 1,860,152 1,775,939
Unbilled revenue.......................................... 1,758,012 1,748,234
Prepaid expenses and other................................ 168,428 391,359
----------- -----------
Total current assets........................................ 4,704,158 4,887,999
Property and equipment, net................................. 5,693,201 5,661,351
Investment in and advances to joint venture................. 72,145 149,067
----------- -----------
Total assets................................................ $10,469,504 $10,698,417
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,597,521 $ 1,909,514
Notes payable to shareholder and related party............ 10,825,000 15,125,000
Current portion of capital lease obligations.............. 30,083 27,919
----------- -----------
Total current liabilities................................... 12,452,604 17,062,433
Capital lease obligations................................... 136,238 110,009
Commitments and contingencies
Shareholder's deficit:
Common stock, $.01 par value; 40,000,000 shares
authorized; 10,000,000 shares issued and outstanding... 100,000 100,000
Additional paid-in capital................................ 400,000 400,000
Accumulated deficit....................................... (2,619,338) (6,974,025)
----------- -----------
Total shareholder's deficit................................. (2,119,338) (6,474,025)
----------- -----------
Total liabilities and shareholder's deficit................. $10,469,504 $10,698,417
=========== ===========
</TABLE>
See accompanying notes.
F-85
<PAGE> 158
INTERLIANT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Network service fees............................... $8,401,463 $15,316,756 $18,886,503
Consulting......................................... -- 1,423,071 2,020,598
Other.............................................. 4,504 136,037 265,768
---------- ----------- -----------
8,405,967 16,875,864 21,172,869
Costs and expenses:
Cost of service revenue............................ 5,056,552 9,414,476 11,880,983
General and administrative......................... 1,523,209 2,866,509 4,137,668
Sales and marketing................................ 1,697,214 4,408,597 6,722,997
Depreciation and amortization...................... 783,208 1,642,140 2,525,530
---------- ----------- -----------
9,060,183 18,331,722 25,267,178
---------- ----------- -----------
Operating loss....................................... (654,216) (1,455,858) (4,094,309)
Other income (expense):
Equity in losses of joint venture.................. (15,767) (214,735) (144,735)
Interest expense................................... (218,394) (469,817) (715,643)
Gain on settlement of litigation................... -- 1,351,630 600,000
---------- ----------- -----------
(234,161) 667,078 (260,378)
---------- ----------- -----------
Net loss............................................. $ (888,377) $ (788,780) $(4,354,687)
========== =========== ===========
</TABLE>
See accompanying notes.
F-86
<PAGE> 159
INTERLIANT, INC.
STATEMENTS OF SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 2,500,000 $ 25,000 $475,000 $ (942,181) $ (442,181)
Stock split effected as a
stock dividend........... 7,500,000 75,000 (75,000) -- --
Net loss.................... -- -- -- (888,377) (888,377)
---------- -------- -------- ----------- -----------
Balance at December 31,
1996........................ 10,000,000 100,000 400,000 (1,830,558) (1,330,558)
Net loss.................... -- -- -- (788,780) (788,780)
---------- -------- -------- ----------- -----------
Balance at December 31,
1997........................ 10,000,000 100,000 400,000 (2,619,338) (2,119,338)
Net loss.................... -- -- -- (4,354,687) (4,354,687)
---------- -------- -------- ----------- -----------
Balance at December 31,
1998........................ 10,000,00 $100,000 $400,000 $(6,974,025) $(6,474,025)
========== ======== ======== =========== ===========
</TABLE>
See accompanying notes.
F-87
<PAGE> 160
INTERLIANT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $ (888,377) $ (788,780) $(4,354,687)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation...................................... 734,331 1,403,842 1,952,629
Amortization...................................... 48,877 525,391 572,901
Loss on disposals of property and equipment....... 115,037 14,856 3,783
Provision for doubtful accounts................... 50,178 97,433 150,966
Equity in losses of joint ventures................ 15,767 214,735 144,735
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue....... (1,338,004) (1,660,351) (56,975)
Prepaid expenses and other..................... (207,233) 91,727 (222,931)
Accounts payable and accrued liabilities....... 1,378,521 (136,301) 311,993
----------- ----------- -----------
Net cash used in operating activities............... (90,903) (237,448) (1,497,586)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment........ 16,889 8,281 4,000
Expenditures for property and equipment............. (4,082,093) (2,834,563) (2,501,463)
Investments in and advances to joint venture........ (55,561) (247,086) (221,657)
----------- ----------- -----------
Net cash used in investing activities............... (4,120,765) (3,073,368) (2,719,120)
FINANCING ACTIVITIES
Net proceeds from notes payable from shareholder and
related party..................................... 4,423,623 3,901,698 4,271,607
----------- ----------- -----------
Net cash provided by financing activities........... 4,423,623 3,901,698 4,271,607
----------- ----------- -----------
Increase in cash.................................... 211,955 590,882 54,901
Cash at beginning of year........................... 114,729 326,684 917,566
----------- ----------- -----------
Cash at end of year................................. $ 326,684 $ 917,566 $ 972,467
=========== =========== ===========
</TABLE>
See accompanying notes.
F-88
<PAGE> 161
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Interliant, Inc. (the "Company") was organized under the laws of the State
of Texas on July 12, 1993, under the name Wolf Communications Company. The
Company's name was changed to Interliant, Inc., effective January 20, 1997.
Interliant, Inc., is a privately owned company that provides secure
network-based hosting and messaging services on a Lotus Notes platform, enabling
worldwide continuously available remote access to business-critical applications
and data. The Company also provides vertical solutions for various markets
including distance learning, sales force automation, legal, and mortgage
banking. It is also developing hosting solutions for Microsoft Exchange and
Microsoft's Commercial Internet System, as well as a remote server management
solution.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, except notes
payable to shareholder and related party and the capital lease obligation,
approximate fair value. The fair value of notes payable to shareholder and
related party and the capital lease obligation are not determinable as the
Company's borrowings are from the shareholder and a related party and the
capital lease obligation is guaranteed by the shareholder.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options to employees for shares with an exercise
price no less than the value of the shares at the date of grant. The company
accounts for such stock option grants in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25").
REVENUE RECOGNITION
Revenues consist primarily of network service and related fees for
services, generally provided under contractual periods ranging from one to
twelve months. Revenues from these services are generally recognized when the
services are performed. Revenues in excess of amounts billed are accrued and
presented as unbilled revenue in the accompanying balance sheets.
ADVERTISING EXPENSES
All advertising costs are expensed as incurred. Advertising expenses were
approximately $122,000, $415,000, and $571,000 for the years ended December 31,
1996, 1997, and 1998, respectively.
COST OF SERVICE REVENUE
Cost of service revenue includes internally-funded research and development
costs, which are expensed as incurred. Research and development costs were
approximately $600,000, $1,100,000, and $1,500,000 in 1996, 1997, and 1998,
respectively.
F-89
<PAGE> 162
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Computer equipment and software............................. 3 years
Furniture, fixtures and office equipment.................... 5 to 7 years
</TABLE>
Amortization of leasehold improvements is provided using the straight-line
method over the shorter of the remaining estimated useful lives or the lease
terms. Depreciation expense in 1997 of approximately $287,000 is presented on
the statements of operations as an offset to the gain on settlement of
litigation.
The costs of ordinary maintenance and repairs are charged to expense while
renewals and replacements are capitalized.
INCOME TAXES
The shareholder has elected S corporation status for the Company for
federal income tax purposes. Under S corporation regulations, revenues and
expenses of the Company are reportable for federal income tax purposes in the
income tax return of the shareholder. Accordingly, no provision for federal
income tax is included in the accompanying financial statements.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist principally of accounts receivable. The Company provides credit, in
the normal course of business, to a number of geographically dispersed
customers, primarily within the United States. Collateral is generally not
required on these receivables. The Company maintains allowances for potential
credit losses, and customers can be denied access to services in the event of
non-payment. During 1997 and 1998, the Company's largest customer represented
approximately 10% of total revenues.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. Certain items which were previously required to be reported
separately in shareholder's equity, such as unrealized gains or losses on
available-for-sale securities, minimum pension liability adjustments and foreign
currency translation adjustments, are now required to be included in other
comprehensive income. For 1996, 1997, and 1998 the Company's comprehensive
income was the same as net income, and the adoption of SFAS 130 had no impact on
the presentation of the financial statements.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 requires disclosure of
certain information regarding operating segments, products, services, geographic
areas of operation and major customers. The disclosures prescribed by SFAS 131
are effective for the year ended December 31, 1998. The Company has determined
that it does not have separately reportable segments, as defined by SFAS 131,
and thus no segment disclosures have been presented.
In March 1998, the AICPA issued Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use (SOP
98-1), which is effective for the financial statements for fiscal years
beginning after December 15, 1998. SOP 98-1 will result in the capitalization of
certain
F-90
<PAGE> 163
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
qualifying costs incurred in the development of software for internal use;
however, the adoption of SOP 98-1 is not expected to have a material impact on
the Company's earnings or financial position.
2. INVESTMENT IN AND ADVANCES TO JOINT VENTURE
The Company is a 50% partner in TITLELINK, L.L.C., a joint venture which
offers a network-based service to facilitate the closing of real estate
transactions within the financial community. The Company provides working
capital requirements as needed. The Company has provided an allowance against
its advances to the joint venture of approximately $30,000 and $114,000 at
December 31, 1997 and 1998, respectively, which is included in investment in and
advances to joint venture.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Computer equipment and software............................ $4,926,000 $ 7,298,000
Furniture, fixtures and office equipment................... 1,559,000 1,682,000
Leasehold improvements..................................... 2,659,000 2,665,000
---------- -----------
9,144,000 11,645,000
Less accumulated depreciation and amortization............. 3,451,000 5,984,000
---------- -----------
$5,693,000 $ 5,661,000
========== ===========
</TABLE>
4. NOTES PAYABLE TO SHAREHOLDER AND RELATED PARTY
Notes payable to shareholder and related party includes unsecured
borrowings from the Company's shareholder totaling $4,310,000 and $7,910,000 at
December 31, 1997 and 1998, respectively, and unsecured borrowings from a
related party totaling $6,515,000 and $7,215,000 at December 31, 1997 and 1998,
respectively. These advances have been used to fund the Company's operations.
These notes bear interest, payable monthly, at annual rates ranging from 5.5% to
6.1% in 1997, and 4.3% to 5.6% in 1998. The borrowings mature on March 31, 1999.
The Company paid interest associated with the notes payable to affiliates
of approximately $199,000, $449,000, and $696,000 in 1996, 1997, and 1998,
respectively.
5. RELATED PARTY TRANSACTIONS
The Company has an informal agreement with a related party whereby the
Company provides certain administrative services to the related party. The
related party compensates the Company for these services on a monthly basis,
which totaled $12,000, $48,000, and $48,000 in 1996, 1997, and 1998,
respectively. The amount due to the Company for these services totaled $12,000
at December 31, 1998, and there was no related amount due to the Company at
December 31, 1997.
6. EMPLOYEE BENEFIT PLAN
Substantially all of the Company's employees are participants in a
discretionary, defined contribution plan with salary deferral contributions as
provided under Section 401(k) of the Internal Revenue Code. Voluntary salary
deferral contributions are made by employees, subject to a maximum of 15% of
annual compensation and are matched 100% of the first 5% by Company
contributions. The charge to expense for the Company's contributions was
$109,000, $254,000, and $404,000 for the years ended December 31, 1996, 1997,
and 1998, respectively.
F-91
<PAGE> 164
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCK SPLIT
Effective December 16, 1996, the Board of Directors approved a four-for-one
split of the Company's common stock effected in the form of a stock dividend,
resulting in a total of 10,000,000 shares outstanding. All references in the
financial statements which relate to the number of shares of Common Stock have
been restated to reflect the stock split.
8. EMPLOYEE STOCK OPTION PLAN
In 1995, the Company's sole director (the "Director") adopted the 1995
Employee Stock Option Plan (the "Option Plan"), pursuant to which options to
purchase up to an aggregate of 4,000,000 shares of the Company's common stock
may be granted. The Option Plan is administered by the Director. Among other
things, the Director determines which employees will receive options, the number
of shares covered by any option granted, and the exercise price and other terms
and conditions of each such option.
All options granted under the Option Plan are nontransferable except by the
laws of descent and distribution. All options also expire ten years after the
date of grant or upon earlier termination of employment unless due to death,
disability, or retirement, in which case the option remains exercisable for an
additional three months in the case for Incentive Options and one year for
Non-Qualified Options. Options granted vest over periods ranging from immediate
vesting to vesting in equal increments over four years from the date of grant.
The exercise price of the options approximated the fair value of the common
stock on the date of grant, and accordingly, no compensation expense has been
recorded. The weighted-average remaining contractual life of options at December
31, 1996, 1997, and 1998 was 9.7 years, 8.8 years, and 8.0 years, respectively.
A summary of the Option Plan as of December 31, 1996, 1997, and 1998 and
changes during the years ended on those dates are as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICES
--------- ---------
<S> <C> <C>
Options outstanding January 1, 1996......................... 340,000 $.05
Granted................................................... 2,242,000 $.05
Exercised................................................. -- --
Surrendered............................................... -- --
--------- ----
Options outstanding December 31, 1996....................... 2,582,000 $.05
Granted................................................... 646,100 $.05
Exercised................................................. -- --
Surrendered............................................... (214,000) $.05
--------- ----
Options outstanding December 31, 1997....................... 3,014,100 $.05
Granted................................................... 801,100 $.05
Exercised................................................. -- --
Surrendered............................................... (173,200) $.05
--------- ----
Options outstanding December 31, 1998....................... 3,642,000 $.05
========= ====
Exercisable at:
December 31, 1996......................................... 2,468,000 $.05
========= ====
December 31, 1997......................................... 2,620,000 $.05
========= ====
December 31, 1998......................................... 2,847,000 $.05
========= ====
</TABLE>
F-92
<PAGE> 165
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, 1997, and 1998, the Company had reserved 4,000,000
shares of common stock for issuance in connection with the exercise of stock
options.
The Company has elected to follow APB 25 and related interpretations in
accounting for employee stock options. Accordingly, no compensation expense has
been recognized for these stock options. Pro forma information regarding net
income and earnings per share is required by FASB Statement No. 123, Accounting
for Stock-Based Compensation ("FAS 123"), which also requires that the
information be determined as if the Company had accounted for its employee stock
options under the fair value method of FAS 123. The fair value for these options
was estimated at the date of grant using a minimum value option pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................. 6.5% 5.6% 4.8%
Dividend yield.......................................... 0.0% 0.0% 0.0%
Weighted-average expected life of options............... 5 years 5 years 5 years
</TABLE>
The minimum value method calculated the fair value of these options as
zero; therefore, pro forma net loss is the same as net loss for each year
presented.
9. COMMITMENTS AND CONTINGENCIES
The Company leases various office space and equipment under noncancelable
operating leases expiring on various dates through 2001, generally with options
to renew under terms consistent with the original leases. The gross balance of
assets recorded under capital leases which are included in property and
equipment at December 31, 1997 and 1998 was approximately $287,000 and $291,000,
respectively. Associated accumulated depreciation was approximately $95,000 and
$165,000 at December 31, 1997 and 1998, respectively. At December 31, 1998,
future lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1999........................................................ $ 41,000 $ 983,000
2000........................................................ 41,000 898,000
2001........................................................ 41,000 524,000
2002........................................................ 35,000 --
2003........................................................ -- --
-------- ----------
Total minimum lease payments................................ 158,000 $2,405,000
==========
Less amount representing interest........................... 20,000
--------
Present value of capital lease obligations.................. 138,000
Less current portion of capital lease obligations........... 28,000
--------
Long-term capital lease obligations......................... $110,000
========
</TABLE>
Total rent expense for operating leases for the years ended December 31,
1996, 1997, and 1998 was $797,000, $1,700,000, and $1,449,000, respectively.
The Company has a facility with a bank for letters of credit totaling
$541,000 at December 31, 1998 relating to the Company's data center operating
lease. There were no amounts outstanding under the letter of credit facility at
December 31, 1998.
F-93
<PAGE> 166
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LITIGATION
In 1997 and 1998, the Company received proceeds of $2,500,000 and $600,000,
respectively, from the settlement of legal claims relating to a trademark
dispute. These amounts are presented in the statements of operations net of
costs related to the settlement of $1,148,000 in 1997.
The Company is involved in various lawsuits and legal proceedings which
have arisen in the normal course of business. While the ultimate results of
these matters cannot be predicted with certainty, management does not expect
them to have a material adverse effect on the financial position of the Company.
11. SUBSEQUENT EVENT
In February 1999, the shareholder reached an agreement in principle to sell
substantially all of the assets and certain liabilities of the Company. The
transaction closed on March 10, 1999. The Company has obtained approval of the
proposed transaction with the holders of outstanding borrowings.
12. YEAR 2000 ISSUE (UNAUDITED)
Currently, many computer and software products are coded to accept
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. As a result, many companies' software and computer systems, including the
Company's, may need to be upgraded or replaced in order to comply with Year 2000
requirements. We recognize the need to ensure that our operations will not be
adversely impacted by Year 2000 software and computer system failures.
State of Readiness
The Company has made a preliminary assessment of the Year 2000 readiness of
its information technology ("IT") systems, including the hardware and software
that enable it to provide and deliver its solutions, and its non-IT systems. The
Company's plan consists of (i) quality assurance testing of its internally
developed proprietary software and systems; (ii) contacting third-party
suppliers, vendors and licensors of material hardware, software and services
that are both directly and indirectly related to the delivery of the Company's
solutions to it customers; (iii) assessment of repair or replacement
requirements; (iv) repair or replacement; (v) implementation; and (vi) creation
of contingency plans in the event of Year 2000 failures. The Company is
currently assessing the materiality of its IT and non-IT systems and will seek
assurances of Year 2000 compliance from providers of material systems. Until
such testing is complete and such vendors and providers are contacted, the
Company will not be able to completely evaluate whether its IT systems or non-IT
systems will need to be revised or replaced. The Company plans to complete its
Year 2000 evaluation during the second half of 1999.
Costs
To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
its expenses have related to, and are expected to continue to relate to, the
internal staffing costs associated with the evaluation process and Year 2000
compliance matters generally. At this time, the Company does not possess the
information necessary to estimate the potential costs of revisions to its
software and systems should such revisions be required or the replacement of
third party software, hardware or services that are determined not to be Year
2000 compliant. Although the Company does not anticipate that such expenses will
be material, such expenses if higher than anticipated, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
F-94
<PAGE> 167
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Risks
The Company is not currently aware of any Year 2000 compliance problems
relating to its IT or non-IT systems that would have a material adverse effect
on the Company's business, results of operations and financial condition. There
is no assurance that the Company will not discover Year 2000 compliance problems
in its software and systems that will require substantial revisions. In
addition, there is no assurance that third party software, hardware or services
incorporated into the Company's material IT and non-IT systems will not need to
be revised or replaced, all of which could be time consuming and expensive. The
failure of the Company to fix or replace its software, hardware or services on a
timely basis could result in lost revenues, increased operating costs and the
loss of customers and other business interruptions, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
compliance issues in its IT and non-IT systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend. In addition, there can be no
assurance that governmental agencies, utility companies, telecommunication
companies, other Internet service providers, third party service providers,
hardware and software manufacturers and others outside Interliant control will
be Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could result in a systemic failure beyond the control of the Company such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent the Company from delivering its services to its customers, decrease the
use of the Internet or prevent users from accessing the Web sites of its
customers. Any of these occurrences could have a material adverse effect on the
Company's business, financial condition and results of operations.
Contingency Plan
As discussed above, the Company is engaged in an ongoing Year 2000
assessment and has not yet developed any contingency plans. The responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans.
F-95
<PAGE> 168
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 1999 ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[INTERLIANT LOGO]
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
CIBC WORLD MARKETS
[MONTH/DATE], 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 169
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
common stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission...... $21,375
NASD Filing Fee............................................. 9,125
Blue Sky fees and expenses.................................. *
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was or
is 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 corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he shall be indemnified against any expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director,
officer, employee or agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
II-1
<PAGE> 170
Section 102(b)(7) of the DGCL provides that a corporation in its original
certificate of incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act on good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was illegal or obtaining an improper personal
benefit. A provision of this type has no effect on the availability of equitable
remedies, such as injunction or rescission, for breach of fiduciary duty.
Interliant's Restated Certificate of Incorporation contains such a provision.
Interliant's Certificate of Incorporation and By-Laws provide that
Interliant shall indemnify officers and directors and, to the extent permitted
by the Board of Directors, employees and agents of Interliant, to the full
extent permitted by and in the manner permissible under the laws of the State of
Delaware. In addition, the By-Laws permit the Board of Directors to authorize
Interliant to purchase and maintain insurance against any liability asserted
against any director, officer, employee or agent of Interliant arising out of
his capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement,
Interliant has issued securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act") to a limited number of persons,
as described below.
Interliant believes that the transactions described below were exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act, or Regulation D promulgated thereunder, as transactions by an issuer not
involving public offering, or pursuant to Rule 701 promulgated under Section
3(b) of the Securities Act, as transactions pursuant to compensatory benefit
plans and contracts relating to compensation. The recipients of securities in
each such transaction represented that they were acquiring the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with Interliant, to information about Interliant, or
were given an adequate opportunity to review information about Interliant.
The following figures give effect to a three-for-one stock split of the
Common Stock of Interliant in July 1998.
(A) ISSUANCE OF CAPITAL STOCK.
Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
Interliant and Web Hosting Organization LLC ("WEB"), Interliant issued to WEB,
for a purchase price of $5,000,000, 3,000,000 shares of common stock of
Interliant, $.01 par value (the "Common Stock") and also granted WEB an option
to purchase up to an additional 6,600,000 shares of Common Stock at an exercise
price of $1.67 per share (the "Option").
On April 7, 1998, in connection with the acquisition of substantially all
of the assets of Clever Computers, Inc., ("Clever"), and as consideration for
entering into an employment agreement with Interliant, Interliant issued 150,000
shares of Common Stock to the former president and founder of Clever, Steven C.
Dabbs.
On July 10, 1998, Interliant issued 9,000 shares of Common Stock to Jab
Web, Inc. (formerly Tri-Star Web Creations, Inc.), as part of the purchase price
for substantially all of the assets of Tri-Star Web Creations, Inc.
On July 10, 1998, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of Common Stock.
On July 10, 1998, Interliant issued 115,707 shares of Common Stock to All
Information Systems, Inc., as part of the purchase price for substantially all
of the assets of All Information Systems, Inc.
II-2
<PAGE> 171
On July 10, 1998, Interliant issued 12,000 shares of Common Stock to
Software Business Technologies, Inc., as part of the purchase price for
substantially all of the Web hosting assets of Software Business Technologies,
Inc.
On July 30, 1998, Interliant issued 5,490 shares of Common Stock to
BestWare, Inc. (dba "Maikon"), as part of the purchase price for substantially
all of the assets of BestWare, Inc. (dba "Maikon").
On August 31, 1998, in connection with the acquisition of B.N. Technology,
Inc., and as consideration for entering into employment agreements with
Interliant, Interliant issued 240,000 shares of Common Stock to Mr. Bernd
Neumann and Andrea Neumann, his wife, and 60,000 shares of Common Stock to Mr.
Thomas Gorny.
On September 16, 1998, in connection with the acquisition of GEN
International Inc., and as consideration for entering into a consulting
agreement with Interliant, Interliant issued 25,000 shares of Common Stock to
Mr. Thomas Heimann and Patricia Karasy, his wife.
On September 18, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of Common Stock.
On December 4, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of Common Stock.
On January 28, 1999, Interliant issued 2,647,658 shares of Series A
Redeemable Convertible Preferred Stock, convertible into an equal amount of
shares of Common Stock, and warrants to purchase 749,625 shares of Common Stock
to SOFTBANK Technology Ventures IV L.P. and one of its affiliates, SOFTBANK
Technology Advisors Fund for a purchase price of $13,000,000.
On February 4, 1999, Interliant issued 450,000 shares of common stock to
Digiweb, Inc. as part of the purchase price for substantially all of the assets
of Digiweb, Inc.
On February 4, 1999, in connection with the acquisition of substantially
all of the assets of Telephonetics International, Inc., Interliant issued
140,000 shares of Common Stock to Telephonetics, International, Inc..
On February 4, 1999, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of Common Stock.
On February 17, 1999, in connection with the acquisition of Net Daemons
Associates, Inc., Interliant issued 425,000 shares to certain stockholders of
Net Daemons Associates, Inc.
On March 10, 1999, in connection with the acquisition of substantially all
of the assets of Interliant Texas Interliant issued 2,748,555 shares of Common
Stock to Mathew Wolf, 398,845 shares of Common Stock to the Ann Weltchek Wolf
1995 Marital Trust, 797,690 shares of Common Stock to the Mathew D. Wolf
Children's Trust, 31,908 shares of Common Stock to Michael August and 114,644
shares of Common Stock to Broadview Holdings LLP.
(B) GRANTS OF STOCK OPTIONS.
The Interliant, Inc. 1998 Stock Option Plan was adopted by Interliant's
Board of Directors on February 1, 1998. As of the date hereof, options to
purchase up to an aggregate shares of common stock at prices ranging
from $1.67 to $6.67 per share, had been granted to employees of Interliant, of
which options to purchase up to an aggregate of shares of common
stock, at a weighted average exercise price of $4.11 per share, were outstanding
as of such date. As of the date of the filing of this Registration Statement, no
options have been exercised.
II-3
<PAGE> 172
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C> <C>
1.1 -- Underwriting Agreement.*
2.1 -- Asset Purchase Agreement between Sage Networks, Inc. and
Clever Computers, Inc., dated April 7, 1998.*
2.2 -- Asset Purchase Agreement between Sage Networks, Inc. and
HomeCom Communications, Inc. dated June 10, 1998.
2.3 -- Asset Purchase Agreement between Sage Networks, Inc. and
Tri-Star Web Creations, Inc., dated May 1, 1998.*
2.4 -- Stock Purchase Agreement among B.N. Technology, Inc., Bernd
Neumann, Annedore Sommer, and Sage Networks, Inc., dated
August 31, 1998.*
2.5 -- Asset Purchase Agreement between Sage Networks, Inc. and GEN
International Inc., dated September 16, 1998.*
2.6 -- Asset Purchase Agreement between Sage Networks, Inc. and
Telephonetics International, Inc., dated February 4, 1999.*
2.7 -- Asset Purchase Agreement between Sage Networks, Inc. and
Digiweb, Inc., dated February 4, 1999.*
2.8 -- Agreement and Plan of Merger by and among Net Daemons, Inc.,
the Shareholders Party hereto and Sage Networks, Inc. and
Interliant NDA Acquisition Corp., dated as of February 17,
1999.*
2.9 -- Asset Purchase Agreement among Sage Networks Acquisition
Corp., Sage Networks, Inc., Interliant, Inc. and the
shareholders of Interliant, Inc., dated March 8, 1999.
2.10 -- Agreement to Deliver Shares between Interliant, Inc., Sage
Networks Acquisition Corp. and Sage Networks, Inc., dated as
of March 10, 1999.
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 -- Amended and Restated By-Laws of the Registrant.*
4.1 -- Specimen Certificate for common stock of the Registrant.*
4.2 -- Investors Agreement, dated as of January 28, 1999, by and
among Sage Networks, Inc., SOFTBANK Technology Ventures IV,
L.P. and SOFTBANK Technology Advisors Funds, L.P.
4.3 -- Securities Purchase Agreement between Sage Networks, Inc.
and SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Funds, L.P. dated January 28, 1999.
4.4 -- Registration Rights Agreement, dated as of December 8, 1997,
by and between Interliant Networks, Inc. and Web Hosting
Organization LLC.
4.5 -- Shareholders Agreement by and among Sage Networks, Inc. and
each of the Stockholders of Sage Networks, Inc., dated as of
March 10, 1999.
4.6 -- Letter Agreement, dated November 26, 1997, between Leonard
J. Fassler, Bradley A. Feld, Chef Nominees Limited and
Charterhouse Equity Partners III L.P.
5.1 -- Opinion of Dewey Ballantine LLP.*
10.1 -- Professional Services Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+
10.2 -- Software License and Support Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+
10.3 -- The Vantive Corporation Software License and Support
Agreement by and between Interliant Networks, Inc. and The
Vantive Corporation, dated as of September 29, 1998.
10.4 -- Addendum to The Vantive Corporation Software License and
Support Agreement by and between Sage Networks, Inc. and The
Vantive Corporation, dated as of September 29, 1998.
10.5 -- Master Discounted Internet Services Agreement by and between
UUNET Technologies, Inc. and Sage Networks, Inc., dated
February 17, 1999.+
10.6 -- Joint Development Agreement between Lotus Development
Corporation and Interliant, Inc., dated as of April 27,
1998.*
10.7 -- Sage Networks, Inc. 1998 Stock Option Plan.
10.8 -- Form of ISO Award Agreement.*
10.9 -- Form of Incentive Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.
</TABLE>
II-4
<PAGE> 173
<TABLE>
<S> <C> <C>
10.10 -- Form of Nonqualified Stock Option Award Agreement between
Sage Networks, Inc. individual Optionee.
10.11 -- Employment Agreement by and between Sage Networks, Inc, and
Leonard J. Fassler, dated January 1, 1999.
10.12 -- Consulting Agreement by and between Sage Networks, Inc, and
Intensity Ventures, Inc., dated January 1, 1999.*
10.13 -- Employment Agreement by and between Sage Networks, Inc, and
Stephen W. Maggs, dated January 1, 1999.*
10.14 -- Employment Agreement by and between Sage Networks, Inc, and
Rajat Bhargava, dated January 1, 1999.*
10.15 -- Employment Agreement between Sage Networks, Inc. and James
M. Lidestri, dated March 3, 1999.
10.16 -- Deed of Lease by and between Westwood Center, LLC and Sage
Networks, Inc., dated February 11, 1999.
10.17 -- Sublease Agreement by and between Southern Company Services,
Inc. and Sage Networks, Inc., dated May 29, 1998.
10.18 -- First Amendment to Sublease Agreement by and between
Southern Company Services, Inc. and Sage Networks, Inc.,
dated December 15, 1998.
10.19 -- Sublease Agreement by and between Leuko Site, Inc. and Sage
Networks, Inc., dated November 17, 1998.*
10.20 -- Agreement for Terminal Facilities Co-Location Space by and
between Comstor Corporation and Sage Networks, Inc., dated
as of July 2, 1998.*
10.21 -- Standard Lease Agreement, dated June 11, 1995, between
LaSalle Partners Management Limited (as agent for Fannin
Street Limited Partnership) and Wolf Communications Company.
10.22 -- First Amendment to Standard Lease, dated January 18, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.
10.23 -- Second Amendment to Standard Lease, dated August 8, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Ernst & Young LLP with respect to the financial
statements of Sage Networks, Inc.
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of Interliant, Inc.
23.3 -- Consent of Urbach Kahn & Werlin PC.
23.4 -- Consent of BSC&E.
23.5 -- Consent of PricewaterhouseCoopers LLC.
23.6 -- Consent of Frankel, Lodgen, Locher, Golditch, Sardi &
Howard.
23.7 -- Consent of BDO Seidman, LLP.
23.8 -- Consent of Deloitte & Touche LLP.
23.9 -- Consent of Dewey Ballantine LLP (contained in Exhibit 5.1).*
24.1 -- Power of Attorney (included on page II-5).
27.1 -- Financial Data Schedule.*
</TABLE>
- ---------------
* To be filed by amendment.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes thereto.
II-5
<PAGE> 174
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by 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 whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
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 this offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on March 12, 1999.
INTERLIANT, INC.
By: /s/ BRADLEY A. FELD
------------------------------------
Bradley A. Feld
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names
appear below appoint and constitute Leonard J. Fassler, Bradley A. Feld, William
A. Wilson and Bruce S. Klein, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to execute
any and all amendments to the within Registration Statement, and to sign any and
all registration statements relating to the same offering of securities as this
Registration Statement that are filed pursuant to Rule 462(b) of the Securities
Act of 1933, as amended, and to file the same, together with all exhibits
thereto, with the Securities and Exchange Commission, the National Association
of Securities Dealers, Inc., and such other agencies, offices and persons as may
be required by applicable law, granting unto each said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on March
12, 1999 in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LEONARD J. FASSLER Co-Chairman of the Board March 12, 1999
- ----------------------------------
Leonard J. Fassler
/s/ BRADLEY A. FELD Co-Chairman of the Board March 12, 1999
- ----------------------------------
Bradley A. Feld
/s/ STEPHEN W. MAGGS Chief Executive Officer, March 12, 1999
- ---------------------------------- President, Treasurer and
Stephen W. Maggs Director (Chief Executive
Officer)
/s/ WILLIAM A. WILSON Chief Financial Officer (Chief March 12, 1999
- ---------------------------------- Financial and Accounting
William A. Wilson Officer)
/s/ MERRIL M. HALPERN Director March 12, 1999
- ----------------------------------
Merril M. Halpern
/s/ THOMAS C. DIRCKS Director March 12, 1999
- ----------------------------------
Thomas C. Dircks
/s/ PATRICIA A. M. RILEY Director March 12, 1999
- ----------------------------------
Patricia A. M. Riley
/s/ JAY M. GATES Director March 12, 1999
- ----------------------------------
Jay M. Gates
/s/ CHARLES R. LAX Director March 12, 1999
- ----------------------------------
Charles R. Lax
</TABLE>
II-7
<PAGE> 176
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ----
<C> <C> <S> <C>
1.1 -- Underwriting Agreement.*
2.1 -- Asset Purchase Agreement between Sage Networks, Inc. and
Clever Computers, Inc., dated April 7, 1998.*
2.2 -- Asset Purchase Agreement between Sage Networks, Inc. and
HomeCom Communications, Inc. dated June 10, 1998.
2.3 -- Asset Purchase Agreement between Sage Networks, Inc. and
Tri-Star Web Creations, Inc., dated May 1, 1998.*
2.4 -- Stock Purchase Agreement among B.N. Technology, Inc., Bernd
Neumann, Annedore Sommer, and Sage Networks, Inc., dated
August 31, 1998.*
2.5 -- Asset Purchase Agreement between Sage Networks, Inc. and GEN
International Inc., dated September 16, 1998.*
2.6 -- Asset Purchase Agreement between Sage Networks, Inc. and
Telephonetics International, Inc., dated February 4, 1999.*
2.7 -- Asset Purchase Agreement between Sage Networks, Inc. and
Digiweb, Inc., dated February 4, 1999.*
2.8 -- Agreement and Plan of Merger by and among Net Daemons
Associates, Inc., the Shareholders Party hereto and Sage
Networks, Inc. and Sage NDA Acquisition Corp., dated as of
February 17, 1999.*
2.9 -- Asset Purchase Agreement among Sage Networks Acquisition
Corp., Sage Networks, Inc., Interliant, Inc. and the
shareholders of Interliant, Inc., dated March 8, 1999.
2.10 -- Agreement to Deliver Shares between Interliant, Inc., Sage
Networks Acquisition Corp. and Sage Networks, Inc., dated as
of March 10, 1999.
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 -- Amended and Restated By-Laws of the Registrant.*
4.1 -- Specimen Certificate for common stock of the Registrant.*
4.2 -- Investors Agreement, dated as of January 28, 1999, by and
among Sage Networks, Inc., SOFTBANK Technology Ventures IV,
L.P. and SOFTBANK Technology Advisors Funds, L.P.
4.3 -- Securities Purchase Agreement between Sage Networks, Inc.
and SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Funds, L.P. dated January 28, 1999.
4.4 -- Registration Rights Agreement, dated as of December 8, 1997,
by and between Sage Networks, Inc. and Web Hosting
Organization LLC.
4.5 -- Shareholders Agreement by and among Sage Networks, Inc. and
each of the Stockholders of Sage Networks, Inc., dated as of
March 10, 1999.
4.6 -- Letter Agreement, dated November 26, 1997, between Leonard
J. Fassler, Bradley A. Feld, Chef Nominees Limited and
Charterhouse Equity Partners III L.P.
5.1 -- Opinion of Dewey Ballantine LLP.*
10.1 -- Professional Services Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+
10.2 -- Software License and Support Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+
10.3 -- The Vantive Corporation Software License and Support
Agreement by and between Sage Networks, Inc. and The Vantive
Corporation, dated as of September 29, 1998.
10.4 -- Addendum to The Vantive Corporation Software License and
Support Agreement by and between Sage Networks, Inc. and The
Vantive Corporation, dated as of September 29, 1998.
10.5 -- Master Discounted Internet Services Agreement by and between
UUNET Technologies, Inc. and Sage Networks, Inc., dated
February 17, 1999.+
10.6 -- Joint Development Agreement between Lotus Development
Corporation and Interliant, Inc., dated as of April 27,
1998.*
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ----
<C> <C> <S> <C>
10.7 -- Sage Networks, Inc. 1998 Stock Option Plan.
10.8 -- Form of ISO Award Agreement.*
10.9 -- Form of Incentive Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.
10.10 -- Form of Nonqualified Stock Option Award Agreement between
Sage Networks, Inc. individual Optionee.
10.11 -- Employment Agreement by and between Sage Networks, Inc, and
Leonard J. Fassler, dated January 1, 1999.
10.12 -- Consulting Agreement by and between Sage Networks, Inc, and
Intensity Ventures, Inc., dated January 1, 1999.*
10.13 -- Employment Agreement by and between Sage Networks, Inc, and
Stephen W. Maggs, dated January 1, 1999.*
10.14 -- Employment Agreement by and between Sage Networks, Inc, and
Rajat Bhargava, dated January 1, 1999.*
10.15 -- Employment Agreement between Sage Networks, Inc. and James
M. Lidestri, dated March 3, 1999.
10.16 -- Deed of Lease by and between Westwood Center, LLC and Sage
Networks, Inc., dated February 11, 1999.
10.17 -- Sublease Agreement by and between Southern Company Services,
Inc. and Sage Networks, Inc., dated May 29, 1998.
10.18 -- First Amendment to Sublease Agreement by and between
Southern Company Services, Inc. and Sage Networks, Inc.,
dated December 15, 1998.
10.19 -- Sublease Agreement by and between Leuko Site, Inc. and Sage
Networks, Inc., dated November 17, 1998.*
10.20 -- Agreement for Terminal Facilities Co-Location Space by and
between Comstor Corporation and Sage Networks, Inc., dated
as of July 2, 1998.*
10.21 -- Standard Lease Agreement, dated June 11, 1995, between
LaSalle Partners Management Limited (as agent for Fannin
Street Limited Partnership) and Wolf Communications Company.
10.22 -- First Amendment to Standard Lease, dated January 18, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.
10.23 -- Second Amendment to Standard Lease, dated August 8, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Ernst & Young LLP with respect to the financial
statements of Sage Networks, Inc.
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of Interliant, Inc.
23.3 -- Consent of Urbach Kahn & Werlin PC.
23.4 -- Consent of BSC&E.
23.5 -- Consent of PricewaterhouseCoopers LLC.
23.6 -- Consent of Frankel, Lodgen, Locher, Golditch, Sardi &
Howard.
23.7 -- Consent of BDO Seidman, LLP.
23.8 -- Consent of Deloitte & Touche LLP.
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ----
<C> <C> <S> <C>
23.9 -- Consent of Dewey Ballantine LLP (contained in Exhibit 5.1).*
24.1 -- Power of Attorney (included on page II-5).
27.1 -- Financial Data Schedule.*
</TABLE>
- ---------------
* To be filed by amendment.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes thereto.
<PAGE> 1
Exhibit 2.2
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this tenth day of June, 1998 between HOMECOM
COMMUNICATIONS, INC., a Delaware corporation with a principal place of business
at 14 Piedmont Center, Suite 100, 3535 Piedmont Road, Atlanta, Georgia 30305
(the "Company"), and SAGE NETWORKS ACQUISITION CORP., a Delaware corporation
having an office at 215 First Street, Cambridge, Massachusetts 02142 ("Buyer").
W I T N E S S E T H :
WHEREAS, the Company desires to sell and the Buyer desires to purchase
on the date hereof (the "Closing Date") substantially all of the Internet Web
hosting business of the Company as a going concern which including, without
limitation, the virtual hosting business under the trade name of "HostAmerica".
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE; REPRESENTATIONS AND WARRANTIES
SECTION 1. PURCHASE AND SALE. Subject to the terms and conditions of
this Agreement, the Company hereby sells, assigns and transfers to the Buyer and
the Buyer hereby purchases and acquires from the Company, as a going concern,
that portion of the Business (hereinafter defined) consisting of all of the
right, title and interest of the Company in and to the Purchased Assets (as
hereinafter defined) for a purchase price determined as set forth in Exhibit A,
as adjusted in accordance with Exhibit A (the "Purchase Price") and for the
assumption of the Assumed Liabilities (hereinafter defined). The Buyer shall
receive, at the Closing, the Buyer's Credit as set forth in Exhibit A. For
purposes of this Agreement, "Business" shall mean the Internet Web hosting
business conducted by the Company including, without limitation, the virtual
hosting business under the trade name of "HostAmerica", other than the Internet
Web hosting services provided by the Company to the Excluded Customers (as
hereinafter defined).
SECTION 2. REPRESENTATIONS OF THE COMPANY. The following agreements,
representations and warranties are made by the Company to the Buyer.
<PAGE> 2
(A) Corporate Matters; No Conflict. The Company is duly organized,
validly existing and in good standing under the laws of the State of Delaware
and the State of Georgia. The fact that the Company has not qualified to do
business in any other state has not had a material adverse effect on the
Business. The Company maintains offices relating to the Business only at the
site(s) listed on Exhibit A and has no operations other than from those site(s).
The Company has the corporate power to enter into this Agreement, to perform its
obligations hereunder and to conduct its business as currently conducted. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Company will not (i) conflict with or violate, in any
material respect, the provisions of any applicable law (including, without
limitation, any bulk sales laws), rule or order, (ii) conflict with or violate
the Articles or Certificate of Incorporation, by-laws or any other
organizational or governing documents of the Company, (iii) in any material
respect, conflict with or constitute a default under any agreement or contract
by which the Company is bound or (iii) require the consent or approval of, or
filing with, any governmental body or third party except as set forth on Exhibit
C-5. The execution, delivery and performance by the Company of this Agreement
has been duly authorized and approved by all requisite corporate action on the
part of the Company. Set forth on Exhibit B is a list of officers and directors
of the Company, all trade names used by the Business and all jurisdictions in
which the Business is conducted. This Agreement and the consummation of the
transactions contemplated hereby have been approved by the board of directors of
the Company, and the authorized officers of the Company named on Exhibit A are
authorized and empowered by the Company to execute and deliver this Agreement in
the name and on behalf of the Company. This Agreement and the consummation of
the transactions contemplated hereby do not require any approval by the
shareholders of the Company.
(B) Purchased Assets. (i) All vendor and customer contracts,
confidentiality agreements, purchase and sales orders and other agreements to
which the Company is a party and which relate in any manner to the Business
and/or the relationship between the Company and the Customers (hereinafter
defined), whether written or oral, shall be referred to herein collectively as
the "Business Agreements". The Company has not granted any powers of attorney
with respect to the Business. The Company has delivered to Buyer, on or before
the Closing Date, true and correct copies of all written Business Agreements in
its possession, including, without limitation, all Business Agreements in
electronic form. Except for the written Business Agreements provided by the
Company to the Buyer, all of the company's written Business Agreements are in
the standard form of customer service agreement accessible on the Company's Web
site for the Business or the reseller agreement known as the Star VAR Agreement.
The Company's general business practice is not to make or enter into oral
business arrangements. To the best knowledge of the Company after reasonable
investigation, there are no oral business arrangements which relate to the
Business which provide for payments by the customer thereunder or contain
obligations or liabilities of the Company thereunder, in either case, in an
amount of $1,000 individually or in an aggregate amount in excess of $10,000.
Attached hereto as Exhibit C-1 are true and correct copies of the only forms of
agreements which have been entered into between the Company and its Customers
concerning the Business. Also attached as part of Exhibit C-1 is a schedule
stating the identity of the Customer to each of those agreements which are in
force and effect as of the Closing Date, together with a designation of which
form of agreement each such Customer has entered into. Annexed as Exhibit C-2 is
a copy of all written Business Agreements between the Company and vendors or
service providers, or which relate to
2
<PAGE> 3
any strategic partnerships, reselling arrangements or joint ventures between the
Company and others, concerning the Business. Listed on Exhibit C-3 is a
description of each equipment and personal property lease (collectively, the
"Leases") to which the Company is a party and which relates to the Business. The
Leases are also included within the definition of Business Agreements as said
term is used herein. The Company does not own, lease or use any real estate in
connection with the Business except the office and data facilities located at
the Sites. A copy of the lease for the data facility is annexed to Exhibit C-3
hereto. Neither the Company nor, to the knowledge of the Company, any other
party, is in default under any Business Agreement and no other party to any
Business Agreement has made any claim or given the Company notice of any dispute
under any Business Agreement, except as set forth on Exhibit C-4. Each Business
Agreement is in full force and effect and is enforceable by the Company in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and similar laws. The Company has the right to assign the
Business Agreements to the Buyer and its affiliates and the Company has obtained
all required consents to the assignment and transfer thereof, except as set
forth on Exhibit C-5. The Company is not the owner or lessee of any motor
vehicles which are used in the Business. The Company does not own or lease any
interest in any personal property or any equipment used in the Business, except
as expressly stated on Exhibit C-3.
(ii) All of the tangible assets of the Company used in the
Business, including, without limitation, all machinery, office and other
equipment, furniture, computers and related equipment, business machines,
telephone systems, parts and accessories, telephone and facsimile numbers set
forth on Exhibit E, Web sites, e-mail addresses and Internet domain addresses
presently utilized by the Company in the Business, shall be referred to herein
collectively as the "Tangible Assets". Attached hereto as Exhibit E is a true
and correct list or description of the material Tangible Assets. The Tangible
Assets include all of the hardware, software (other than off-the-shelf software
licensed by the Company) and other equipment used to support, maintain and
service the customers which are parties to the Business Agreements. As of the
Closing Date, each of the Tangible Assets is in good and operable condition,
normal wear and tear excepted.
(iii) All patents, trademarks, trade names, service marks,
service names, logos, designs, Web sites, formulations, copyrights and other
trade rights and all registrations and applications therefor, all know-how,
trade secrets, technology or processes, and all computer programs, control
panels, surcharge calculators, data bases and software documentation owned or
used by the Company in the Business, other than off-the-shelf software licensed
by the Company, shall be referred to herein collectively as the "Intellectual
Property". Attached hereto as Exhibit F is a true and correct copy of all of the
Intellectual Property. Such exhibit also indicates which of such items have been
patented or registered or are in the process of application for same. To the
best knowledge of the Company, the Company not infringing on the rights of any
third parties to Intellectual Property used, but not owned by, the Company. The
Company has valid and fully-paid licenses for all off-the-shelf software used by
the Company in its operation of the Business. Included among the Intellectual
Property, among other things, are all trade names utilized by the Company in the
Business, including, but not limited to, those trade names listed on Exhibit B.
On the Closing Date, the Company will deliver to Buyer written proof in form and
substance satisfactory to Buyer and its counsel that the Company will no
3
<PAGE> 4
longer do business under any of the trade names listed on Exhibit B and further,
within ten (10) days from the Closing, Company will cause to be filed in all
applicable governmental or quasi-governmental offices, any required instruments
to terminate any previously filed assumed name or similar certificates regarding
such trade names. Promptly after such filing, the Company will deliver proof of
said filing to Buyer.
(iv) The Company will deliver at the Closing a true and
complete copy of the Company's customer list as of a date not more than five (5)
business days prior to the Closing Date relating to the Business which includes,
in the case of each customer, the name of the customer, its billing and domain
addresses, identity and contact information of each relevant contact person (the
"Customer List"). A statement of the monthly or annual (as indicated) service
charges relating to each customer on the Customer List and the Company's paper
and electronic files regarding each such customer, including, without
limitation, the data files residing on the Company's accounting and billing
systems, will be made available to Buyer from time to time at Buyer's request
after the Closing Date at the Company's corporate headquarters listed on Exhibit
A. All customers of the Company relating to the Business, including without
limitation, those customers included on the Customer List (but expressly
excluding those customers listed on Exhibit G-2 (the "Excluded Customers")),
together with the good will and business opportunities of the Company as it
relates to the Business shall be referred to herein as the "Customers".
(v) As used herein, the term "Purchased Assets" shall be
defined as the assets of the Company (including good will) utilized by the
Company to operate and maintain the Business, including, without limitation, the
Business Agreements, the Tangible Assets, the Intellectual Property, the
Customer List, the Customers and all other assets of the Company used in
connection with the operation of the Business, wherever located, tangible or
intangible, excluding, however, Excluded Assets (as defined below). The
Purchased Assets are not subject to (i) any lien or encumbrance of any character
whatsoever except as set forth on Exhibit M or (ii) any adverse claims by any
third parties. At the Closing upon consummation of the transactions contemplated
by this Agreement, Buyer will receive good and marketable title to the Purchased
Assets, free and clear of all liens, equipment leases, claims and encumbrances
of any character whatsoever, except as set forth on Exhibit M. The Purchased
Assets include all rights, properties, interests and assets used by Company
and/or necessary to permit Buyer to carry on the Business as presently conducted
by the Company except for Excluded Assets.
(vi) The Company reasonably expects that the business
represented by the Business Agreements will continue after the date hereof
subject to normal customer turnover. The Company has no knowledge that any
customers included on the Customer List, other than those listed on Exhibit G-1,
intend to terminate their relationship with the Company or significantly reduce
the amount of business they presently do with the Company.
(vii) Excluded Assets. The Company is not selling and
Purchaser is not buying or acquiring hereunder the following items ("Excluded
Assets") which are not included in the defined term "Purchased Assets": (a) all
cash and cash equivalents and notes receivable; (b) the Company's corporate
minute and stock books, general ledger and accounting records, tax returns and
other records having to do solely with the Company's organization and/or
4
<PAGE> 5
capitalization or with the other businesses of the Company; (c) all outstanding
billed and unbilled accounts receivable of the Company as of May 31, 1998 (the
"Closing Accounts Receivable"); (d) any rights to any of the Company's claims
for any federal, state or local tax refunds; (e) any rights which accrue or will
accrue to the Company under this Agreement or the transactions contemplated
hereby; (f) all rights the Company may have under any insurance policies
relating to the Purchased Assets, (g) the assets listed on Exhibit L and (h) the
assets not related to the Business.
(C) Financial Statements. The Company has delivered to the Buyer copies
of the Company's audited financial statements for the last three fiscal years of
the Company ended December 31, 1997, 1996 and 1995, respectively. Attached
hereto as Exhibit H is a certified audited balance sheet and profit and loss
statement for the fiscal year ended December 31, 1997 and unaudited financial
statements for the quarter ending March 31, 1998 and for the month ending April
30, 1998, all of which reflect the assets, liabilities, net worth, profit and
loss, and cash flow of the Company with respect to the Business. Exhibit H also
sets forth a true and correct statement of the monthly revenues of the Business
for the period beginning on January 1, 1998 and ending on April 30, 1998, in
each case, determined in accordance with generally accepted accounting
principles. All financial statements referred to herein are complete and correct
in all material respects, present fairly the financial condition and results of
operations of the Company as at the dates of such statements and have been
prepared in accordance with generally accepted accounting principles. The books
of account and records of the Company have been maintained in accordance with
good business practice and reflect fairly all properties, assets, liabilities
and transactions of the Company. The Company has no material liabilities or
obligations of any kind (whether accrued, absolute, direct, indirect, contingent
or otherwise) with respect to the Business which are not fully accrued or
reserved against in the Company's financial statements in accordance with
generally accepted accounting principles. The Company has previously provided to
Buyer an accurate and complete schedule of the Company's aged receivables with
respect to the Business as of May 31, 1998. Since the last day of the Company's
last fiscal year, the Company has conducted the Business only in the ordinary
and usual course and has not experienced any material adverse change in the
Business or the financial condition of the Company, except as disclosed in the
Company's filings with the Securities Exchange Commission. Since April 30, 1998,
the Company has had no loss in net monthly recurring revenue from the Business.
Between April 30, 1998 and the Closing Date, the Company did not withdraw,
expend or apply any cash or other assets of the Company, except in the ordinary
course of operations of the Business of the Company in accordance with past
practices of the Company. The books and records of the Company with respect to
the Business relating to the fiscal years of the Business ending December 31,
1995, 1996 and 1997, are adequate to permit an audit of the Business at and for
the fiscal years then ended.
(D) Assumed Liabilities. The Buyer shall not be liable for and is not
assuming any liabilities of the Company whatsoever, whether related or unrelated
to the Purchased Assets, or whether arising under the Business Agreement or
otherwise, except as specifically listed on Exhibit J hereto (the "Assumed
Liabilities"). The Company has no outstanding loans, borrowings, guarantees or
debt of any kind with respect to the Business except as set forth on Exhibit M
and none of the Company's obligations with respect to the Business have been
guaranteed by any other person or entity except as set forth on Exhibit M.
5
<PAGE> 6
(E) Existing Employment Arrangements. Except as set forth on Exhibit K
the Company has no employment agreements, labor or collective bargaining
agreements or employee benefit or welfare plans or retirement plans, in any such
case with respect to the Business. All vacation pay, if any, due to employees of
the Company who are employed in the Business has been fully paid by the Company,
except as set forth on Exhibit K. No employees of the Company who are employed
in the Business are entitled to any sick pay, except as set forth on Exhibit K.
All vacation pay and sick pay due to employees of the Company who are employed
in the Business and terminated by the Company in connection with the
transactions contemplated by this Agreement shall be paid in full on the Closing
Date. There are no pending or, to the knowledge of the Company, threatened
strikes, job actions or other labor disputes affecting the Company or its
employees and there have been no such disputes for the past three years. Also
set forth on Exhibit K is a true and complete list of all employees of the
Company employed in connection with the Business, which list provides, among
other things, the name, residence address, title, job description and salary
information concerning each employee.
(F) Claims, Litigation, Disclosure. Except as set forth on Exhibit D,
there is no claim, litigation, tax audit, proceeding or investigation pending
or, to the Company's knowledge, threatened against the Company, with respect to
the Business or any of the Purchased Assets of the Company (including, any
claims of infringement or actions of opposition with respect to Intellectual
Property), nor does the Company know of any facts which would provide a basis
for any such claim, litigation, audit, proceeding or investigation.
(G) Taxes. Except as specifically set forth on Exhibit I (the "Tax
Liabilities"), the Company has correctly prepared and timely filed all Federal,
state and local tax returns, estimates and reports, and paid all such taxes as
and when due. For purposes of this paragraph, taxes shall mean all taxes,
charges, fees, levies or other assessments of any kind whatsoever (including,
without limitation, income, franchise, sales, use and withholding taxes). The
Company is not a party to any tax sharing agreement.
(H) No Other Agreements to Sell Assets or Business. The Company is not
a party to any existing agreement which obligates the Company to sell to any
other person or firm the Purchased Assets (other than sales in the ordinary
course of business).
(I) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Company has made contact or had any dealings with
or entered into any agreement, arrangement or understanding with concerning this
Agreement and to whom the Company is responsible to pay a finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated by this Agreement is the party or parties listed in item 4 on
Exhibit A, if any, and the Company shall be solely responsible for the payment
of any such fee, commission or payment.
(J) Environmental Compliance. (i) To the best knowledge of the Company,
neither the Company nor any operator of the Company's properties is in
violation, or alleged to be in violation, of any federal, state or local
judgment, decree, order, consent agreement, law (including common law), license,
rule or regulation pertaining to environmental health or safety
6
<PAGE> 7
matters, including without limitation those arising under the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, as amended, Water Act, as
amended, the Federal Clean Air Act, as amended, the Toxic Substances Control
Act, or any state or local analogue (hereinafter "Environmental Laws").
(ii) The Company has not received a notice, complaint, order,
directive, claim or citation from any third party, including without limitation
any federal, state or local governmental authority, indicating or alleging that
the Company or any predecessor may have any liability or obligation under any
Environmental Law.
(iii) To the best knowledge of the Company, (a) no portion of
the property of the Company has been used by any person for the generation,
handling, processing, treatment, storage or disposal of Hazardous Materials
except in accordance with applicable Environmental Laws; (B) no underground tank
or other underground storage receptacle for Hazardous Materials,
asbestos-containing materials or polychlorinated biphenyls are located on any
portion of any location occupied by the Company each of which is listed as a
Site on Exhibit A; (C) in the course of any activities conducted by the Company
or its invitees, agents, contractors, licensees or employees in connection with
the Business of the Company, no Hazardous Materials have been generated or are
being used except in accordance with applicable Environmental Laws; and (D)
there have been no releases (i.e., any past or present releasing, spilling,
leaking, leaching, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping) or threatened releases of Hazardous Materials
on, upon, into or from the property currently or formerly owned, operated or
leased by the Company, which releases would have a material adverse effect on
the value of any of the property or adjacent properties or the environment.
(iv) To the best knowledge of the Company, the execution,
delivery and performance of this Agreement is not subject to any Environmental
Laws which condition, restrict or prohibit the sale, lease or other transfer of
property or operations, including, without limitation, any so-called
"environmental cleanup responsibility acts" or requirements for the transfer of
permits, approvals, or licenses. To the best knowledge of the Company, there
have been no environmentally related audits, studies, reports, analyses
(including soil and groundwater analyses), or investigations of any kind
performed with respect to the currently or previously owned, leased, or operated
properties of the Company.
For purposes of this Section, "Hazardous Material" shall mean any
hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous
substances or wastes as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substances or
wastes, oil or hazardous materials or other chemicals or substances regulated by
any public or governmental authority.
(K) Licenses and Compliance with Laws. The Company holds no material
governmental or regulatory licenses, permits, consents or approvals in
connection with the Business, and to the best knowledge of the Company, the
Company is in compliance with all material laws and regulations applicable to
the Business.
7
<PAGE> 8
(L) True and Complete. No representation or warranty made by Company in
this Agreement, nor any statement, certificate or exhibit furnished by or on
behalf of Company pursuant to this Agreement, nor any document or certificate
delivered to Buyer pursuant to this Agreement, or in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact, or omits or shall omit to state a material fact necessary to make the
statements contained therein not misleading. The Company has not failed to
disclose to Buyer any pending developments or circumstances of which it is aware
which are reasonably likely to have a material adverse effect on the Business.
SECTION 3. REPRESENTATIONS OF THE BUYER. Buyer represents and warrants
to the Company as follows.
(A) Corporate Matters; No Conflict. Buyer is a wholly owned subsidiary
of Sage Networks, Inc. ("Parent"). Each of the Buyer and Parent is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, is in good standing in each other jurisdiction in which it is doing
business, except where failure to be in good standing would not have a material
adverse effect on the business of Buyer or Parent, and has the corporate power
to enter into this Agreement, to perform its obligations hereunder and to
conduct its business as currently conducted. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby (and
thereby) by the Buyer and Parent, respectively, will not (a) conflict with or
violate the provisions of any applicable law, rule or order or the Buyer's or
the Parent's respective Certificate of Incorporation or by-laws, (b) conflict
with or constitute a default under any agreement or contract by which the Buyer
or Parent is bound or (c) require the consent or approval of, or filing with,
any governmental body or third party. The execution, delivery and performance by
the Buyer of this Agreement has been authorized and approved by all requisite
corporate action on the part of the Buyer.
(B) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Buyer or Parent has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Buyer and/or the Parent is responsible
to pay a finder's fee, brokerage commission or similar payment to is the party
listed in item 5 on Exhibit A, if any, and the Buyer shall be solely responsible
for the payment of any such fee, commission or payment.
(C) No Litigation. There is no litigation pending or, to the Buyer's
knowledge, threatened against the Buyer, which would enjoin or otherwise affect
the transactions contemplated by this Agreement.
8
<PAGE> 9
ARTICLE II.
CERTAIN COVENANTS OF THE COMPANY AND THE BUYER
SECTION 1. NON-COMPETITION; NON-SOLICITATION. (A) Covenant of the
Company.
(1) For a period commencing on the Closing Date and ending on the third
anniversary of the Closing Date (the "Non-Competition Period"), neither the
Company nor any successor thereto or acquiror of substantially all of the equity
or assets thereof shall engage in any capacity in an Internet Web hosting
business which is similar to or in competition with the Business. The parties
understand and specifically acknowledge that the Business operates world-wide
and its location is not limited to a specific geographical area. For this
reason, the parties agree that the Company's agreement not to compete in
accordance with this Article II, Section 1 is not limited to any specific
geographical area but is world wide. Notwithstanding the foregoing, the Company
may, during the Non-Competition Period or thereafter:
(a) acquire, merge with or into or be acquired by (a "Business
Combination") any business entity which engages in the Internet Web
hosting business, so long as the Company offers, or causes the
successor in such Business Combination to offer (x) to sell, transfer
or assign to Buyer (in either case, free and clear of all liens and
encumbrances) all of the Web hosting customer base of such entity
(other than customers that are Financial Services Companies) at a
purchase price equal to 20% of the gross revenues of such acquired Web
hosting customer base during the five year period following the date of
the consummation of such Business Combination (which purchase price
shall be payable by the Buyer quarterly in arrears during such five
year period) and otherwise on customary terms and conditions for such a
sale, transfer or assignment or (y) to the extent that such web hosting
customer base cannot legally be sold, transferred or assigned, to enter
into a Co-location Agreement with the Buyer with respect to such Web
hosting customer base pursuant to which the Buyer shall receive 80% of
the gross revenues of such acquired Web hosting customer base during
the five year period following the date of the consummation of such
Business Combination (which payments shall be made to the Buyer
quarterly in arrears during such five year period) and otherwise on
customary terms and conditions for such a Co-location Agreement ((x)
and (y) shall collectively be referred to as the "Offer"); provided,
however, that the Company shall not be required to make an Offer with
respect to any Web hosting business that solely serves Financial
Services Companies (as hereinafter defined);
(b) to engage in a Web hosting business that solely serves
Financial Services Companies; or
(c) be acquired by or merge with a business entity that is a
public company with a market cap in excess of $100,000,000.
9
<PAGE> 10
(2) During the Non-Competition Period, the Company shall make each
Offer to the Buyer by written notice (the "Offer Notice"). The Offer Notice
shall set forth the name of the owner of the Web hosting business that is the
subject of the Offer, the annual revenues from the Web hosting customer base to
be acquired (determined in accordance with Article II, Section 1(1)(a)) and the
other material terms and conditions thereof. The Buyer may accept any Offer
within thirty (30) days of receipt of the Offer Notice. If Buyer accepts any
Offer, Buyer shall consummate the acquisition of such Web hosting business on
terms (other than purchase price) no less favorable than those contained in the
Offer Notice within thirty (30) days following the date of acceptance of such
Offer. If the Buyer does not accept any Offer within the required time or does
not consummate an accepted Offer within the required time, the Company may
consummate the Business Combination and shall not be deemed to be in violation
of the provisions of Article II, Section 1 (A) (1).
(3) For purposes of this Agreement, "Financial Services Companies"
shall mean banks, savings and loan associations, credit unions, mortgage
companies, insurance companies, broker-dealers, securities placement agents,
financial advisory firms, investor relations firms, hedge funds, mutual funds
and financial Web sites for other companies that offer financial services.
(4) Buyer and the Company acknowledge and agree that the damages to
Buyer as a result of the Company entering into any Business Combination in
breach of the provisions of Article II, Section 1(A)(1) of this Agreement cannot
be easily quantified. For this reason, Buyer and the Company expressly agree
that in the event of any such breach, the Company shall pay to Buyer liquidated
damages in the amount of $3,000,000 immediately upon the occurrence of any such
breach.
(5) The Company understands that pursuant to this Agreement they have
received confidential and proprietary information of Buyer, Parent and their
respective affiliates, including, without limitation, customer lists and other
trade secrets. Neither the Company nor any of its officers, directors,
shareholders, employees, agents or contractors who received or learned of such
confidential and proprietary information shall at any time, either before or
after the Closing Date, disclose to any third party any such confidential or
proprietary information of Buyer, Parent or their respective affiliates or make
use of any of such information except in evaluating whether to enter into this
Agreement or unless such information is made public by a source other than the
Company or such disclosure is required by law or regulation or court or
administrative order. In connection with such evaluation, the Company may
disclose such proprietary information to its legal and financial consultants on
a need to know basis on the condition that those consultants are similarly
prohibited from further disclosing such information as provided herein.
(6) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, the Company, unless acting with the
express written consent of the Buyer or Parent, will not, directly or
indirectly, interfere with, solicit or endeavor to entice away:
(a) any person who was an employee, subcontractor or
consultant of the Company with respect to the Business (provided on or
after the Closing Date such employee, subcontractor or consultant is
engaged by Buyer or Parent to render
10
<PAGE> 11
services with respect to Parent's Internet Web hosting and related
businesses), the Buyer, the Parent or any of their affiliates during
the twelve months immediately preceding the date of such solicitation,
interference or endeavor; or
(b) any person or entity who was a customer or client of the
Company or of the Buyer or of the Parent, or any person or entity who
requested or received a proposal from Buyer, Parent or the Company,
with respect to any Internet Web hosting business similar to or in
competition with the Business in which the Company, Buyer, Parent, or
any of their affiliates is or has been engaged after the date of this
Agreement.
(B) Covenant of the Buyer.
(1) The Buyer understands that pursuant to this Agreement it has
received confidential and proprietary information of the Company and its
affiliates that is not related to the Business, including, without limitation,
customer lists and other trade secrets. Neither the Company nor any of its
officers, directors, shareholders, employees, agents or contractors who received
or learned of such confidential and proprietary information shall at any time,
either before or after the Closing Date, disclose to any third party any such
confidential or proprietary information of the Company and its affiliates or
make use of any of such information except in evaluating whether to enter into
this Agreement or unless such information is made public by a source other than
the Company or such disclosure is required by law or regulation or court or
administrative order. In connection with such evaluation, the Buyer may disclose
such proprietary information to its legal and financial consultants on a need to
know basis on the condition that those consultants are similarly prohibited from
further disclosing such information as provided herein.
(2) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, neither the Buyer nor the Parent, unless
acting with the express written consent of the Company will, directly or
indirectly, interfere with, solicit or endeavor to entice away any person who
was an employee, subcontractor or consultant of the Company during the twelve
months immediately preceding the date of such solicitation, interference or
endeavor.
(C) Mutual Covenant. Each of the Company and the Buyer expressly
acknowledges, understands and agrees (i) that remedies at law for any breach of
this Article II, Section 1 will be inadequate, (ii) that the damages resulting
from such breach are not readily susceptible to measurement in monetary terms
and (iii) that, in the case of a breach of Article II, Section 1 by the Company,
Buyer and/or Parent, and in the case of a breach of Article II by Buyer, the
Company, shall be entitled to immediate injunctive relief and may obtain
temporary and permanent orders restraining any threatened or further breach of
this Article II, Section 1 by the Company or the Buyer, as the case may be. Each
of the Company and the Buyer has been advised by its counsel with respect to the
meaning and effect of this Article II, Section 1.
SECTION 2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
11
<PAGE> 12
(A) The representations and warranties of the parties herein contained
shall survive the closing of the purchase contemplated by this Agreement,
notwithstanding any investigation at any time made by or on behalf of the other
party, provided that any claims for indemnification in accordance with Article
II, Section 2 below with respect to any representation or warranty must be made
(and will be null and void unless made) on or before April 30, 2000 (except in
the case of representations contained in Paragraphs (G), (I) and (J) of Article
I, Section 2 hereof, which must be made within six (6) months following the
expiration of the applicable statute of limitations).
(B) The Company hereby agrees to indemnify and hold Buyer, Parent, and
their respective officers, directors, stockholders, affiliates, employees,
representatives and other agents harmless from and against any and all claims,
liabilities, losses, damages or injuries, together with costs and expenses,
including reasonable legal fees, arising out of or resulting from (i) any
breach, misrepresentation or material omission of the representations and
warranties made by the Company in this Agreement or in any Exhibit hereto or
other documents delivered in connection herewith, (ii) any breach in any
material respect by the Company, unless waived in writing by the Buyer, of any
covenant or agreement contained in or arising out of this Agreement, or any
other agreement delivered in connection herewith on the Closing Date, (iii) the
Business conducted by the Company prior to the Closing Date and any actions or
events associated therewith, (iv) any and all liabilities of the Company, other
than the Assumed Liabilities, and (v) any failure by the Company to comply with
any provisions of the bulk sales or similar laws of any jurisdiction which are
applicable to this Agreement or the transactions contemplated hereby.
(C) Buyer hereby agrees to indemnify and hold the Company and its
officers, directors, stockholders, affiliates, employees, representatives and
other agents harmless from and against any and all claims, liabilities, losses,
damages or injuries, together with costs and expenses, including reasonable
legal fees, arising out of or resulting from (i) any breach, misrepresentation
or material omission in the representations and warranties made by the Buyer in
this Agreement, (ii) any breach in any material respect by Buyer, unless waived
in writing by the Company, of any covenant or agreement of Buyer contained in or
arising out of this Agreement, or any other agreement delivered in connection
herewith on the Closing Date or (iii) the Business as conducted by Buyer, after
the Closing Date.
(D) Any party claiming a right to indemnification hereunder (the
"Indemnified Party") shall give the other party from whom indemnification is
sought (the "Indemnifying Party") prompt written notice of any claim, demand,
action, suit, proceeding or discovery of fact (any of which shall be a "Claim")
upon which the Indemnified Party intends to base a claim for indemnification
under this Article II, Section 2, provided, however, that no failure to give
such notice shall excuse any Indemnifying Party from any obligation hereunder
except to the extent the Indemnifying Party is materially prejudiced by such
failure. The Indemnified Party shall not settle or compromise any Claim by a
third party without the prior written consent of the Indemnifying Party, which
will not be unreasonably withheld or delayed, unless suit in respect of such
Claim shall have been instituted against the Indemnified Party and the
Indemnifying Party shall not have chose to participate in the defense of such
suit after notification thereof if the
12
<PAGE> 13
Indemnifying Party is entitled to participate under paragraph (E) of this
Section.
(E) In connection with any Claim resulting from or arising out of any
claim or legal proceeding by a third party, the Indemnifying Party, may, upon
written notice to the Indemnified Party within 15 days following the Indemnified
Party's notice of the Claim, assume the defense of any such action with its own
counsel and its own expense if the Indemnifying Party acknowledges to the
Indemnified Party in writing its obligation to indemnify the Indemnified Party
pursuant to this Article II, Section 2 in respect of such Claim; provided,
however, that such counsel is reasonably acceptable to the Indemnified Party and
is able to represent the Indemnified Party without having any conflict of
interest. If the Indemnifying Party assumes the defense or prosecution of any
such action or proceeding, it shall take all steps reasonably necessary in the
defense, prosecution and settlement of such action or proceeding. The
Indemnifying Party shall not, in the defense or prosecution of any such action
or proceeding except with the written consent of the Indemnified Party, consent
to the entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof, a release by the third party of the
Indemnified Party from all liability in respect of the matter which is the
subject of such action or proceeding. The Indemnified Party shall cooperate in
the defense or prosecution of any such action or proceeding; provided that the
Indemnifying Party shall pay or reimburse the Indemnified Party for any actual
costs or expenses attributable to such cooperation.
(F) The obligations of the Company pursuant to paragraph (B) of this
Section and the obligations of the Buyer pursuant to paragraph (C) of this
Section shall, in each case be limited to an aggregate amount not in excess of
the Purchase Price. Neither the Company nor the Buyer shall make any Claim
hereunder unless and until the aggregate amount of such Claim exceeds $50,000;
provided, however, that if the aggregate amount of Claims by the Buyer or the
Company, respectively, exceeds $50,000, the obligations of the Company or the
Buyer, respectively, hereunder shall be with respect to the entire amount of
such Claims.
SECTION 3. SECURITY BOND. The Company may substitute a security bond
for the for amounts held in the Escrow Account pursuant to the Escrow
Agreement in order to secure its obligations to the Buyer under this Agreement.
Any such security bond shall be issued by a nationally recognized security
bonding firm reasonably satisfactory to the Buyer in an amount equal to $250,000
and have such other terms and conditions as are reasonably satisfactory to the
Buyer (the "Security Bond"). The Security Bond will, by its terms, require the
payment to the Buyer of the amount of any Claim of the Buyer with respect to
which the Company has indemnified the Buyer, the Parent or any other person
pursuant to Article II, Section 2(B) of this Agreement upon the request of the
Buyer. Indemnity claims by Buyer, Parent or any such person shall be satisfied
first from the Security Bond and thereafter by the Company. The Security Bond
does not constitute a limit on the liability of the Company to Buyer, the Parent
or any such person hereunder, it being understood and agreed that the Company
shall remain liable to satisfy the amount of Claims which exceed the amount of
the Security Bond. The Security Bond shall be released on May 1, 1999, to the
extent that it has not previously been applied pursuant to the terms hereof and
thereof, unless a Claim for indemnification by Buyer, Parent or any other person
pursuant to Article II, Section 2(B) is then pending against the Company.
SECTION 4. ADDITIONAL COVENANTS OF THE COMPANY. (a) All vacation pay
and
13
<PAGE> 14
sick pay due to employees of the Company who are employed in the Business and
terminated by the Company in connection with the transactions contemplated by
this Agreement shall be paid in full on the Closing Date.
(b) The Company shall be solely responsible for the payment of any and
all Tax Liabilities which are payable with respect to the Purchased Assets for
the period ending on the Closing Date or arising out of the transfer of the
Purchased Assets, whether or not due or payable on or before the Closing Date.
Buyer shall have no obligation or liability with respect to any such Tax
Liabilities.
(c) The Company shall provide for the forwarding of all e-mails,
telephone calls and facsimiles relating to the Business to the Buyer. All
physical records relating to the Business have been, or promptly following the
Closing Date will be, delivered to Buyer at the Site located at Twelve Piedmont
Center Suite 110.
SECTION 5. ALLOCATION OF PURCHASE PRICE. The Buyer and the Company
agree that $250,000 of the Purchase Price shall be allocated to the Tangible
Assets for sales (and similar) tax purposes.
ARTICLE III
CLOSING AND DELIVERIES AT CLOSING
SECTION 1. CLOSING. The closing of the purchase and sale of the
transaction contemplated herein shall take place on June 10, 1998 (the
"Closing"), at the offices of Dewey Ballantine LLP, located at 1301 Avenue of
the American, New York, New York 10019 at 10:00 a.m. The deliveries described in
Section 2 and 3 of this Article III shall be made at the Closing.
SECTION 2. DELIVERIES BY THE COMPANY. On the Closing Date, the Company
will deliver, or cause to be delivered, to the Buyer the following:
(A) Such instruments of transfer or conveyance executed by the Company,
as Buyer may reasonably request in order to convey and transfer to Buyer good
and marketable title to all of the Purchased Assets, free and clear of all
liens, equipment leases, claims, encumbrances and other charges, except as set
forth in Exhibit M, including, without limitation, an Assignment Agreement and a
Bill of Sale.
(B) Physical delivery of all Tangible Assets by making them available
at the Sites listed on Exhibit A, together with any and all warranties, manuals,
instructions, and other literature in the possession of the Company relating to
the ownership or operation of the Tangible Assets. In addition, such notices to
telephone companies and others required to transfer the Company's e-mail
addresses and domain addresses, used in the Business to Buyer.
(C) Physical delivery of all original or certified copies of
documentation concerning the Intellectual Property, by making them available at
the Sites listed on Exhibit A, including, without limitation, registrations and
applications of any patents, trademarks or service
14
<PAGE> 15
marks, original artwork, data bases, computer programs and software.
(D) The following corporate documentation:
(i) The Company's Articles or Certificate of Incorporation
certified as of a date within thirty (30) days prior to the Closing
Date by the Secretary of State of the state of the Company's
organization and good standing certificates certified as of recent date
by the Secretary of State of the state of the Company's organization
and principal place of business;
(ii) The Company's By-Laws certified as of the Closing Date by
the President or Secretary of the Company as being in full force and
effect and unmodified; and
(iii) Corporate Resolutions of the Board of Directors of the
Company, approving this Agreement and all the transactions contemplated
hereby, certified by the President or Secretary of the Company as being
in full force and effect and unmodified.
(E) The opinion of outside counsel to the Company, in a form reasonably
acceptable to Buyer and its counsel.
(F) An Assignment and Assumption Agreement, Bill of Sale and Assignment
of Trademark in a form reasonably acceptable to Buyer.
(G) The Escrow Agreement in substantially the form attached hereto as
Exhibit Q, duly executed by the Company and the Escrow Agent.
(H) Copies of written proof in form and substance satisfactory to Buyer
and its counsel that the Company will no longer do business under any of the
trade names listed on Exhibit B as required pursuant to Article I, Section 2,
Paragraph (B) (iii) hereof.
(I) The Company shall use its reasonable best efforts to deliver a
Non-Disclosure and Intellectual Property Agreement in a form to be provided by
Buyer prior to the Closing, executed by each employee of the Company who will be
employed by Buyer or its affiliate immediately following the Closing.
(J) A certificate of an officer of the Company to the effect that
notices of termination of all employees of the Company employed in connection
with Business satisfactory to Buyer, will be delivered to such employees
promptly following the Closing.
(K) The Transitional Services Agreement in substantially the form
attached hereto as Exhibit N, the Co-Location Agreement (HomeCom) in
substantially the form attached hereto as Exhibit O, and the Non-Exclusive
Software License Agreement in substantially the form attached hereto as Exhibit
P, each executed by the Company.
15
<PAGE> 16
(L) Such notice or notices as Buyer may reasonably request in order to
notify the customers included on the Customer List that the Business has been
sold to Buyer.
(M) Consent to assignments of Business Agreements.
(N) A letter from Coopers & Lybrand, acceptable to Buyer, to the effect
that the books and records of the Company relating to the Business for the
fiscal years of the Company as at and ended December 31, 1996 and 1997 and for
the period from January 1, 1998 to the Closing Date are auditable and that
Coopers & Lybrand has been engaged to complete such an audit on or before the
date 60 days following the Closing Date at a cost not to exceed $73,750.
SECTION 3. DELIVERIES BY THE BUYER.
On the Closing Date, the Buyer will deliver, or cause to be delivered,
to the Company the following:
(A) The Purchase Price by wire transfer of federal funds to the account
of the Company, as the Company shall direct in writing on or before the Closing
Date; provided, however, Buyer may, upon written agreement of all parties
hereto, deduct from the Purchase Price and pay directly amounts due any creditor
of the Company, including, without limitation, the Tax Liabilities (but
excluding any amounts due for any of the Assumed Liabilities), in which event,
evidence of such payment shall be presented at the Closing and Buyer may deduct
from the Purchase Price the aggregate amount of Deferred Revenues with respect
to the Business as set forth on a balance sheet for the Business as at the
Closing Date prepared in accordance with generally accepted accounting
principles.
(B) Such instruments of assignment and assumption executed by the
Buyer, as the parties hereto reasonably may determine necessary to effectuate
the assignment to the Buyer of the Business Agreements and the assumption by
Buyer of the Assumed Liabilities.
(C) The Transitional Services Agreement in substantially the form
attached hereto as Exhibit N and the Co-Location Agreement (HomeCom) in
substantially the form attached hereto as Exhibit O, each executed by the Buyer.
(D) Resolution of the Board of Directors of Buyer, authorizing the
execution of this Agreement and the transactions contemplated hereby.
(E) The opinion of outside counsel to the Buyer, in a form reasonably
acceptable to the Company and its counsel.
(F) The Escrow Agreement in substantially the form attached hereto as
Exhibit Q, duly executed by the Buyer and the Escrow Agent.
ARTICLE IV
16
<PAGE> 17
OBLIGATIONS FOLLOWING CLOSING
SECTION 1. FURTHER COOPERATION. Each of the Company and the Buyer will,
at any time and from time to time after the Closing Date, execute and deliver
such further instruments of conveyance, transfer and license, and take such
additional actions as Buyer, Parent or the Company or their respective
successors and/or assigns, may reasonably request, to effect, consummate,
confirm or evidence the transfer to Buyer of the Purchased Assets pursuant to
this Agreement.
SECTION 2. TRANSITION ASSISTANCE AND ADJUSTMENTS.
(A) The Company shall cooperate and provide assistance to the Buyer as
shall be reasonably necessary during the transition of the Business and the
Purchased Assets from the Company to the Buyer, or its successors and/or
assigns, after the Closing Date. Buyer shall reimburse the Company for
reasonable out-of-pocket expenses incurred in rendering such cooperation and
assistance, but not for any time of any personnel. The Company shall introduce
the Buyer to Bernd Harzog of Software Strategies (770 -475-4249), the consultant
retained by the Company in connection with the Company's negotiations with
Microsoft relating to the Company's inclusion in the Microsoft front page
program.
(B) Buyer and its successors and/or assigns shall have the right at any
time and from time to time upon reasonable notice and during normal business
hours to examine and make copies of all corporate books, records and other
documents of the Company relating to the Business and generated prior to the
Closing Date, which documents will be maintained by the Company for a period of
five (5) years after the Closing Date. The Company and its successors and/or
assigns shall have the right at any time and from time to time upon reasonable
notice and during normal business hours to examine and make copies of all
corporate books, records and other documents of the Buyer relating to the
Business acquired by the Buyer pursuant to this Agreement, which documents will
be maintained by the Buyer for a period of five (5) years after the Closing
Date.
(C) The Company will reasonably cooperate with Buyer in notifying the
customers included on the Customer List (other than the Excluded Customers) that
the Business has been sold to Buyer, including, without limitation, executing
any additional notices which Buyer may reasonably request. The Company will not,
directly or indirectly, take any action which is designed or intended to have
the effect of discouraging customers, suppliers or vendors and other business
associates of the Business, from maintaining the same business relationships
with Buyer or its successors and/or assigns after the Closing Date as were
maintained with the Company with respect to the Business prior to the Closing
Date.
(D) The Buyer shall use its reasonable commercial efforts, without
out-of-pocket cost to Buyer, to collect, on behalf of the Company, all Closing
Accounts Receivable of the Company. If payment of any Closing Account Receivable
is received by the Company, it shall promptly forward to Buyer the full amount
so received. The Company will cooperate with Buyer in establishing a bank
account of Buyer in the name of "HostAmerica" in order to facilitate the
negotiation of checks received from customers of the Business after the Closing.
17
<PAGE> 18
The Company shall promptly negotiate and forward to Buyer any and all payments
received by Company with respect to the Purchased Assets on and after the
Closing Date.
(E) All of the Company's right, title and interest in and to the name
"HostAmerica" constitutes a Purchased Asset and has been transferred to the
Buyer in accordance with this Agreement. Following the Closing, neither the
Company nor any affiliate of the Company (as defined under federal securities
laws), shall not use the name "HostAmerica" or any confusingly similar name to
said trade name in any trade or business. The Company expressly acknowledges,
understands and agrees (i) that remedies at law for any breach of this Article
IV, Section 2((E) will be inadequate, (ii) that the damages resulting from such
breach are not readily susceptible to measurement in monetary terms and (iii)
that the Buyer shall be entitled to immediate injunctive relief and may obtain
temporary and permanent orders restraining any threatened or further breach of
this Article IV, Section 2(E) by the Company. The Company has been advised by
its counsel with respect to the meaning and effect of this Article IV, Section
2(E).
SECTION 3. AUDIT OF BUSINESS. The Company shall make available to
Buyer, on the terms and conditions set forth in the Transition Service
Agreement, its books, records and workpapers with respect to the Business
relating to the fiscal years of the Business ending December 31, 1995, 1996 and
1997, and its financial and accounting personnel, to the extent reasonably
required by Buyer and its independent accountants to complete an audit of the
Business at and for the fiscal years then ended.
ARTICLE V
MISCELLANEOUS
SECTION 1. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Georgia; provided, however, that the non-competition covenant of
the Company contained in Article II, Section 1 of this Agreement shall be
governed by the laws of the State of Delaware.
SECTION 2. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
SECTION 3. CONFIDENTIALITY. The Company, on the one hand, and the
Buyer, on the other hand, each agree not to disclose or use any information
acquired by it about the other party during the course of the negotiations of
this Agreement and the transactions to which it relates which is confidential in
nature or not otherwise generally available to the public without the prior
written consent of such other party unless required to do so by applicable law
or regulation or by order of a court of competent jurisdiction or an
administrative agency. SECTION 3. CONFIDENTIALITY. THE COMPANY, ON THE ONE HAND,
AND THE BUYER, ON THE OTHER HAND, EACH AGREE NOT TO DISCLOSE OR USE ANY
INFORMATION ACQUIRED BY IT ABOUT THE OTHER PARTY DURING THE COURSE OF THE
NEGOTIATIONS OF THIS AGREEMENT AND THE TRANSACTIONS TO WHICH IT RELATES WHICH IS
CONFIDENTIAL IN NATURE OR NOT OTHERWISE GENERALLY AVAILABLE TO THE PUBLIC
WITHOUT THE PRIOR WRITTEN CONSENT OF SUCH OTHER PARTY UNLESS REQUIRED TO DO SO
BY APPLICABLE LAW OR BY ORDER
18
<PAGE> 19
OF A COURT OF COMPETENT JURISDICTION. Each party shall be liable for any breach
by its respective employees, officers, directives, shareholders, agents and/or
contractors of the provisions of this Section.
SECTION 4. AMENDMENTS. This Agreement supersedes any prior contracts
relating to the subject matter hereof between the Buyer, Parent, and the
Company. This Agreement cannot be changed, modified or amended and no provision
or requirement hereof may be waived without the consent in writing of the
parties hereto.
SECTION 5. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Each provision of this Agreement shall be deemed to be the agreement of
the parties hereto to the full extent that the power to enter into such
provisions shall have been conferred on the parties by law.
SECTION 6. BENEFIT; ASSIGNMENT. This Agreement is binding upon and
inures to the benefit of the parties, their successors and permitted assigns.
This Agreement may not be assigned or the duties of the parties hereunder
delegated to others without the prior written consent of all parties hereto,
except that Buyer may assign its rights, duties and obligations hereunder to
Parent or an affiliate of Buyer or Parent without the Company's consent.
SECTION 7. CONSTRUCTION. All exhibits annexed hereto are hereby
incorporated herein by reference and made a part of this Agreement. Whenever
used in this Agreement and the context so requires, the singular shall include
the plural and the plural shall include the singular.
SECTION 8. IMPUTED KNOWLEDGE. Any reference in this Agreement to the
"knowledge of" the Company, or words of similar import, the knowledge of any and
all of the officers or directors of the Company (including, without limitation,
its President and Chief Executive Officer, Harvey Sax), shall be imputed to be
the knowledge of the Company. Any reference in this Agreement to the "knowledge
of" the Buyer or the Parent, or words of similar import, the knowledge of its
officers and directors (including, without limitation, Buyer's President and
Parents Co-Chairman, Leonard J. Fassler) shall be imputed to be the knowledge of
the Buyer.
SECTION 9. NOTICES. All notices and other communications hereunder
shall be in writing and deemed to have been duly given when delivered by hand,
when received by registered or certified mail, postage prepaid, return receipt
requested, when given by prepaid courier delivery services such as Federal
Express, DHL or other similar services on the day received, or when given by
facsimile transmission upon receipt by sender of confirmed answer-back, as
follows:
(a) if to Buyer, at
Sage Networks Acquisition Corp.
215 First Street
19
<PAGE> 20
Cambridge, MA 02142
Attention: Rajat Bhargava
Telecopier No.:
with copies to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, N.Y. 10019
Attention: E. Ann Gill, Esq.
Telecopier No.: (212) 259-6333
and
Sage Networks Acquisition Corp.
C/O McCarthy, Finger, Donovan, Drazen & Smith LLP
11 Martine Avenue
White Plains, NY 10606-1934
Attn: Bruce Klein, Esq.
(b) if to the Company, at:
HomeCom Communications, Inc.
14 Piedmont Center, Suite 100
3535 Piedmont Road
Atlanta, GA 30305
Attn:
Telecopier No.:
with a copy to:
Sims Moss Kline & Davis LLP
Suite 310
400 Northpark Town Center
1000 Abernathy Road NE
Atlanta, GA 30328
Attn: Raymond L. Moss, Esq.
Telecopier No.:
Each of the parties may, by notice given as aforesaid, change its
address for all subsequent notices.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
20
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SAGE NETWORKS ACQUISITION CORP.
By: /s/ Leonard J. Fassler
-------------------------------------
Leonard J. Fassler, President
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey Sax
-------------------------------------
Harvey Sax, President
21
<PAGE> 22
DESCRIPTION OF EXHIBITS:
Exhibit A - Basic Provisions
Exhibit B - Officers; Directors; Trade Names; Jurisdictions
Exhibit C-1 - Forms of Business Agreements with Customers
Exhibit C-2 - Copy of all Business Agreements
Exhibit C-3 - Leases
Exhibit C-4 - Claims of Disputes Under Business Agreements
Exhibit C-5 - Consents to Transfer or Assign Not Obtained
Exhibit D - Litigation
Exhibit E - Tangible Assets
Exhibit F - Intellectual Property
Exhibit G-1 - Customer Terminations
Exhibit G-2 Excluded Customers
Exhibit H - Financial Statements
Exhibit I - Aged Receivables and Tax Liabilities of the Company
Exhibit J - Assumed Liabilities
Exhibit K - Existing Employment Agreements, Labor or Collective Bargaining
Agreements, Employee Benefit or Welfare Plans, Retirement
Plans, Description of Employees
Exhibit L - Excluded Assets
Exhibit M - Liens; Encumbrances
Exhibit N - Form of Transitional Services Agreement
Exhibit O - Form of Co-Location Agreement (HomeCom)
Exhibit P - Form of Non-Exclusive Software License Agreement
Exhibit Q - Form of Escrow Agreement
22
<PAGE> 23
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
BASIC PROVISIONS
1. Name of BUYER: SAGE NETWORKS ACQUISITION CORP.
2. Name of COMPANY: HOMECOM COMMUNICATIONS, INC.
(a) STATE OF INCORPORATION of COMPANY: Delaware
(b) AUTHORIZED OFFICERS of the COMPANY:
[Name; Title]
(c) Address of each SITE from which the COMPANY conducts the Business:
3. PURCHASE PRICE: [$4,500,000 less the amount of the Deferred Revenues
properly set forth on a balance sheet for the Business as at the Closing Date,
prepared in accordance with generally accepted accounting principles.]
4. COMPANY'S BROKER:
5. BUYER'S BROKER: Am-Tech Associates
1
<PAGE> 24
**
POST CLOSING PURCHASE PRICE ADJUSTMENT. (i) The parties to this
Agreement agree that notwithstanding the Closing Date, revenues and expenses of
the Business should be adjusted as of June 1, 1998. Accordingly, not more than
forty-five (45) days following the Closing Date, the Company shall deliver to
Buyer a statement of revenues (including a statement of the change in the
balance of deferred revenues from June 1, to June 8, 1998) and direct expenses
of the Business (in each case, determined in accordance with generally accepted
accounting principles) for the period from June 1, 1998 to the Closing Date (the
"Closing Statement").
(ii) Within thirty (30) days after receipt of the Closing Statement,
Buyer shall communicate in writing to Seller any objection or disagreement that
it may have with the Closing Statement (an "Objection"). The Company shall have
fifteen (15) days after receipt of an Objection in which to respond in writing
to such Objection. If, after five (5) days following such fifteen day period,
Buyer and the Company have not resolved the matter in dispute, such matter shall
be submitted to KPMG Peat Marwick (or any other independent certified public
accountants, as Buyer and the Company may agree) for determination. Such
determination shall be made on or prior to the date that is sixty (60) days
following the date of the initial receipt by Buyer of the Closing Statement and
shall be binding on Buyer and the Company (the "Final Determination"). The cost
of such accountants shall be shared equally by the Buyer and the Company.
(iii) If the revenues (after being adjusted by the change in deferred
revenues) exceed the direct expenses as set forth on the Closing Statement (as
resolved by the Buyer and the Company or as set forth in any Final
Determination), the Company shall pay the amount of such excess to Buyer. If the
direct expenses exceed the revenues (after such adjustment), the Buyer shall pay
the amount of such excess to the Company. Any payment pursuant to this Article
I, Section 2(b) shall be paid within five (5) business days after Buyer's and
the Company's resolution of the Closing Statement or receipt of the Final
Determination, if any.
2
<PAGE> 25
EXHIBIT B
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORK ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
OFFICERS:
DIRECTORS:
TRADE NAMES:
JURISDICTIONS IN WHICH COMPANY IS DOING BUSINESS:
3
<PAGE> 26
EXHIBIT C-1
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
FORMS OF BUSINESS AGREEMENTS WITH CUSTOMERS
SEE ANNEXED
PERSONAL PROPERTY LEASES:
EQUIPMENT LEASES:
5
<PAGE> 27
EXHIBIT C-2
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
COPIES OF ALL BUSINESS AGREEMENTS AND VENDOR/SERVICE
PROVIDER AND OTHER AGREEMENTS
6
<PAGE> 28
EXHIBIT C-3
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
LEASES
7
<PAGE> 29
EXHIBIT C-4
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
CLAIMS OF DISPUTES UNDER BUSINESS AGREEMENTS
8
<PAGE> 30
EXHIBIT C-5
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
CONSENTS TO TRANSFER AND ASSIGNMENT NOT OBTAINED
9
<PAGE> 31
EXHIBIT E
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
TANGIBLE ASSETS
SEE ANNEXED
TELEPHONE NUMBERS:
____________________
____________________
FACSIMILE NUMBERS:
____________________
____________________
INTERNET DOMAIN ADDRESSES:
____________________
____________________
10
<PAGE> 32
EXHIBIT F
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
INTELLECTUAL PROPERTY
SEE ANNEXED
11
<PAGE> 33
EXHIBIT G
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
CUSTOMER LIST AND RELATED INFORMATION
SEE ANNEXED
12
<PAGE> 34
EXHIBIT G-1
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
CUSTOMER TERMINATIONS
13
<PAGE> 35
EXHIBIT G-2
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
EXCLUDED CUSTOMERS
14
<PAGE> 36
EXHIBIT H
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
SEE ANNEXED
15
<PAGE> 37
EXHIBIT I
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
BAD DEBTS AND TAX LIABILITIES OF THE COMPANY
SEE ANNEXED
16
<PAGE> 38
EXHIBIT J
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
ASSUMED LIABILITIES
[1. Obligations of the Company to provide Internet Web hosting and
related services under those written customer agreements in force
and effect as of the Closing Date which are in the form of one of
the form agreements annexed hereto as Exhibit C-1.
17
<PAGE> 39
EXHIBIT K
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
EXISTING EMPLOYMENT AGREEMENTS, LABOR
OR COLLECTIVE BARGAINING AGREEMENTS AND
EMPLOYEE BENEFIT OR WELFARE PLANS AND
RETIREMENT PLANS
DESCRIPTION OF EMPLOYEES
SEE ANNEXED
18
<PAGE> 40
EXHIBIT L
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
EXCLUDED ASSETS
LICENSE AND SERVICES AGREEMENT DATED AS OF JUNE 18, 1997, BETWEEN HOMECOM
COMMUNICATIONS AND EXCALIBUR GROUP.
19
<PAGE> 41
EXHIBIT M
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
LIENS; ENCUMBRANCES
20
<PAGE> 42
EXHIBIT N
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
FORM OF TRANSITIONAL SERVICES AGREEMENT
SEE ANNEXED
<PAGE> 43
EXHIBIT N
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
FORM OF TIME WARNER CO-LOCATION AND SERVICES AGREEMENT
SEE ANNEXED
<PAGE> 44
EXHIBIT Q
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
HOMECOM COMMUNICATIONS, INC.
ESCROW AGREEMENT
SEE ANNEXED
<PAGE> 1
Exhibit 2.9
================================================================================
ASSET PURCHASE AGREEMENT
Dated March 8, 1999
among
Sage Networks Acquisition Corp.,
a Delaware corporation,
and
Sage Networks, Inc.,
a Delaware corporation,
and
Interliant, Inc.,
a Texas corporation,
and
Each of the Shareholders listed on Attachment B hereto
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...................................................... 1
ARTICLE II PURCHASE AND SALE OF ASSETS; REPAYMENT OF WOLF NOTES............ 1
SECTION 2.01 PURCHASE OF ASSETS ......................................... 1
SECTION 2.02 ASSUMPTION OF LIABILITIES .................................. 2
SECTION 2.03 WOLF NOTES ................................................. 2
ARTICLE III PURCHASE PRICE................................................. 2
SECTION 3.01 PURCHASE PRICE ............................................. 2
ARTICLE IV CLOSING......................................................... 3
SECTION 4.01 THE CLOSING DATE ........................................... 3
SECTION 4.02 CERTIFICATES, INSTRUMENTS OF TRANSFER, ETC ................. 3
ARTICLE V REPRESENTATIONS AND WARRANTIES................................... 4
SECTION 5.01 REPRESENTATIONS AND WARRANTIES OF SELLER ................... 4
SECTION 5.02 REPRESENTATIONS AND WARRANTIES OF BUYER AND SAGE ........... 15
SECTION 5.03 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS ............. 20
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND SAGE AND
SELLER AND SHAREHOLDERS.......................................................21
SECTION 6.01 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND SAGE ...... 21
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF SELLER AND SHAREHOLDERS ....... 24
ARTICLE VII DOCUMENTS TO BE DELIVERED ON CLOSING DATE...................... 26
SECTION 7.01 DOCUMENTS TO BE DELIVERED BY SHAREHOLDERS AND
SELLER ON CLOSING DATE ..................................... 26
SECTION 7.02 DOCUMENTS TO BE DELIVERED BY BUYER ON CLOSING DATE ......... 27
ARTICLE VIII FURTHER COVENANTS AND AGREEMENTS OF SELLER, SHAREHOLDERS,
BUYER AND SAGE............................................................. 27
SECTION 8.01 FURTHER COVENANTS AND AGREEMENTS OF SHAREHOLDERS
AND SELLER ................................................. 27
SECTION 8.02 CONSENTS TO ASSIGNMENTS; PERMITS ........................... 31
SECTION 8.03 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC ............... 32
SECTION 8.04 INSPECTION OF RECORDS ...................................... 35
SECTION 8.05 EMPLOYEE MATTERS ........................................... 35
SECTION 8.06 RELEASE OF GUARANTIES ...................................... 35
SECTION 8.07 TAX REPORTING .............................................. 36
SECTION 8.08 SAGE OPTIONS ............................................... 36
SECTION 8.09 ESCROW DEPOSIT ............................................. 37
ARTICLE IX MISCELLANEOUS................................................... 38
SECTION 9.01 EXPENSES ................................................... 38
SECTION 9.02 TERMINATION ................................................ 38
SECTION 9.03 BENEFIT; ASSIGNMENT ........................................ 38
SECTION 9.04 GOVERNING LAW; JURISDICTION ................................ 38
SECTION 9.05 BREACH; FAILURE OF CONDITION ............................... 39
SECTION 9.06 NOTICES, ETC ............................................... 39
SECTION 9.07 HEADINGS ................................................... 40
SECTION 9.08 COUNTERPARTS ............................................... 40
SECTION 9.09 ENTIRE AGREEMENT ........................................... 40
SECTION 9.10 WAIVER; AMENDMENT; MODIFICATION ............................ 40
SECTION 9.11 SEVERABILITY ............................................... 41
i
<PAGE> 3
* * *
ATTACHMENTS
Attachment A Definitions
Attachment B List of Signing Shareholders
* * *
EXHIBITS
Exhibit A-1 Assignment Agreement
Exhibit A-2 Form of Employment Agreement
Exhibit A-3 Form of Shareholders Agreement
Exhibit A-4 Form of Promissory Note of Sage
Exhibit A-5 Form of Incentive Stock Option Award Agreement
Form of Nonqualified Stock Option Award Agreement
* * *
DISCLOSURE EXHIBITS
Exhibit 5.01(a) Subsidiaries of Seller
Exhibit 5.01(d)(i) Assigned Agreements
Exhibit 5.01(d)(iii) Encumbrances on Business Property
Exhibit 5.01(d)(iv) Purchased Assets (Site Operations and Receivables,
Fixed Assets and Other Property)
Exhibit 5.01(e) Absence of Litigation against Seller
Exhibit 5.01(f) Absence of Conflicts
Exhibit 5.01(g) Other Agreements to Sell Assets or Stock
Exhibit 5.01(i) Seller's Financial Statements
Exhibit 5.01(j) Absence of Undisclosed Liabilities and Obligations
Exhibit 5.01(k) Tax Matters
Exhibit 5.01(m)(i) Employee Benefit Information (Plans, Agreements and
Liabilities)
Exhibit 5.01(m)(iii) Employee Benefits Information (Absence of Trigger or
Acceleration of Obligations)
Exhibit 5.01(m)(iv) Overdue 401(k) Contributions
Exhibit 5.01(m)(v) Absence of Compliance with Laws
Exhibit 5.01(n) Labor Disagreements
Exhibit 5.01(p) Insurance Policies
Exhibit 5.01(q)(i) Intangible Assets and Absence of Encumbrances or
Conflicts Regarding Intellectual Property
Exhibit 5.01(q)(ii) Customer Data
Exhibit 5.01(q)(iii) Seller's Confidentiality Agreements
ii
<PAGE> 4
Exhibit 5.01(r) Compensation and Status of Employees
Exhibit 5.01(s) Compliance with Laws
Exhibit 5.01(t) Transactions with Certain Persons
Exhibit 5.01(u) Absence of Customer Terminations
Exhibit 5.01(v) Absence of Certain Changes or Events since December 31,
1998
Exhibit 5.02(g) Absence of Sage Litigation
Exhibit 5.02(h) Sage Compliance with Laws
Exhibit 5.02(n) Absence of Sage Changes or Events since December 31,
1998
Exhibit 5.02(p) Absence of Sage Undisclosed Liabilities
Exhibit 5.03(b) Shareholder Approvals
Exhibit 5.03(c) Absence of Shareholder Conflicts
Exhibit 5.03(f) Shareholder Affiliated Transactions
Exhibit 6.01(j) Persons to be party to Employment Agreements
Exhibit 8.05 Employee Matters
Exhibit 8.08 List of Holders of Seller Options
Exhibit Def-1 Excluded Assets
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated March 8, 1999 (this
"Agreement") is by and among Sage Networks Acquisition Corp., a Delaware
corporation ("Buyer"), Sage Networks, Inc., a Delaware corporation ("Sage"),
Interliant, Inc., a Texas corporation ("Seller"), and each of the shareholders
of the Seller listed on Attachment B hereto ("Shareholders").
WHEREAS, Seller desires to sell and Buyer desires to purchase the
Business as a going concern from Seller, certain properties, rights and assets
of Seller as described herein, for the consideration provided herein; and
WHEREAS, Buyer is a wholly owned subsidiary of Sage; and
WHEREAS, Shareholders are the holders of all of the issued and
outstanding shares of capital stock of Seller;
NOW, THEREFORE, in consideration of the mutual benefits to be
derived from this Agreement and the representations, warranties, conditions and
promises hereinafter contained, Seller, Shareholders, Buyer and Sage hereby
represent, warrant and agree as follows:
ARTICLE I
Definitions
For the purposes hereof, capitalized terms used herein shall have
the respective meanings assigned to them in Attachment A or elsewhere herein.
References in this Agreement to Sections, subsections, paragraphs, clauses,
Attachments and Exhibits are to Sections, subsections, paragraphs, clauses,
Attachments and Exhibits in or to this Agreement unless otherwise indicated.
ARTICLE II
Purchase and Sale of Assets; Repayment of Wolf Notes
Section 2.01 Purchase of Assets. In reliance on the representations,
warranties and covenants contained herein and subject to the terms and
conditions hereof, on the Closing Date, Seller will (i) assign to Buyer (in the
case of the Leases, by instruments of transfer suitable for recording) all of
Seller's right, title and interest under the Assigned Agreements and (ii) sell,
convey, assign, transfer and deliver to Buyer, and Buyer will purchase from
Seller, each of the other Purchased Assets by deeds, bills of sale or other
appropriate instruments of transfer and in the case of the Intellectual
Properties, by instruments of assignment suitable for recording at the U.S.
Patent and Trademark Office where applicable.
<PAGE> 6
Section 2.02 Assumption of Liabilities.
(a) In reliance on the representations, warranties and covenants
contained herein and subject to the terms and conditions hereof, on the Closing
Date, Buyer shall assume the Assumed Liabilities and Sage shall assume the Wolf
Notes in an aggregate principal amount not to exceed $15,900,000 (Fifteen
Million Nine Hundred Thousand Dollars) and interest accrued and unpaid thereon
from and after the Closing Date which assumption by Sage shall be effective from
and after the Closing Date.
(b) On and after the Closing Date, the Seller shall be and remain
liable for all liabilities of the Seller except the Assumed Liabilities and the
liabilities under the Wolf Notes assumed by Sage pursuant to Section 2.02(a).
Section 2.03 Wolf Notes. On the Closing Date, Sage shall repay in
full the Wolf Note that is payable to Erving Wolf in the principal amount of
$7,900,000 (Seven Million Nine Hundred Thousand Dollars) which repayment shall
not exceed $7,900,000 (Seven Million Nine Hundred Thousand Dollars) by wire
transfer of immediately available funds to such account as may be designated in
writing by Erving Wolf prior to the Closing Date. On the Closing Date, Sage
shall deliver its promissory note (the "Sage Note") to Mathew Wolf in the form
attached as Exhibit A-4 in exchange for the promissory note of Seller payable to
Mathew Wolf assumed under Section 2.02.
ARTICLE III
Purchase Price
Section 3.01 Purchase Price.
(a) The purchase price to be paid by Buyer for the Purchased Assets
shall consist of, the assumption of the obligations of Seller under the Assigned
Agreements, the assumption of the Assumed Liabilities, cash in the aggregate
amount of $100,000 (the "Cash Consideration") which shall be paid by wire
transfer of immediately available funds to the Seller on the Closing Date and
the delivery of the Agreement to Deliver Shares (the "Purchase Price"). All
references to number of shares in this Section 3.01 shall be appropriately
adjusted if between the date hereof and the date for determining the number of
additional shares to be delivered, the outstanding shares of Sage Common Stock
are reclassified into a greater or lesser number of shares by way of stock
dividend, stock split, reverse stock split or other reclassification.
(b) Adjustment to Purchase Price.
(i) If the Fair Market Value of the aggregate issued and
outstanding shares of the Common Stock determined on the date of the occurrence
of a Liquidity Event (excluding the shares of Common Stock issued by Sage in
connection with the Liquidity Event, if any) is less than $300,000,000 and Sage
consummates the Liquidity Event, Sage shall deliver to the holders of rights
under the Agreement to Deliver Shares other than Broadview Holding LLP (the
"Distributees"), in the
2
<PAGE> 7
percentages set forth in Schedule I of the Agreement of Deliver Shares under the
heading "Section 4 Percentage", additional shares of Common Stock such that the
aggregate value of the Common Stock delivered or deliverable to the Distributees
pursuant to this Agreement and the Agreement to Deliver Shares (excluding for
this purpose, Unconverted Option Shares) is equal to $34,976,222 (determined at
the Fair Market Value of the shares of Common Stock determined on the date of
the Liquidity Event) but in no event shall more than 6,236,455 shares of Common
Stock in the aggregate be delivered or deliverable to all Distributees pursuant
to this Agreement and the Agreement to Deliver Shares (excluding, for this
purpose, Unconverted Option Shares).
(ii) If a Liquidity Event does not occur on or before the
first anniversary of the date of this Agreement, Sage shall deliver to the
Distributees, in the percentages set forth in Schedule I of the Agreement of
Deliver Shares under the heading "Section 4 Percentage", additional shares of
Common Stock such that the aggregate number of shares of Common Stock delivered
or deliverable to the Distributees is equal to 6,236,455 shares of Common Stock
in the aggregate delivered or deliverable to all Distributees pursuant to this
Agreement and the Agreement to Deliver Shares(excluding, for this purpose,
Unconverted Option Shares).
(iii) Any additional shares of Common Stock to be delivered in
accordance with (x) Section 3.01(b)(i) shall be delivered in a timely fashion to
permit each Distributee to participate in such Liquidity Event but in any event
within 20 days following the occurrence of the Liquidity Event and (y) Section
3.01(b)(ii) shall be delivered on the first business day after the first
anniversary of the date of this Agreement.
ARTICLE IV
Closing
Section 4.01 The Closing Date. The closing of the purchase and sale
of the Purchased Assets and the assumption of the Assumed Liabilities (the
"Closing") shall take place at the offices of Dewey Ballantine LLP, 1301 Avenue
of the Americas, New York, NY 10019, at 10:00 a.m. New York time, on the fifth
business day following the date on which the applicable requirements of the HSR
Act shall have been met, or such other time, date or place as Seller,
Shareholders and Buyer may mutually agree (the "Closing Date").
Section 4.02 Certificates, Instruments of Transfer, Etc.
(a) Seller agrees that the sale and transfer of the Purchased Assets
shall be made by the Assignment Agreement, deeds, bills of sale and other
instruments of transfer reasonably acceptable to Buyer, including, without
limitation, to the extent applicable in the case of the Intellectual Properties,
instruments of assignment in suitable form for recording with the U.S. Patent
and Trademark Office. Seller and Buyer agree to use reasonable efforts to
minimize any sales, use, transfer and similar transaction Taxes
3
<PAGE> 8
and other transaction costs, provided that such efforts shall not expose Seller,
any Shareholder or Buyer to any additional cost or risk. Such Taxes, if any,
shall be paid as and when due by Seller.
(b) From and after the Closing Date, Buyer shall have the right and
the authority to collect for its own account all Receivables which shall be
transferred to Buyer as provided herein and to endorse with the name of Seller
any checks received on account of such Receivables. From and after the Closing
Date, Seller will, promptly following receipt thereof, transfer and deliver to
Buyer any cash or other property that it may receive in respect of such
Receivables and until so transferred and delivered the same shall be deemed to
be held in trust for Buyer. From and after the Closing Date, Buyer shall also
have the right to compromise, settle and obtain the release of all claims and
liabilities related to the Assigned Agreements and to open all mail and packages
and receive all communications and deliveries addressed to Seller at the Sites.
(c) Buyer agrees to assume the Assumed Liabilities by the execution
and delivery to it of the Assignment Agreement.
(d) Seller and Shareholders hereby agree that, from time to time at
Buyer's request and without further consideration, Seller and Shareholders will
do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all and any such further acts, conveyances,
transfers, assignments, powers of attorney, instruments and assurances as may be
reasonably required to more effectively grant, convey, assign, transfer and set
over to and vest Buyer any and all of the Purchased Assets.
(e) Buyer hereby covenants and agrees that, from time to time at
Seller's or Shareholders' request and without further consideration, Buyer will
do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all and any such further acts, conveyances,
transfers, assignments, powers of attorney, instruments and assurances as may be
reasonably required to more effectively confirm to Seller and Shareholders the
assumption by Buyer of the Assumed Liabilities.
ARTICLE V
Representations and Warranties
Section 5.01 Representations and Warranties of Seller. Seller,
represents and warrants to Buyer and Sage that:
(a) Seller's Organization and Good Standing. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas, has all requisite corporate power to carry on its business as it
is now being conducted, and except for the Certificate of Registration of
Interliant Inc as a branch for the purposes of English Company Law which has
been obtained by the Seller, the Seller is not qualified to do business as a
foreign corporation in any jurisdiction. Except as set forth in Exhibit 5.01(a),
Seller has no subsidiaries.
4
<PAGE> 9
(b) Reserved.
(c) Corporate Authorization. The execution, delivery and performance
by the Seller of the Transaction Documents to which Seller is a party, the Wolf
Notes and the bills of sale, assignments and other instruments of transfer
referred to in this Agreement to which Seller is a party, have been authorized
and approved by all requisite corporate action on the part of Seller, and Seller
has the power and authority to execute, deliver and perform the Transaction
Documents to which it is a party and to consummate the transactions contemplated
thereby, no other corporate or shareholder approval or authorization is required
on the part of Seller, any trustee, any lender to the Seller or any other person
by law or otherwise (except as have been obtained) in order to make the
Transaction Documents to which it is a party, the Wolf Notes and the bills of
sale, assignments and other instruments of transfer referred to in this
Agreement the valid, binding and enforceable obligations of Seller (subject to
the receipt of required consents to assignment of the Assigned Agreements and
the requirements of the HSR Act) except as enforcement thereof may be limited by
bankruptcy, insolvency, or other similar laws affecting the enforcement of
creditors' rights in general or by general principles of equity.
(d) Purchased Assets; Business.
(i) Exhibit 5.01(d)(i) is a substantially accurate and
complete list of the Assigned Agreements, setting forth the name and date of,
and parties to, each such agreement, and indicating whether any consent is
required for the assignment of such agreement by Seller to Buyer, as
contemplated by this Agreement. All material Assigned Agreements (in terms of
both revenues and liabilities) are included in Exhibit 5.01(d)(i). True and
complete copies of the Assigned Agreements have been furnished or made available
to Buyer. The Seller has no material oral business agreements. Except as set
forth on Exhibit 5.01(d)(i), Seller is not in default (and no event or
circumstance exists which, with notice or lapse of time or both, would
constitute a default by Seller) in any material respect under any of the
Assigned Agreements and, to the Knowledge of Seller, no other party to the
Assigned Agreements is in default under such agreements. Each Assigned Agreement
is in full force and effect. Except for Employment Contracts and any consents,
waivers, or approvals required by the terms of the Assigned Agreements, Seller
has the right to assign the Assigned Agreements, and Seller has not otherwise
assigned, pledged or encumbered its interest in the Assigned Agreements except
as set forth in Exhibit 5.01(d)(i). Many Assigned Agreements contain maintenance
or warranty obligations on the part of Seller that under the terms of the
Assigned Agreement are limited to the revenues received by Seller under such
Assigned Agreement. In general, the Assigned Agreements exclude liability for
consequential damages.
(ii) Seller does not own any real property. Seller's leasehold
interest in each Site is a valid and subsisting leasehold interest in such Site
pursuant to the Lease applicable thereto, and such Lease affords the tenant
thereunder the legal right to occupy such Site as of the Closing Date in
accordance with the terms thereof. Each Lease is valid and enforceable by Seller
except as enforcement thereof may be limited by bankruptcy, insolvency, or other
similar laws affecting the enforcement of creditors'
5
<PAGE> 10
rights in general or by general principles of equity. Seller has performed, in
all material respects, all the obligations required to be performed by it under
each Lease and possesses and quietly enjoys the premises under each Lease.
Seller has not received notice of any pending or threatened condemnation
proceedings relating to all or any portion of the property or premises that are
the subject of any Lease and, to Seller's Knowledge, there are no such pending
or threatened proceedings.
(iii) Seller has good and marketable title to the Customer
Data and Fixed Assets owned by it and to the Receivables, Fixed Assets and Cash,
in each case, free and clear of all Encumbrances except those listed on Exhibit
5.01(d)(iii). The Receivables arose in the ordinary course of business of Seller
and constitute valid claims against the account debtors with respect thereto.
The Fixed Assets are in good and working condition, reasonable wear and tear and
obsolescence excepted.
(iv) Exhibit 5.01(d)(iv) sets forth the nature of the
operations at each Site and lists the Receivables as of February 28, 1999, Fixed
Assets as of February 28, 1999 and Other Property as of February 28, 1999. All
such property is located at the Sites or is in the possession of Employees of
the Seller.
(v) The Purchased Assets include all of the assets of Seller
used by Seller to conduct the Business as of the Closing Date consistent with
past practice (subject to Section 8.02 and other than the Excluded Assets).
(e) Litigation. Except as set forth in Exhibit 5.01(e), there is no
litigation, action, suit, tax audit, proceeding or to the Knowledge of the
Seller, investigation pending or, to Seller's Knowledge, threatened with respect
to the Business, any of the Purchased Assets or any of the transactions
contemplated hereby before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
or any other entity, which, if adversely determined, could reasonably be
expected to have a material adverse effect upon the Purchased Assets taken as a
whole or the conduct by Buyer after the Closing Date of a business at the Sites
substantially similar to the Business. Seller is not in default with respect to
any order, writ, injunction or decree of any court or Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality which, if not cured, could reasonably be expected to have a
material adverse effect upon the Purchased Assets taken as a whole or the
conduct by Buyer after the Closing Date of a business at the Sites substantially
similar to the Business.
(f) No Conflict. Except as set forth in Exhibit 5.01(f), the
execution by Seller of the Transaction Documents to which it is a party, the
Wolf Notes and the bills of sale, assignments and other instruments of transfer
referred to in this Agreement, in each case, to which it is or will be a party,
compliance by Seller with the provisions of this Agreement and the other such
agreements to which Seller will be a party and the consummation by Seller of the
transactions contemplated hereby or thereby (i) will not violate in any material
respect any provision of applicable law to which Seller is subject, (ii) subject
to required consents to assignment of Assigned Agreements will not conflict with
any provision of the Articles of Incorporation or Bylaws of Seller or conflict
with or
6
<PAGE> 11
constitute a default (or with notice or lapse of time or both, constitute a
default) under, or result in the termination of, or accelerate the performance
required by any of the terms, conditions or provisions of any contract,
agreement or other instrument binding on Seller, which conflict, default,
termination or acceleration would prevent, delay or impair Seller's ability to
consummate the transactions contemplated by this Agreement or have a material
adverse effect on Buyer, Sage or the Business, (iii) will not result in the
creation of any Encumbrance upon any of the Purchased Assets, (iv) do not
require the consent or approval of, or registration, declaration or filing with,
any court, administrative agency or commission or other governmental authority
or instrumentality, except for any filings under state laws required in
connection with the conveyance of the Receivables or filings required by the HSR
Act, and (v) do not violate any order, writ, injunction, decree, arbitral award,
statute, rule or regulation applicable to Seller, to any of the Purchased Assets
or to the Business of Seller, violation of which would prevent, delay or impair
Seller's ability to consummate the transactions contemplated by this Agreement
or have a material adverse effect upon Buyer or Sage or the conduct by Buyer or
Sage after the Closing Date of a business substantially similar to the Business.
(g) No Other Agreements to Sell Assets or Business. Except as set
forth in Exhibit 5.01(g), Seller does not have any legal obligation, absolute or
contingent, to any other person or firm to sell the assets of Seller (other than
sales in the ordinary course of business), to issue or sell any capital stock or
any security convertible into or exchangeable for capital stock of Seller or to
effect any merger, consolidation or other reorganization of Seller or to enter
into any agreement with respect thereto.
(h) Articles of Incorporation and Bylaws. Seller has delivered to
Buyer copies of Seller's Articles of Incorporation and Bylaws, which copies are
complete and correct as of the date hereof.
(i) Financial Statements. Attached hereto as Exhibit 5.01(i) are
true and complete copies of statements of assets, liabilities and stockholders'
equity of Seller as at December 31, 1997 and 1998 and related statements of
revenue and expenses and retained earnings and cash flow of Seller for each of
the fiscal years then ended and for 1996, all of which statements have been
audited by Ernst & Young and unaudited monthly financial statements of Seller
for the month ending January 31, 1999, each of which annual and monthly
statements has been prepared in accordance with GAAP applied on a consistent
basis (in the case of the monthly financial statements, subject to year end
adjustments and not including footnotes which may be required by GAAP) and
presents fairly the financial position of Seller and the results of the
operations of Seller as of its date and for the fiscal year or period of Seller
to which such statement pertains. Seller has reserved $125,000 for claims,
liabilities and obligations of Seller under its Employee Benefit Plans.
(j) Absence of Undisclosed Liabilities and Obligations. Except as
disclosed in Seller's December 31, 1998 audited financial statements (including
the notes thereto), set forth in Exhibit 5.01(j) or incurred in the ordinary
course of business since December 31, 1998, Seller does not have any liabilities
or obligations (whether accrued, absolute, contingent or otherwise) which in the
aggregate are material and of a nature
7
<PAGE> 12
required to be reflected in a balance sheet of Seller prepared in accordance
with GAAP or disclosed in the notes thereto, including, without limitation, any
Taxes due or to become due.
(k) Tax Matters. Except as set forth in Exhibit 5.01(k), Seller has:
(i) timely filed and to Seller's Knowledge has correctly prepared all returns,
declarations, reports, estimates, information returns and statements ("Returns")
required to be filed or sent by or with respect to Seller in respect of any
Taxes except for any Return the failure to timely file would not have a material
adverse effect on the Business; (ii) timely paid all Taxes that are due and
payable by Seller; (iii) established on its books and records reserves that are
adequate for the payment of all Taxes not yet due and payable; and (iv) complied
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has timely and to Seller's Knowledge properly withheld
from employee wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under all applicable laws.
There are no liens for Taxes upon the Purchased Assets except liens for Taxes
not yet due, if any. Seller is not a party to any agreement providing for the
allocation, sharing or indemnification of Taxes.
(l) No Brokers. The Seller has not made contact or had any dealings
with or entered into, and will not enter into, any agreement, arrangement or
understanding with any broker, leasing agent, finder or similar person or entity
with respect to this Agreement and the transactions contemplated hereby which
will result in the obligation of Buyer or Sage to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby. The Shareholders are solely responsible for payment of all
fees payable to Broadview Holdings LLP, which is the only broker, leasing agent,
finder or similar person or entity engaged by Seller in connection with the
transactions contemplated by this Agreement.
(m) Employee Benefit Information.
(i) Except as set forth on Exhibit 5.01(m)(i), Seller does not
maintain, is not required to contribute to and has no liabilities with respect
to any Employee Benefit Plan and no Company Personnel or dependent thereof is
entitled to any benefits except as provided for by the provisions of such Plans.
Except as set forth in Exhibit 5.01(m)(i), Seller is not a party to any
Employment Contract pertaining to the Business. Each such Employment Contract
constitutes an Assigned Agreement to the extent that such Employment Contract
may be assigned in accordance with applicable law.
(ii) Seller has provided or made available to Buyer (x) copies
of all Employee Benefit Plans or in the case of an unwritten plan, a written
description thereof, (y) copies of any annual, financial or actuarial reports
and Internal Revenue Service determination letters relating to such Employee
Benefit Plans and (z) copies of all summary plan descriptions (whether or not
required to be furnished under ERISA) and all material written employee
communications relating to such Employee Benefit Plans and
8
<PAGE> 13
distributed to Company Personnel, in each case under this subsection (z),
existing or in effect during or within the past three years.
(iii) Except as disclosed on Exhibit 5.01(m)(iii), the
transactions contemplated by this Agreement (either alone or together with any
other transaction undertaken by Seller) will not (w) entitle any Company
Personnel to severance pay or other similar payments under any Employee Benefit
Plan, (x) accelerate the time of payment or vesting or increase the amount of
benefits due under any Employee Benefit Plan or compensation to any Company
Personnel, (y) result in any payments (including parachute payments) under any
Employee Benefit Plan becoming due to any Company Personnel, or (z) terminate or
modify or give a third party a right to terminate or modify the provisions or
terms of any Employee Benefit Plan.
(iv) The Wolf Companies 401(k) Plan (the "401(k) Plan") is
qualified under Sections 401(a) and 401(k) of the Code and the related trust is
exempt from tax under Section 501(a) of the Code. A favorable determination
letter with respect to the 401(k) Plan has been received from the Internal
Revenue Service stating that such plan is so qualified and to Seller's Knowledge
nothing has occurred since the date of such letter to cause the letter to be no
longer valid or effective. Except as set forth on Exhibit 5.01 (m)(iv), all
contributions due with respect to the periods ending on or before the Closing
Date to the 401(k) Plan have been timely made, and a pro rata portion of the
contributions (including matching contributions) for the plan year in which the
Closing Date occurs have been or will have been made on or before the Closing
Date.
(v) Except as set forth on Exhibit 5.01 (m)(v), Seller has, in
the conduct of the affairs of the Business, complied in all material respects
with all applicable laws, rules, and regulations relating to the employment of
labor, including those relating to wages, hours, collective bargaining and the
payment of social security and similar taxes.
(vi) Seller has not, and prior to the Closing Date will not
have, suffered a "plant closing" or "mass layoff" within the meaning of the
Worker Adjustment and Retraining Notification Act ("WARN") and Seller will
provide Buyer, upon request, with such information as shall be necessary for
Buyer to determine its potential WARN liability.
(vii) No Purchased Asset which is to be acquired, directly or
indirectly, by Buyer pursuant to this Agreement is subject to any Encumbrance
(including a pledge of such assets as security to satisfy an obligation) under
Section 401(a)(29) of the Code, Section 412(n) of the Code, Section 302(f) of
ERISA or Section 4068 of ERISA.
(n) Labor Disagreements. Except as set forth on Exhibit 5.01(n), in
connection with the operation of the Business, (i) Seller is in compliance in
all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (ii) Seller has not been
notified of any unfair labor practice charge
9
<PAGE> 14
or complaint against Seller pending and, to the Knowledge of Seller, no such
charge or complaint is threatened before the National Labor Relations Board, any
state labor relations board or any court or tribunal; (iii) Seller has not been
notified of any charge or claim filed at or with the Equal Employment
Opportunity Commission, any state agency having similar jurisdiction or any
court or tribunal, actually pending and, to the Knowledge of Seller, no such
charge or claim is threatened against Seller in connection with the operation of
the Business; (iv) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending against or affecting
Seller and, to the Knowledge of Seller, none is or has been threatened; (v)
Seller has not been notified of any grievance which might have a material
adverse effect on the conduct of the operations of the Business; and (vi) Seller
has no collective bargaining agreements with respect to any Company Personnel.
(o) Environmental Compliance.
(i) Seller has not been notified that Seller is, and Seller
does not have Knowledge that Seller is, in violation, or alleged to be in
violation, of any Environmental Laws which would have a material adverse effect
on the Business.
(ii) Seller has not received a written notice, complaint,
order, directive, claim or citation from any third party, including, without
limitation, any federal, state or local governmental authority, (A) that any
Hazardous Materials which Seller has generated, stored, transported or disposed
of has been released at any site at which a federal, state or local agency has
conducted or has ordered that any person conduct a remedial investigation,
removal or other response action pursuant to any Environmental Law or has named
Seller as a potentially responsible party; or (B) that Seller is or shall be a
named party to any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise) arising out of
any third party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Materials.
(iii) (A) While occupied by the Seller, no portion of the
leasehold property occupied by Seller under a Lease has been used for the
handling, processing, storage or disposal of Hazardous Materials except in
accordance with applicable Environmental Laws; and no underground tank or other
underground storage receptacle for Hazardous Materials is located on any portion
of the leasehold property occupied by Seller under a Lease; (B) in the course of
any activities conducted by Seller, no Hazardous Materials have been generated
or are being used on any of the leasehold properties occupied by Seller under a
Lease except in accordance with applicable Environmental Laws; (C) there have
been no releases (i.e., any past or present releasing, spilling, leaking,
leaching, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping) or threatened releases of Hazardous Materials by
Seller on, upon or into any leasehold property occupied by the Seller or any of
its affiliates under a Lease, which releases would have a material adverse
effect on the value of any of such property or the environment; and (D) in
addition, any Hazardous Materials that have been generated or stored on any of
the leasehold property occupied by Seller or any of its affiliates have been
transported off site at the direction of Seller only by carriers having
10
<PAGE> 15
proper authorization therefor and treated or disposed of only by treatment or
disposal facilities maintaining valid permits as required under applicable
Environmental Laws, which transporters and facilities have been and are
operating in compliance with such permits and applicable Environmental Laws.
(iv) Neither Seller nor any of its affiliates have performed
any environmentally related audits, studies, reports, analyses (including soil
and groundwater analyses) with respect to any of the Sites.
(v) To the Knowledge of the Seller, there is not now nor has
there been (during the period of Seller's occupancy) located at any of the
leasehold property occupied by Seller under a Lease asbestos containing material
or equipment containing polychlorinated biphenyls.
(vi) The Seller has no federal, state, and municipal permits,
licenses, certificates and approvals and to Seller's Knowledge no such permits,
licenses, certificates and approval are required in connection with the Seller's
business ("Environmental Permits"). The Seller has not been notified by any
relevant governmental authority that any Environmental Permits are required by
it or that the Seller is a potentially responsible party under any Environmental
Laws.
(p) Insurance. Seller maintains and has in full force and effect the
insurance policies covering the Purchased Assets and the Business that are
described in Exhibit 5.01(p). Copies of the insurance policies covering the
Purchased Assets and the Business of Seller have been provided to Buyer.
(q) Intangible Assets; Confidentiality Agreements.
(i) The Intellectual Properties listed on Exhibit 5.01(q)(i)
are substantially all those used or being developed for use in the Business. All
material Intellectual Properties are included on Exhibit 5.01(q)(i). Other than
as disclosed in Exhibit 5.01(q)(i), Seller owns good title to or holds a valid
license, to use all Intellectual Properties listed on Exhibit 5.01(q)(i) hereto
free and clear of any Encumbrance. Except as set forth on Exhibit 5.01(q)(i),
Seller has not sent or otherwise communicated to any other person any notice,
charge, claim or assertion of, nor has any Knowledge of, any present, impending
or threatened infringement by such other person of any Intellectual Properties.
Except as set forth on Exhibit 5.01(q)(i), the Seller has taken, and will take
up to the Closing Date, reasonable actions to protect its rights in the
Intellectual Properties owned by it. To Seller's Knowledge, the Seller's rights
in the Intellectual Properties are valid and enforceable in the United States of
America except as enforcement thereof may be limited by bankruptcy insolvency or
other similar laws affecting the enforcement of creditors rights in general or
by general principals of equity. Except as disclosed on Exhibit 5.01(q)(i), the
Seller has received no written demand, claim, notice or inquiry from any person
in respect of the Intellectual Properties which challenges, threatens to
challenge or inquires as to whether there is any basis to challenge, the
validity of, or the rights of the Seller in, the Intellectual Properties. Except
as disclosed on Exhibit 5.01(q)(i), to the Knowledge of Seller, the Seller is
not in violation or infringement of,
11
<PAGE> 16
and has not violated or infringed, any intellectual property rights of any other
person. Except as disclosed on Exhibit 5.01(q)(i), to the Knowledge of the
Seller, no third party is infringing on the rights of the Seller in and to the
Intellectual Properties. Except on commercially reasonable terms to the Business
as a whole, the Seller has not granted any license with respect to the
Intellectual Properties to any person. Included in Exhibit 5.01(q)(i) is a true
and complete list of all software licensed by the Seller (other than
shrink-wrap, off the shelf software or software that is immaterial to the
Business as a whole) and used in operating and maintaining the Business
(collectively, the "Licensed Software"). Except as disclosed on Exhibit
5.01(q)(i), the Seller has valid, royalty free or fully-paid licenses for all of
the Licensed Software.
(ii) Set forth on Exhibit 5.01(q)(ii) is a true and complete
list of the Seller's Customers (as hereinafter defined) as of February 28, 1999
which includes, in the case of each customer, the name of the customer and its
billing address. All files regarding each customer in the Customer Data have
been made available to the Buyer. All customers of the Seller, including,
without limitation, those customers included in the Customer Data shall be
referred to herein as the "Customers".
(iii) Exhibit 5.01(q)(iii) contains a substantially accurate
and complete list of all confidentiality agreements to which Seller is a party
as of the date of this Agreement. All confidentiality agreements with Customers
to which Seller is a party are included in Exhibit 5.01(q)(iii).
(r) Employees. Exhibit 5.01(r) sets forth the name, location, title,
date of employment, current salaries, bonuses and commission arrangements (and
including any changes in salaries or bonuses since December 31, 1998) of each
Employee as of March 5, 1999. Except as described on Exhibit 5.01(r), no
Employee is a party to a confidentiality agreement with Seller. Except as set
forth on Exhibit 5.01(r), no Employee of Seller has provided notice to Seller of
his or her intention to terminate his or her employment relationship with Seller
and to Seller's Knowledge no Employee has any intention to terminate his or her
employment, other than Employees the departure of which, individually or in the
aggregate, will not adversely affect the Business.
(s) Compliance with Laws. Except as set forth on Exhibit 5.01(s),
Seller has complied in all respects with all applicable statutes, regulations,
orders, ordinances and other laws of the United States of America, all state,
local and foreign governments and other governmental bodies and authorities, and
agencies of any of the foregoing relating to the Business to which it is
subject, except where possible violations of such would not have a material
adverse effect on the Business. Seller has not received any notice from any
governmental authority to the effect that, or otherwise been advised by any
governmental authority that, Seller is not in compliance with any of such
statutes, regulations and orders, ordinances, other laws or undertakings, and
Seller has no reason to anticipate that any presently existing circumstances are
likely to result in violations of any such regulations which could, in any one
case or in the aggregate, cause a material loss to Seller or otherwise have a
material adverse effect on the Business. To Seller's Knowledge, there is not
presently pending any proceeding, hearing or investigation with respect to the
adoption of amendments or modifications to existing laws or ordinances,
12
<PAGE> 17
regulations or restrictions which, if adopted, would materially adversely affect
the Business other than those which affect the applications hosting business
generally.
(t) Transactions with Certain Persons. Except as set forth on
Exhibit 5.01(t) or which does not exceed in the aggregate $50,000, no
shareholder, officer, director or employee of Seller or member of such persons'
immediate family is presently a party to any transaction with Seller relating to
the Business which would constitute an Assigned Agreement, including, without
limitation, any contract, agreement or other arrangement (i) providing for the
furnishing of services by, (ii) providing for the rental of real or personal
property from, or (iii) otherwise requiring payments to (other than for services
or expense reimbursements as officers, directors or employees) any such person
or corporation, partnership, trust or other entity in which any such person has
a substantial interest as a shareholder, officer, director, trustee or partner.
(u) Clients; Relationship with Accounts. Except as set forth on
Exhibit 5.01(u), no client, Customer or supplier of Seller has provided notice
to Seller since December 31, 1998 of its intention to terminate its relationship
with Seller or to substantially reduce the amount of business it provides to
Seller. Seller has no Knowledge of any intention of any client, Customer or
supplier to do so.
(v) Absence of Certain Changes or Events. Except as disclosed in
Exhibit 5.01(v) hereto, since December 31, 1998, there has not been any:
(i) change in the financial condition, assets, liabilities,
earnings or business of Seller, except for changes which have been in the
ordinary course of business and which have not, individually or in the
aggregate, been materially adverse to Seller;
(ii) change in the number of shares of capital stock of Seller
issued and outstanding or any declaration, setting aside, or payment of any
dividend or other distribution (whether in cash, securities, property or
otherwise) in respect of Seller's capital stock;
(iii) (A) increase in the compensation payable or to become
payable by Seller to any of the Company Personnel, (B) any bonus, incentive
compensation, service award or other like benefit, granted, made or accrued,
contingently or otherwise, to or to the credit of Company Personnel, or (C) any
employee welfare, pension, retirement, profit-sharing or similar payment or
arrangement (whether or not subject to ERISA) made or agreed to by Seller except
pursuant to the existing plans and arrangements described in Exhibit 5.01(m)
hereto;
(iv) significant labor trouble, or any material controversies
or material unsettled grievances threatened between Seller and any Company
Personnel or a collective bargaining organization representing or seeking to
represent Company Personnel;
(v) addition to or modification or amendment of the Employee
Benefit Plans other than (A) contributions made for the fiscal year ended
December 31,
13
<PAGE> 18
1998 in accordance with the normal practices of Seller or (B) the extension of
coverage to other Company Personnel who became eligible after December 31, 1998;
(vi) mortgage, pledge or subjection to any Encumbrance of any
of Seller's assets, except the lien of Taxes not yet due and payable and
purchase money security interests in the normal course of business;
(vii) sale, assignment or transfer of any assets of Seller
that are material, singly or in the aggregate, to Seller other than in the
ordinary course;
(viii) waiver of any rights of substantial value to Seller
whether or not in the ordinary course of business;
(ix) cancellation or termination by Seller of any contract,
agreement or other instrument material to the Business to which Seller is or was
a party;
(x) capital expenditure or the execution of any lease
providing for annual payments with respect to any aspect of the business of
Seller or any incurring of liability therefor individually in excess of $10,000
or in the aggregate in excess of $25,000;
(xi) except as evidenced by the Wolf Notes, borrowing of money
(other than in the ordinary course of business) by Seller or guaranteeing of any
indebtedness of others;
(xii) lending of any money or otherwise pledging the credit of
Seller;
(xiii) failure to conduct the operations of the Business in
the ordinary course;
(xiv) change in the method of accounting or accounting
practice of Seller;
(xv) loss of services of any Company Personnel that is or are
material, individually or in the aggregate, to the conduct of the business of
Seller;
(xvi) agreement by Seller to do any of the foregoing.
(w) Vehicles. There are no vehicles owned or leased by Seller.
(x) Year 2000. Seller is using reasonable procedures to verify that
the software used in its products will recognize and process date fields after
the turn of the century, and perform date-dependent calculations and operations
(including sorting, comparing and reporting) after the turn of the century
correctly, and is using reasonable efforts to ensure that its software will not
produce invalid and/or incorrect results as a result of the change of century
(all without human intervention, other than original data entry of valid dates),
provided that the software receives correct and properly formatted
14
<PAGE> 19
date inputs from all software and hardware that exchanges data with or provides
data to the software.
(y) Wolf Notes. The Wolf Notes are presently outstanding in the
aggregate principal amount of $16,000,000. No event of default or event which
with the passage of time or giving of notice would constitute an event of
default has occurred and is continuing with respect to the Wolf Notes. Interest
on the Wolf Notes and all other amounts other than principal due thereunder by
Seller, if any, have been paid in full to and including the Closing Date.
(z) Disclosure. The representations of Seller in this Agreement or
in any exhibit, or other documents delivered by Seller in accordance with this
Agreement (taken together) do not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
included therein or herein, in the light of the circumstances in which they are
made, not misleading.
Section 5.02 Representations and Warranties of Buyer and Sage. Each
of Buyer and Sage hereby represents and warrants to Seller and Shareholders as
follows:
(a) Organization and Good Standing. Each of Buyer and Sage is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and has all requisite corporate power to
carry on its business as it is now being conducted.
(b) Corporate Authorization. (i) The execution, delivery and
performance by each of Buyer and Sage of the Transaction Documents to which it
is a party have been authorized and approved by all requisite corporate action
on behalf of Buyer and Sage, and each of Buyer and Sage has the power and
authority to execute, deliver and perform the Transaction Documents to which it
is a party and to consummate the transactions thereby contemplated, and no other
corporate or shareholder approval or authorization is required of Buyer or Sage,
any lender to Buyer or Sage or any other person by law or otherwise in order to
make the Transaction Documents to which either is a party the valid, binding and
enforceable obligations of Buyer or Sage, as the case may be (subject to the
receipt of required consents to assignments of the Assigned Agreements and the
requirements of the HSR Act), in accordance with their respective terms, except
as enforcement thereof may be limited by bankruptcy, insolvency, or other
similar laws affecting the enforcement of creditors' rights in general or by
general principles of equity.
(ii) When issued in accordance with this Agreement and the Agreement to
Deliver Shares, the Common Stock constituting the Purchase Price Shares will be
duly authorized, validly issued, fully paid and nonassessable and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through Sage except as set forth in this Agreement, the Shareholders
Agreement and Sage's Certificate of Incorporation. The issuance, sale and
delivery of Common Stock constituting the Purchase Price Shares are not subject
to any preemptive right of stockholders of Sage, or
15
<PAGE> 20
to any right of first refusal or other right in favor of any person, which have
not been duly and validly waived.
(c) No Conflict. The execution, delivery and performance by each of
Buyer and Sage of the Transaction Documents to which it is a party, compliance
by Buyer and Sage with the provisions of the Transaction Documents to which it
is a party and the consummation by Buyer and Sage of the transactions
contemplated thereby (i) will not violate in any material respect any provision
of applicable law to which Buyer or Sage is subject, (ii) will not conflict with
any provision of the Certificate of Incorporation or Bylaws of Buyer or Sage or
conflict with or constitute a default (or with notice or lapse of time or both,
constitute a default) under, or result in the termination of, or accelerate the
performance required by any of the terms, conditions or provisions of any
contract, agreement or other instrument binding on Buyer or Sage, which
conflict, default, termination or acceleration would prevent, delay or impair
Buyer's or Sage's ability to consummate the transactions contemplated by this
Agreement or have a material adverse effect upon Buyer or Sage, (iii) do not
require the consent or approval of, or registration, declaration or filing with,
any court, administrative agency or commission or other governmental authority
or instrumentality except for filings required by the HSR Act, and (iv) does not
violate any order, writ, injunction, decree, arbitral award, statute, rule or
regulation applicable to Buyer or Sage, violation of which would have a material
adverse effect upon Buyer or Sage.
(d) No Brokers. Neither Buyer nor Sage has made contact or had any
dealings with or entered into, and will not enter into, any agreement,
arrangement or understanding with any broker, leasing agent, finder or similar
person or entity with respect to this Agreement and the transactions
contemplated hereby which will result in the obligation of Shareholders or
Seller to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
(e) Capitalization. The authorized capital stock of Sage consists of
102,647,658 shares of capital stock of which 100,000,000 have been designated
common stock, $.01 par value, of which 26,832,197 shares are issued and
outstanding and 2,647,658 have been designated Series A Convertible Preferred
Stock, $.01 par value (the "Preferred Stock"), all of which is issued and
outstanding. Sage has issued Warrants dated January 28, 1999 (the "Warrants")
for the purchase of 749,625 shares common stock. Sage has issued options (the
"Options") for the purchase of approximately 579,000 shares of Common Stock.
Sage has reserved sufficient shares of Common Stock for issuance upon conversion
of the Preferred Stock or exercise of the Warrants, the Options and the Sage
Options. The authorized capital stock of Buyer consists of 100 shares of common
stock, $.01 par value per share, all of which are issued and outstanding. Except
for the Preferred Stock, the Warrants and the Options, Sage has not issued
options, warrants, convertible securities or other rights to receive Common
Stock. Buyer is a wholly-owned subsidiary of Sage. Sage has no other
subsidiaries except Net Daemons Associates, Inc., B.N. Technology, Inc.,
Digiweb, Inc., Telephonetics, Inc. and Interliant of Texas, Inc.
16
<PAGE> 21
(f) Financial Statements. Buyer has delivered to Seller true and
complete copies of statements of assets, liabilities and stockholders' equity of
Sage as at December 31, 1997 and 1998 and related consolidated statements of
revenue and expenses and retained earnings and cash flow of Sage for each of the
fiscal years then ended, all of which statements have been audited by Ernst &
Young, each of which has been prepared in accordance with GAAP applied on a
consistent basis and presents fairly the financial position of Sage and the
results of the operations of Sage as of its date and for the fiscal year of Sage
to which such statement pertains.
(g) Litigation. Except as set forth in Exhibit 5.02(g), there is no
litigation, action, suit, tax audit, proceeding or to the Knowledge of Sage or
the Buyer, investigation pending or, to the Knowledge of Sage or the Buyer,
threatened with respect to Sage or any subsidiary thereof or any of their
respective assets or properties or any of the transactions contemplated hereby
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, or any other entity,
which, if adversely determined, could reasonably be expected to have a material
adverse effect upon Sage and its subsidiaries taken as a whole. Neither Sage nor
Buyer is in default with respect to any order, writ, injunction or decree of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality which, if not cured, could reasonably
be expected to have a material adverse effect upon Sage and its subsidiaries
taken as a whole.
(h) Compliance with Laws. Except as set forth on Exhibit 5.02(h),
each of Buyer and Sage have complied in all respects with all applicable
statutes, regulations, orders, ordinances and other laws of the United States of
America, all state, local and foreign governments and other governmental bodies
and authorities, and agencies of any of the foregoing to which it is subject,
except where possible violations of such would not have material adverse effect
on Sage and its subsidiaries taken as a whole. Neither Buyer nor Sage has
received any notice from any governmental authority to the effect that, or
otherwise been advised that, Buyer or Sage is not in compliance with any of such
statutes, regulations and orders, ordinances, other laws or undertakings, and
Buyer and Sage have no reason to anticipate that any presently existing
circumstances are likely to result in violations of any such regulations which
could, in any one case or in the aggregate, cause a material loss to Sage and
its subsidiaries taken as a whole or otherwise have a material adverse effect on
Sage and its subsidiaries taken as a whole. To the Knowledge of Sage, there is
not presently pending any proceeding, hearing or investigation with respect to
the adoption of amendments or modifications to existing laws or ordinances,
regulations or restrictions which, if adopted, would materially adversely affect
Sage and its subsidiaries taken as a whole.
(i) Sage Intellectual Property. Sage and its subsidiaries own or
possess adequate licenses, assignments or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, software, source code, object code,
manufacturing processes, formulae, trade secrets, customer lists and know how,
including any third party rights connected therewith (collectively, "Sage
Intellectual Property") necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is
17
<PAGE> 22
pending against Sage or its subsidiaries or, to the best of Sage's Knowledge,
threatened to the effect that the operations of Sage or its subsidiaries
infringe upon or conflict with the asserted rights of any other person under any
Sage Intellectual Property. To the Knowledge of Sage, no claim is pending
against Sage or any of its subsidiaries or threatened to the effect that any
Sage Intellectual Property owned or licensed by Sage or any subsidiary, or which
Sage or any subsidiary otherwise has the right to use, is invalid or
unenforceable by Sage. There are no restrictions on the ability of Sage to
compete against any third party.
(j) Taxes. Each of Sage and its subsidiaries has: (i) timely filed
and to Sage's Knowledge has correctly prepared all Returns required to be filed
or sent by or with respect to Sage and its subsidiaries in respect of any Taxes
except for any Return the failure to timely file would not have a material
adverse effect on the business of Sage and its subsidiaries; (ii) timely paid
all Taxes that are due and payable by Sage or Buyer; (iii) established on its
books and records reserves that are adequate for the payment of all Taxes not
yet due and payable; and (iv) complied with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes and has timely and
to Seller's Knowledge properly withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and paid
over under all applicable laws. There are no liens for Taxes upon the assets of
Sage and its subsidiaries except liens for Taxes not yet due. Neither Sage nor
Buyer is a party to any agreement providing for the allocation, sharing or
indemnification of Taxes.
(k) Customers. To the Knowledge of Sage, customers which in the
aggregate would be material to the business of Sage and its subsidiaries taken
as a whole have not given notice of termination of their arrangements with Sage.
(l) Year 2000. Sage is using reasonable procedures to verify that
the software used in its products will recognize and process date fields after
the turn of the century, and perform date-dependent calculations and operations
(including sorting, comparing and reporting) after the turn of the century
correctly, and is using reasonable efforts to ensure that its software will not
produce invalid and/or incorrect results as a result of the change of century
(all without human intervention, other than original data entry of valid dates),
provided that the software receives correct and properly formatted date inputs
from all software and hardware that exchanges data with or provides data to the
software.
(m) Environmental Matters. Sage and each subsidiary thereof has (i)
complied in all material respects with the Environmental Laws applicable to it,
(ii) provided to Seller a copy of any order, notice, permit, application, or any
other written communication or report received by Sage from any governmental
authority or any other person or sent by or for Sage to a governmental authority
in connection with any matter relating to environmental laws applicable to Sage
and (iii) has provided Seller with copies of any environmental assessment
reports, certificates, engineering studies or other written material or data
Sage may have relating to environmental laws applicable to Sage. There is no
Environmental Claim pending or, to the Knowledge of Sage, threatened
18
<PAGE> 23
against Sage or any subsidiary thereof with respect to the operations or
business of Sage of any subsidiary thereof.
For purposes of this Section 5.02(m) "Environmental Claim" means any
claim, action, cause of action, investigation of which Sage, including any of
its management employees, are aware, or written notice by any person alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Hazardous Material at any leasehold property occupied by
Sage or any subsidiary thereof under a lease, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
(n) Absence of Certain Changes or Events. Except as disclosed in
Exhibit 5.02(n) hereto, since December 31, 1998, there has not been any (i)
change in the financial condition, assets, liabilities, earnings or business of
Sage, except for changes which have been in the ordinary course of business and
which have not, individually or in the aggregate, been materially adverse to
Sage and its subsidiaries taken as a whole; (ii) change in the method of
accounting or accounting practice of Sage; or (iii) loss of services of any
employee that is or are material, individually or in the aggregate, to Sage.
(o) Disclosure. The representations of Buyer and Sage in this
Agreement or in any exhibit, or other documents delivered in accordance with
this Agreement (taken together) do not include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements included therein or herein, in the light of the circumstances in
which they are made, not misleading.
(p) Absence of Undisclosed Liabilities and Obligations. Except as
disclosed in Sage's December 31, 1998 audited financial statements (including
the notes thereto), set forth in Exhibit 5.02(p) or incurred in the ordinary
course of business since December 31, 1998, Sage and its subsidiaries do not
have any liabilities or obligations (whether accrued, absolute, contingent or
otherwise) which in the aggregate are material and of a nature required to be
reflected in a balance sheet of Sage prepared in accordance with GAAP or
disclosed in the notes thereto, including, without limitation, any Taxes due or
to become due.
(q) Labor Disagreements. (i) To its Knowledge, Sage is in compliance
in all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (ii) Sage has not been notified
of any unfair labor practice charge or complaint against Sage pending and, to
the Knowledge of Sage, no such charge or complaint is threatened before the
National Labor Relations Board, any state labor relations board or any court or
tribunal; (iii) Sage has not been notified of any charge or claim filed at or
with the Equal Employment Opportunity Commission, any state agency having
similar jurisdiction or any court or tribunal, actually pending and, to the
Knowledge of Sage, no such charge or claim is threatened against Sage; (iv)
there is no labor strike, dispute, request for representation, slowdown or
stoppage actually
19
<PAGE> 24
pending against or affecting Sage and, to the Knowledge of Sage, none is or has
been threatened; (v) Sage has not been notified of any grievance which might
have a material adverse effect on Sage and its subsidiaries taken as a whole;
and (vi) Sage has no collective bargaining agreements with respect to any of its
employees.
Section 5.03 Representations and Warranties of Shareholders. Each
Shareholder (except as otherwise specifically provided in this Section 5.03),
severally, represents and warrants to Buyer and Sage that:
(a) Seller's Representations. To the Knowledge of each Shareholder
other than Michael August, each of Seller's representations and warranties
contained in Section 5.01 is true, correct and complete.
(b) Capacity. Each Shareholder has the legal capacity to execute,
deliver and perform the Transaction Documents to which it is a party and, except
as set forth on Exhibit 5.03(b), no other approval or authorization is required
on the part of such Shareholder, any trustee, any lender to such Shareholder or
any other person by law or otherwise (except as have been obtained) in order to
make the Transaction Documents valid, binding and enforceable obligations of
such Shareholder (subject to the receipt of required consents to assignments of
the Assigned Agreements and the requirements of the HSR Act) except as
enforcement thereof may be limited by bankruptcy, insolvency, or other similar
laws affecting the enforcement of creditors' rights in general or by general
principles of equity.
(c) No Conflict. Except as set forth in Exhibit 5.03(c), the
execution by each Shareholder of the Transaction Documents to which it is a
party, compliance by such Shareholder with the provisions of the Transaction
Documents to which each such Shareholder is a party and the consummation by such
Shareholder of the transactions contemplated hereby or thereby (i) will not
violate in any material respect any provision of applicable law to which such
Shareholder is subject, (ii) will not conflict with any provision of the trust
agreement of any Shareholder that is a trust or conflict with or constitute a
default (or with notice or lapse of time or both, constitute a default) under,
or result in the termination of, or accelerate the performance required by any
of the terms, conditions or provisions of any contract, agreement or other
instrument binding on such Shareholder, which conflict, default, termination or
acceleration would prevent, delay or impair such Shareholder's ability to
consummate the transactions contemplated by this Agreement or have a material
adverse effect on Buyer, Sage or the Business, (iii) will not result in the
creation of any Encumbrance upon any of the Purchased Assets, (iv) do not
require the consent or approval of, or registration, declaration or filing with,
any court, administrative agency or commission or other governmental authority
or instrumentality, except for any filings under state laws required in
connection with the conveyance of the Receivables or filings required by the HSR
Act, and (v) do not violate any order, writ, injunction, decree, arbitral award,
statute, rule or regulation applicable to such Shareholder, violation of which
would prevent, delay or impair such Shareholder's ability to consummate the
transactions contemplated by this Agreement or have a material adverse effect
upon Buyer or Sage or the conduct by Buyer or Sage after the Closing Date of a
business substantially similar to the Business.
20
<PAGE> 25
(d) No Other Agreements to Sell Assets or Business. No Shareholder
has any legal obligation, absolute or contingent, to any other person or firm to
sell its interest in the Seller or to effect any merger, consolidation or other
reorganization of Seller or to enter into any agreement with respect thereto.
(e) No Brokers. No Shareholder has made contact or had any dealings
with or entered into, and will not enter into, any agreement, arrangement or
understanding with any broker, leasing agent, finder or similar person or entity
with respect to this Agreement and the transactions contemplated hereby which
will result in the obligation of Buyer or Sage to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby. The Shareholders are solely responsible for payment of all
fees payable to Broadview Holdings LLP, which is the only broker, leasing agent,
finder or similar person or entity engaged by any Shareholder in connection with
the transactions contemplated by this Agreement.
(f) Transactions with Certain Persons. Except as set forth on
Exhibit 5.03(f) or which does not exceed in the aggregate $50,000, no
Shareholder or member of such persons' immediate family is presently a party to
any transaction with Seller relating to the Business which would constitute an
Assigned Agreement, including, without limitation, any contract, agreement or
other arrangement (i) providing for the furnishing of services by, (ii)
providing for the rental of real or personal property from, or (iii) otherwise
requiring payments to (other than services or expense reimbursement as officers,
directors or employees) any such person or corporation, partnership, trust or
other entity in which any such person has a substantial interest as a
shareholder, officer, director, trustee or partner.
(g) Wolf Notes. Each of Erving Wolf and Mathew Wolf represents that
the Wolf Notes are presently outstanding in the aggregate principal amount of
$16,000,000. No event of default or event which with the passage of time or
giving of notice would constitute an event of default has occurred and is
continuing with respect to the Wolf Notes. Interest on the Wolf Notes and all
other expenses due thereunder, if any, have been paid in full to and including
the Closing Date.
(h) Disclosure. The representations of Shareholders in this
Agreement or in any exhibit, or other documents delivered by any Shareholder in
accordance with this Agreement (taken together) do not include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements included therein or herein, in the light of the
circumstances in which they are made, not misleading.
ARTICLE VI
Conditions Precedent to Obligations of Buyer and Sage and
Seller and Shareholders
Section 6.01 Conditions Precedent to Obligations of Buyer and Sage.
The obligation of Buyer and Sage to consummate the transactions contemplated by
this
21
<PAGE> 26
Agreement shall be subject to the fulfillment, or the waiver by Buyer and Sage,
on or prior to the Closing Date, of the following conditions:
(a) Representations and Warranties True at the Closing Date. The
representations and warranties of Seller and Shareholders contained in this
Agreement shall be deemed to have been made again at and as of the Closing Date
and shall then be true and correct; provided that, any representations and
warranties which specifically relate to a particular date or period shall be
true and correct as of such date and for such period.
(b) Compliance with Covenants. All the terms, covenants, agreements
and conditions of this Agreement to be complied with and performed by Seller and
Shareholders on or prior to the Closing Date shall have been duly complied with
and performed in all material respects.
(c) Delivery of Closing Documents. Seller and Shareholders shall
have delivered to Buyer or Sage, as the case may be, on or prior to the Closing
Date all the documents required to be delivered pursuant to Section 7.01.
(d) Opinion of Seller's and Shareholders Counsel. Buyer and Sage
shall have received an opinion of Andrews & Kurth LLP, counsel to Seller and the
general counsel of the Seller, each dated the Closing Date and addressed to
Buyer and Sage, in form and substance satisfactory to Buyer and Sage, to the
effect that:
(i) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and has the corporate
power to carry on its business as it is then being conducted; each of the
Shareholders that is a trust is duly formed, validly existing and in good
standing in the State of Texas;
(ii) Seller has full corporate power and authority and each
Shareholder that is a trust has full trust power to enter into the Transaction
Documents and the bills of sale, assignments and other instruments of transfer
referred to in this Agreement to which it is a party and to consummate the
transactions contemplated hereby, and all corporate, trust and other proceedings
required to be taken by Seller and each Shareholder to authorize it to enter
into the Transaction Documents to which it is a party and the bills of sale,
assignments and other instruments of transfer referred to in this Agreement and
to consummate the transactions contemplated hereby have been duly and properly
taken;
(iii) The Transaction Documents, the bills of sale,
assignments and other instruments of transfer delivered by Shareholders and
Seller pursuant to Section 7.01 to which any Shareholder or Seller is or are a
party have been duly executed and delivered by Shareholders or Seller, as
appropriate, and each constitutes a legal, valid and binding obligation of
Shareholders and Seller, as the case may be, enforceable in accordance with its
respective terms;
(iv) The execution, delivery and performance by Shareholders
and Seller of the agreements and instruments referred to in paragraph (iii)
above to which
22
<PAGE> 27
Seller or any Shareholder is a party, (A) to the Knowledge of such counsel, will
not conflict with or violate any provision of any applicable law, rule or
regulation or any order, writ, injunction or decree, (B) will not conflict with
any provision of the Articles of Incorporation or By-laws of Seller and, to the
Knowledge of such counsel, will not conflict with or result in the breach of any
term or provision of, or constitute a default under, or result in the creation
of any lien, charge or encumbrance upon any of the Purchased Assets pursuant to,
any indenture, mortgage, lease, agreement or other instrument to which Seller is
a party or by which it is bound and (C) do not require the consent or approval
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality except
as have been obtained; and
(v) To the Knowledge of such counsel, there is no action, suit
or proceeding pending or threatened in any Federal, state, municipal or other
court, agency or other governmental body seeking to restrain or prohibit the
consummation of the transactions contemplated hereby, except as described in
such opinion.
Such opinions may be limited by its terms to the laws of the United
States of America, the State of New York and the State of Texas and may be given
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforceability of creditors' rights generally
and be limited to the extent that enforcement may be affected by the
availability of equitable remedies or the applicability of principles of equity.
(e) Approvals and Consents; Estoppels. Seller and Shareholders shall
have obtained all requisite approvals and consents from governmental or
regulatory bodies or agencies, whether Federal, state or local. Consents to
assignment of the Assigned Agreements shall have been obtained by Seller. The
consent to assignment with respect to each Lease shall also state (i) that such
Lease has not been amended, modified or supplemented and is in full force and
effect on the Closing Date, (ii) the date to which payments under such Lease
have been made, (iii) that there is no default or event which, with notice or
the passing of time, would constitute a default under such Lease and (iv) that
there are no setoffs, defenses or counterclaims against enforcement of the
obligations to be performed under such Lease in favor of the party executing
such consent which have not been waived or satisfied as specified in such
consent. In addition, Seller shall use its best efforts to include in each such
consent to assignment with respect to each Lease a statement that the landlord
under such Lease has consented to the cancellation of the guaranty or letter of
credit, if any, which supports rent payments under such Lease and that no new
guaranty or letter of credit or other credit support will be required after such
Lease is assigned to Buyer. All outstanding debt of the Seller to Erving Wolf
and Mathew Wolf (except the Wolf Notes that are assumed pursuant to Section
2.02(a) and a promissory note in the aggregate principal amount of not more than
$100,000 payable to Erving Wolf) shall have been paid in full and all
instruments evidencing such debt shall have been delivered to the Seller and
cancelled by the Seller.
(f) Litigation. As of the Closing Date, there shall not be in effect
any judgment, order, injunction or decree of any court of competent
jurisdiction, the effect of which
23
<PAGE> 28
is to prohibit or restrain the consummation of the transactions contemplated by
this Agreement.
(g) No Material Adverse Change. Since December 31, 1998 there shall
not have been any material adverse change in the business, assets or financial
condition of Seller.
(h) No Change in Law. There shall not have been any action, or any
statute enacted, by any government or agency thereof which would render the
parties unable to consummate the transactions contemplated herein or make the
transactions contemplated herein illegal, or prohibit or restrict the
consummation of the transactions contemplated herein. In the case of failure of
the condition set forth in this 6.01(h), Buyer shall deliver to Seller and
Shareholders an opinion of counsel to such effect.
(i) Telephone and Fax Numbers; Internet Domain Addresses, etc.
Seller shall have delivered to Buyer a letter from Seller addressed to Seller's
telephone companies instructing such companies to transfer Seller's telephone
and fax numbers to Buyer and a letter from Seller addressed to Seller's
telephone company and Internet provider instructing such entity to transfer all
Internet domain addresses used in the Business to Buyer.
(j) Employment Agreements. On the Closing Date each person listed on
Exhibit 6.01(j) shall have executed and delivered an Employment Agreement.
(k) HSR Act. The applicable requirements of the HSR Act shall have
been met.
(l) Audited Financial Statements. Seller shall have delivered to
Buyer true and complete copies of statements of assets, liabilities and
stockholders' equity of Seller as at December 31, 1997 and 1998 and related
statements of revenue and expenses and retained earnings and cash flow of Seller
for each of 1996 and the fiscal years then ended, all of which statements have
been audited by Ernst & Young, each of which has been prepared in accordance
with GAAP applied on a consistent basis and presents fairly the financial
position of Seller and the results of the operations of Seller as of its date
and for the fiscal year or period of Seller to which such statement pertains and
which audited financial statements meet the requirements for submission to the
SEC.
Section 6.02 Conditions to Obligations of Seller and Shareholders.
The obligations of Seller and Shareholders to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, or the
waiver by Seller and Shareholders, on or prior to the Closing Date, of the
following conditions:
(a) Representations and Warranties True at the Closing Date. The
representations and warranties of Buyer and Sage contained in this Agreement
shall be deemed to have been made again at and as of the Closing Date and shall
then be true and correct.
24
<PAGE> 29
(b) Compliance with Covenants. All the terms, covenants, agreements
and conditions of this Agreement to be complied with and performed by Buyer or
Sage on or prior to the Closing Date shall have been duly complied with and
performed in all material respects.
(c) Delivery of Closing Documents. Buyer shall have delivered to
Shareholder and Seller on or prior to the Closing Date all the documents
required to be delivered pursuant to Section 7.02.
(d) Opinion of Counsel to Buyer and Sage. Seller and Shareholders
shall have received an opinion or opinions of Dewey Ballantine LLP, special
counsel for Buyer and Sage, dated the Closing Date and addressed to Seller and
Shareholders, to the effect that:
(i) Each of Buyer and Sage is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation;
(ii) Each of Buyer and Sage has full corporate power and
authority to enter into the Transaction Documents to which it is a party, and to
consummate the transactions contemplated hereby, and all corporate and other
proceedings required to be taken by or on the part of Buyer and Sage to
authorize it to enter into the Transaction Documents to which it is a party and
to consummate the transactions contemplated hereby have been duly and properly
taken;
(iii) Each of the Transaction Documents to which it is a party
has been duly executed and delivered by Buyer and Sage and constitutes a legal,
valid and binding obligation of Buyer and Sage, enforceable in accordance with
its terms;
(iv) The execution, delivery and performance by Buyer and Sage
of the instruments and agreements referred to in paragraph (iii) above, (A) will
not conflict with or violate any provision of any applicable law, rule or
regulation or any order, writ, injunction or decree known to such counsel, (B)
will not conflict with any provision of the Certificate of Incorporation or
By-laws of Buyer or Sage and, to the actual Knowledge of such counsel, will not
conflict with or result in a breach of any term or provision of, or constitute a
default under, any indenture, mortgage, lease, agreement or other instrument to
which Buyer or Sage is a party or by which it is bound, and (C) do not require
the consent or approval of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority or
instrumentality except as have been obtained; and
(v) The Share Consideration has been duly authorized and
issued and when delivered in accordance with this Agreement will be fully paid
and nonassessable.
Such counsel's opinion may be limited to the laws of the United
States of America, the State of New York and the General Corporation Law of the
State of Delaware and such opinion may be given subject to applicable
bankruptcy, insolvency,
25
<PAGE> 30
reorganization, moratorium and other similar laws affecting the enforceability
of creditors' rights generally and be limited to the extent that enforcement may
be affected by the availability of equitable remedies or the applicability of
principles of equity.
(e) No Change in Law. There shall not have been any action, or any
statute enacted, by any government or agency thereof which would render the
parties unable to consummate the transactions contemplated herein or make the
transactions contemplated herein illegal, prohibit or restrict the consummation
of the transactions contemplated herein. In the case of failure of the condition
set forth in this Section 6.02(f), Seller and Shareholders shall deliver to
Buyer and Sage an opinion of counsel to such effect.
(f) Litigation. As of the Closing Date, there shall not be in effect
any judgment, order, injunction or decree of any court of competent
jurisdiction, the effect of which is to prohibit or restrain the transactions
contemplated by this Agreement.
(g) HSR Act. The applicable requirements of the HSR Act shall have
been met.
(h) Payment of Wolf Notes; Cash Consideration. The portion of the
Wolf Notes registered to Erving Wolf shall have been paid. The Sage Note shall
have been delivered to Mathew Wolf. The Cash Consideration shall have been paid.
(i) Release of Letters of Credit. The Letters of Credit numbered I-
453775, I-459014 and I-463918 dated June 13, 1995, January 18, 1996 and August
6, 1996 respectively and each as amended issued by Texas Commerce Bank shall
have been delivered to Mathew Wolf.
(j) Sage Acknowledgment. Sage shall have acknowledged in writing
that all conditions for the delivery of shares of Common Stock at set forth in
Section 6 of the Agreement to Deliver Shares have been satisfied.
ARTICLE VII
Documents to be Delivered on Closing Date
Section 7.01 Documents to be Delivered by Shareholders and Seller on
Closing Date. On the Closing Date, Shareholders and Seller shall deliver to
Buyer and Sage, in form and substance satisfactory to Buyer and its counsel:
(a) Conditions Precedent. The documents, agreements and instruments
referred to in Section 6.01, the authorization, execution and delivery of which
are conditions precedent to the obligations of Buyer and Sage.
(b) Officer's Certificates. Certificates signed by each Shareholder
and the President of Seller with respect to the matters referred to in Section
6.01(a) and (b).
26
<PAGE> 31
(c) Bills of Sale. Bills of sale duly executed by the Seller
conveying the Purchased Assets at the Closing Date.
(d) Wolf Notes, Transaction Documents. A copy of the Wolf Notes, and
each Transaction Document to which the Seller or any Shareholder is a party,
duly executed by Seller or such Shareholder and the Employment Agreement duly
executed by each person listed on Exhibit 6.01(j).
(e) Further Instruments. Such further instruments of assignment,
conveyance or transfer or other instruments covering the Purchased Assets or any
part thereof, and such further instruments with respect to the transactions
contemplated hereby, as Buyer may reasonably request, including, without
limitation, assignments executed in suitable form for recordation at the U.S.
Patent & Trademark Office of INTERLIANT (from Wolf to Interliant) and
Primetrics, L.L.C. (from Primetrics to Seller) (the "Trademark Assignment").
Section 7.02 Documents to be Delivered by Buyer on Closing Date. On
the Closing Date, Buyer shall deliver to Seller and Shareholders in form and
substance satisfactory to Shareholders and Seller and their counsel:
(a) Conditions Precedent. The payments, documents, agreements and
instruments referred to in Section 6.02, the authorization, execution and
delivery of which are conditions precedent to the obligations of Shareholders
and Seller.
(b) Officer's Certificate. Certificates signed by an authorized
officer of Buyer and Sage with respect to the matters referred to in Section
6.02(a) and (b).
(c) Other Documents. The Transaction Documents to which Buyer and
Sage are a party, each duly executed by Buyer or Sage, as the case may be.
(d) Further Instruments. Such further instruments with respect to
the transactions contemplated hereby, including instruments of assumption, as
Seller may reasonably request.
ARTICLE VIII
Further Covenants and Agreements
of Seller, Shareholders, Buyer and Sage
Section 8.01 Further Covenants and Agreements of Shareholders and
Seller. Shareholders and Seller agree that:
(a) Conduct of Business Pending Closing. From the date of this
Agreement to the Closing Date, Shareholders (as officers, directors or employees
of Seller) and Seller:
27
<PAGE> 32
(i) will maintain the Purchased Assets and not remove any
Purchased Assets from the Sites except in the ordinary course of business;
(ii) will perform their obligations under the Assigned
Agreements;
(iii)will conduct the Business only in the ordinary course;
(iv) will not (A) fail to comply in any material respect with
any laws, ordinances, regulations or other governmental restrictions applicable
in any respect to the Business or any of the Purchased Assets, (B) grant any
powers of attorney to act for the Business after the Closing Date, (C) mortgage
or pledge or otherwise encumber any of the Purchased Assets, (D) cancel or
terminate any contract, agreement or other instrument material to the Business,
other than contracts, agreements and other instruments which are not to be
assigned to Buyer unless Shareholders or Seller is otherwise obligated to
maintain them in effect or are necessary for the conduct of the Business, (E)
engage in or enter into any material transaction with respect to the Business of
any nature not expressly provided for herein, (F) pay any dividend or make any
other distribution or payment to the Shareholders or Seller, except salaries
regularly payable to Shareholders in the ordinary course of business as set
forth on Exhibit 5.01(r), (G) amend, modify or supplement any Employment
Contract listed on Exhibit 5.01(m)(i) (except as provided on Exhibit 5.01(m)(i))
or (H) issue any additional shares of capital stock of the Seller or any
options, rights or warrants exchangeable for or convertible into any shares of
capital stock of the Seller; and
(v) (A) take such action as may reasonably be necessary to
preserve the Purchased Assets, (B) maintain inventory of the kinds and in the
quantities maintained in the ordinary course of the Business, (C) maintain its
books and records in a manner consistent with past practices and promptly advise
Buyer in writing of any material adverse change in the condition (financial or
otherwise) of the Purchased Assets or the Business of Seller and (D) use its
reasonable commercial efforts to preserve the organization of the Business
intact and continue its operations at its present levels, to keep available to
Buyer and Sage the services of Employees and to preserve the goodwill of
Seller's suppliers, customers, creditors and others having business relations
with Seller in connection with the Business.
(b) Non-Competition; Non-Solicitation.
(i) As long as the Shareholders have a designee serving as a
director of Sage, Seller and Shareholders (other than Michael August) shall not
engage in any capacity in any business that competes with or provides the same
types of services as those provided by the Business or the business conducted by
Sage and its subsidiaries. From the Closing Date to and including the date one
year following the Closing Date, Seller and Shareholders (other than Michael
August) shall not engage in any capacity in any Restricted Business; provided,
however, that (x) Shareholders may participate in an investment fund that
invests in a business conducting a Restricted Business so long as the
Shareholders do not own more than 10% of such investment fund and (y)
Shareholders may own up to 5% of the shares of a publicly traded company which
conducts a
28
<PAGE> 33
Restricted Business. For purposes of this Section 8.01(b), the term "Restricted
Business" shall mean the business of providing Lotus Notes or Domino
applications hosting services, providing outsourcing services with respect to
Lotus Notes or Domino or engaging in any other business related to WEB or
applications hosting. Seller and Shareholders understand that in connection with
the negotiations leading up to the entering into of this Agreement, Seller and
Shareholders have received, and that pursuant to this Agreement, Seller and
Shareholders will receive, confidential and proprietary information of Buyer and
its affiliates, including, without limitation, customer lists and other trade
secrets.
(ii) From and after the Closing Date to and including the date
two years following the Closing Date, Seller will not, unless acting with the
express written consent of Sage, directly or indirectly, solicit or interfere
with, or endeavor to entice away (x) any person who was employed by Seller or
Sage or any subsidiaries thereof, (y) any person who otherwise performed
services (other than legal, accounting, consulting or financial advisory
services) on a regular basis for Seller or Sage or any subsidiaries thereof or
(z) with respect to the Restricted Business, any person or entity who was a
customer or client of Seller or Sage or any subsidiaries thereof or any person
or entity who requested or received a proposal from Seller or Sage or any
subsidiaries thereof with respect to the Business, in the case of (x), (y) or
(z), during the 6 months immediately preceding the date of this Agreement.
(c) Access to Seller's Business. Seller and Shareholders shall, from
the date hereof up to and including the Closing Date, permit Buyer and Buyer's
attorneys, accountants, agents and representatives full access to the books,
records, business and assets of Seller at any reasonable time and in any
reasonable manner on reasonable advance notice and in a manner that does not
interrupt Seller's business. Buyer and Sage shall have the right to meet with
customers and suppliers of Seller and Seller will give Buyer and Sage full
cooperation with respect thereto. Buyer will cooperate and consult with Seller
and Shareholders in arranging any meetings with such customers and suppliers.
(d) Corporate Name. From and after the Closing, Buyer shall possess
to the extent permitted by law, to the exclusion of Seller and Shareholders, all
rights to the name Interliant, Inc. and any variants or derivatives of the
foregoing name, and Seller and Shareholders shall not have any rights whatsoever
to the use of such name or any formatives, variants or derivatives of such name
in the conduct of any business or otherwise. On the Closing Date, Seller and
Shareholders shall cause the name of Seller to be changed so as not to conflict
with the provisions of this Section and will provide evidence of such change to
Buyer at or promptly following the Closing. Seller and Shareholders acknowledge
and agree that following the Closing, Sage and its affiliates intend to use the
name Interliant, Inc. and variants and derivatives of such name in the conduct
of their business.
(e) Changes in Representations and Warranties. Except as described
in Section 6.01(a), between the date of this Agreement and the Closing Date,
neither Seller nor any Shareholder shall permit Seller to, enter into any
transaction, take any
29
<PAGE> 34
action, or by inaction, permit an event to occur, which would result in any of
the representations and warranties of Seller or Shareholders herein contained
not being true and correct at and as of (i) the time immediately following the
occurrence of such transaction or event or (ii) the Closing Date. Seller and
each Shareholder shall promptly give written notice to Buyer upon becoming aware
of (A) any fact which, if known on the date hereof, would have been required to
be set forth or disclosed pursuant to this Agreement, and (B) any impending or
threatened breach in any material respect of any of the representations and
warranties contained in this Agreement and with respect to the latter shall use
all reasonable efforts to remedy same.
(f) Mutual Cooperation. The parties hereto will cooperate with each
other, and will use all commercially reasonable efforts to cause the fulfillment
of the conditions to the parties' obligations hereunder and to obtain as
promptly as possible all consents, authorizations, orders or approvals from each
and every third party, whether private or governmental, required in connection
with the transactions contemplated by this Agreement.
(g) Further Assurances. Seller and Shareholders will cooperate fully
with Buyer and Sage in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, from and after the
Closing Date, from time to time, at the request of Buyer or Sage and without
further consideration, Seller and Shareholders will execute and deliver such
other instruments, including powers of attorney, and take such other action as
Buyer or Sage may reasonably request to more effectively put Buyer or Sage in
possession and operating control of all or any part of the Purchased Assets and
Assumed Liabilities.
(h) No Mergers, Consolidations, Sales of Assets, Etc. Until the
earlier of the consummation of the transactions contemplated by this Agreement
or the termination date provided for in Section 9.02 below, neither Seller nor
any Shareholder will, directly or indirectly, solicit any inquiries or proposals
or enter into or continue any discussions, negotiations or agreements relating
to the sale or exchange of the capital stock of Seller, the merger of Seller
with, or the direct or indirect acquisition or disposition of a significant
amount of the Purchased Assets otherwise than in the ordinary course of the
business of Seller to or from, any person other than Buyer or its affiliates or
provide any assistance or any information to or otherwise cooperate with any
person in connection with any such inquiry, proposal or transaction.
(i) Transition Arrangements for Seller. Following the Closing Date,
Sage and Buyer will make their personnel reasonably available to Seller during
normal business hours on a reasonable basis consistent with past practices, at
no cost to Seller, and will cooperate with Seller's reasonable requests to
provide information in order that Seller can prepare all tax returns due with
respect to 1998 and 1999. As soon as practicable but for not more than sixty
(60) days following the Closing Date, Sage and Buyer will make their personnel
available to Seller consistent with past practices, at a cost to Seller of
$4,000 per month plus reimbursement of the out of pocket costs of Buyer and
Sage, if any, in connection therewith and which have been approved in advance by
Seller, during normal business hours and consistent with past practices of
Seller to
30
<PAGE> 35
provide reasonable assistance to Seller, Erving Wolf and their affiliates with
respect to payroll, benefits and management information systems. Buyer will make
Edward Cavazos available to assist Seller with the prosecution and defense of
the JDA litigation described on Exhibit 5.01(e).
(j) Announcements; Confidentiality. Except as otherwise required by
law, neither Seller, any Shareholder, Buyer nor Sage shall make any announcement
to the public of the transactions contemplated hereby other than jointly or as
otherwise agreed by them in writing. Buyer and Sage will keep confidential any
information not otherwise publicly available which is derived from access,
investigation or information furnished by Seller or Shareholders in connection
with this Agreement, including the negotiations conducted in connection
herewith, and if the transactions contemplated hereby are not consummated by
March 17, 1999 or this Agreement is terminated prior to such time, Buyer will
promptly return to Seller or Shareholders all such information, and copies and
extracts therefrom, and will not thereafter use such information for any
purpose. Buyer, Sage, Seller and Shareholders will keep confidential all drafts
and executed copies of this Agreement and the contents hereof, except to the
extent necessary to comply with any applicable law or regulation or any request
or order of any government agency or court of competent jurisdiction and except
as otherwise agreed pursuant to the first sentence of this paragraph.
Notwithstanding the foregoing provisions of this Section 8.01(j), Buyer, Sage,
Seller and Shareholders may disclose any such information to their respective
attorneys, accountants and investment advisors and to their respective employees
on a need to know basis.
Section 8.02 Consents to Assignments; Permits. Anything in this
Agreement or the bills of sale notwithstanding, to the extent that any Assigned
Agreement to be sold, assigned, transferred or conveyed to Buyer, or any claim,
right or benefit arising thereunder or resulting therefrom (the "Interests"), is
not capable of being sold, assigned, transferred or conveyed without the
approval, consent or waiver of the other party thereto, or any third person
(including a government or governmental unit), or if such sale, assignment,
transfer or conveyance or attempted assignment, transfer or conveyance would
constitute a breach thereof or a violation of any law, decree, order, regulation
or other governmental edict, except as expressly otherwise provided in this
Section 8.02, this Agreement shall not constitute a sale, assignment, transfer
or conveyance thereof, or an attempted assignment, transfer or conveyance
thereof. After the Closing, until any Interest has been validly and effectively
assigned to Buyer, (i) prior to the date two years following the Closing Date,
Seller shall hold such Interest for the benefit of Buyer and Buyer shall be
entitled to receive all benefits under such Interest and shall be responsible
for the obligations under such Interest to the extent relating to the benefits
received, and (ii) any such Interest shall, notwithstanding the failure to
receive any approval, consent or waiver (but so long as the same shall not
constitute a violation of law), be deemed to be assigned, transferred or
conveyed to Buyer if (x) written notice of such assignment, transfer or
conveyance is given to the other party to such Interest on or before the Closing
Date and (y) the other party to such Interest does not, within three months
after the Closing, object to such assignment, transfer or conveyance or acts in
a manner inconsistent with such assignment, transfer or conveyance; provided
that, in any case, Buyer shall be subject to all liabilities and obligations
under such Assigned
31
<PAGE> 36
Agreement to the extent such liabilities or obligations would have been an
Assumed Liability had the applicable Agreement been transferred and assigned.
Seller will cooperate with Buyer and Sage to obtain any such approval, consent
or waiver not obtained prior to the Closing Date.
Section 8.03 Survival of Representations, Warranties, Etc.
(a) All covenants and agreements of the parties made in this
Agreement or provided herein shall survive the Closing Date without limit,
unless otherwise specifically provided herein. All representations and
warranties of the parties made in this Agreement or as provided herein shall
survive the Closing Date and for a period ending on December 31, 2000,
notwithstanding any investigation at any time made by or on behalf of the other
party; provided, however, that the representations and warranties relating to
any Tax and any environmental matter and the representations and warranties set
forth in the first sentence of Section 5.01(d)(iii) and the third sentence of
Section 5.01(q)(i) shall survive until six months after the applicable statute
of limitations (or any extension thereof) has expired (as the case may be, the
applicable "Survival Period"); and provided, further, that any representation or
warranty which is the subject of a specific claim or dispute asserted prior to
the expiration of the Survival Period shall survive with respect to such claim
or dispute until final resolution thereof. All claims for indemnity hereunder
shall be made in writing, and shall state with reasonable specificity the matter
for which indemnification is sought.
(b) Shareholders' and Seller's Agreement to Indemnify. Seller and
Shareholders other than Michael August, jointly and severally, and Michael
August, severally, hereby agree to indemnify and hold Sage and Buyer and their
respective shareholders, officers and directors, harmless from and against any
and all claims, liabilities, losses, damages or injuries, together with costs
and expenses, including reasonable legal fees, arising out of or resulting from
(i) any incorrectness or incompleteness in the representations and warranties
made by Shareholders or Seller in this Agreement, (ii) any breach in any
material respect by any Shareholder or Seller, unless waived, of any covenant or
agreement of any Shareholder or Seller contained in or arising out of this
Agreement, (iii) the Business conducted by Seller, or otherwise in connection
with the Purchased Assets, prior to the Closing Date (except for the Assumed
Liabilities), (iv) any failure by Seller to comply with the bulk sales laws of
any jurisdiction and (v) any and all actions, suits, proceedings, claims,
demands, assessments and judgements incidental to the foregoing or the
enforcement of such indemnification. Notwithstanding the above provisions, the
Shareholders shall have no indemnity obligation with respect to Section 8.08(c).
In addition to the foregoing provisions of this Section 8.03(b) and
without limiting the generality of such provisions, Seller and Shareholders,
other than Michael August, jointly and severally, and Michael August, severally,
agree to fully indemnify and hold harmless Sage and its affiliates and
shareholders, officers and directors of any of the foregoing against and in
respect of and, will reimburse Sage and its affiliates for: (a) any and all
liability whatsoever, and however imposed (including any claim asserted against
or deficiency assessed against or collected from or paid by Buyer, Sage or
Seller
32
<PAGE> 37
or any affiliates thereof), in respect of any Taxes of Seller (or any
predecessors of Seller) for any and all periods through the period ending on the
Closing Date, without regard to whether or not the existence of such liability
would constitute a breach of a representation or warranty made by Seller or
Shareholders hereunder and (b) any and all liabilities of Seller existing on, or
arising under or relating to activities or transactions of Seller other than the
Assumed Liabilities.
(c) Agreement of Buyer and Sage to Indemnify. Buyer and Sage, hereby
agree, jointly and severally, to indemnify and hold Shareholders, Seller and
Seller's officers, directors and shareholders harmless from and against any and
all claims, liabilities, losses, damages or injuries, together with costs and
expenses, including reasonable legal fees, arising out of or resulting from (i)
any incorrectness or incompleteness in the representations and warranties made
by Buyer or Sage in this Agreement, (ii) any breach in any material respect by
Buyer or Sage, unless waived, of any covenant or agreement of Buyer or Sage
contained in or arising out of this Agreement, (iii) the activities or
transactions conducted by Buyer or Sage in connection with the Purchased Assets
on or after the Closing Date, and the Assumed Liabilities on or after the
Closing Date, (iv) any breach by Buyer of the Assignment Agreement, and (v) any
and all actions, suits, proceedings, claims, demands, assessments and judgments
incidental to the foregoing or the enforcement of such indemnification.
(d) Claims. Each party shall retain its own counsel and defend
itself, subject to being reimbursed by the indemnifying party for reasonable
attorneys' fees and expenses pursuant to this Section 8.03. The indemnified
party agrees to give the indemnifying party written notice of any claim, demand,
action, suit, proceeding or discovery of fact upon which the indemnified party
intends to base a claim for indemnification ("Claim") under this Section 8.03.
The indemnifying party shall have the right to participate jointly with the
indemnified party in the indemnified party's defense of any Claim. With respect
to any issue involved in any such Claim, as to which the indemnifying party
shall have acknowledged in writing the obligation to indemnify the indemnified
party hereunder, the indemnifying party shall have the sole right to defend,
settle or otherwise dispose of such Claim, on such terms as the indemnifying
party, in its sole discretion, shall deem appropriate; provided that such terms
do not result in any unindemnified expense to the indemnified party. In
addition, the parties agree to cooperate in any defense or settlement and to
give each other full access to all information relevant thereto.
(e) Remedies. (i) Claims by Buyer and Sage hereunder (including any
payment required by Section 8.03(b)) shall be satisfied first, from the Escrow
Deposit (to the extent not theretofore released to Seller or Shareholders) and
second, by means of an offset against any payment due pursuant to Section
3.01(b) and then by claims against the Seller and Shareholders. The indemnity
provided under Section 8.03(b) of this Agreement shall be the sole and exclusive
remedy of the parties to this Agreement for any claim arising under this
Agreement, except with respect to fraud by the Shareholders, and each party
agrees that it will not pursue any other remedy. Seller and each Shareholder
acknowledge that irreparable damage would result if the provisions of Sections
8.01(b), (d) and (h) were not complied with in accordance with their
33
<PAGE> 38
respective specific terms. Accordingly, Seller and Shareholders agree that Buyer
and Sage shall have the right, in addition to any other rights or remedies it
may have, to injunctive relief, in respect of any failure on the part of Seller
or Shareholders to comply with provisions of Sections 8.01(b), (d) or (h).
(ii) Minimum Claim. Notwithstanding anything to the contrary
contained herein, no Claim by Buyer or Sage, on the one hand, or by Seller and
Shareholders, on the other hand, may be made hereunder unless the aggregate
amount of Claims by such party or parties hereunder exceeds $150,000 and the
amount for which an indemnitee is entitled to indemnification shall be the
amount by which the claim exceeds $150,000; provided, however that Buyer and
Sage shall indemnify Mathew Wolf for the full amount of any Claim with respect
to the matters for which indemnity is provided under Section 8.06 and Seller
shall indemnify Sage and Buyer for the full amount of any Claim with respect to
the matters for which indemnity is provided under Section 8.08(c).
(iii) Limitation of Indemnity Obligations. The respective
obligations of Seller and Shareholders under Section 8.03(b) and Buyer and Sage
under Section 8.03(c) shall be limited to an aggregate amount equal to the sum
of (w) the Cash Consideration, (x) the Fair Market Value (determined in
accordance with Section 8.03(e)(iv)) of the Purchase Price Shares, (y) the
liability under the Wolf Notes assumed by the Buyer pursuant to Section
2.02(a)(ii) and (z) the Fair Market Value of the Sage Options (or the number of
shares of Common Stock issued on exercise of such Sage Options) (determined in
accordance with Section 8.03(e)(iv)) (the sum of (w), (x), (y) and (z) is
collectively, the "Indemnity Limit"). Buyer and Sage agree that Shareholders'
obligation to pay any Claim for indemnity under this Section 8.03 shall be
limited to 80% of the amount of such Claim. The Seller's and Shareholder's
liability under this Section 8.03 shall be limited to returning the Purchase
Price Shares and cash equal to the amount of payments made by Sage or Buyer
under the Wolf Notes. This limitation shall also apply to any claim based on the
fraud of any Shareholder. The Seller and any Shareholder may satisfy any Claim
hereunder in cash or by the delivery of Common Stock to Sage. The Seller and any
Shareholder may satisfy a specified dollar amount of an indemnity obligation by
returning shares of Common Stock equal to such amount with such shares valued at
Fair Market Value on the date of satisfaction of such indemnity obligation. If
Seller or Shareholder makes a cash payment to satisfy an indemnity obligation,
then for purposes of determining when all of the Purchase Price Shares have been
returned, the Seller or Shareholder shall be deemed to have returned shares
equal to the amount of cash paid divided by the Fair Market Value of the shares
on the date of satisfaction of such indemnity obligation.
(iv) Determination of Indemnity Limit. For purposes of determining
the Indemnity Limit:
(A) The Purchase Price Shares constituting the Share
Consideration shall have a Fair Market Value of $6.67 per share.
(B) The Purchase Price Shares which are delivered pursuant to
Section 3.01(b) shall have a Fair Market Value equal to the lesser of $6.67 per
share or
34
<PAGE> 39
the Fair Market Value per share on the date of the delivery of such shares to
the Shareholders pursuant to the Agreement to Deliver Shares.
(C) The Fair Market Value of the Sage Options shall be equal
to the Fair Market Value of the Common Stock subject to such Sage Options as
determined under clauses (A) and (B) minus the exercise price thereof.
Section 8.04 Inspection of Records. Seller and Shareholders agree,
prior to the Closing Date and for the three year period following the Closing
Date, to allow representatives of the Buyer and Sage reasonable opportunity from
time to time during normal business hours to inspect and make copies of the
books of account and other records of Seller which pertain to the Business and
which are not transferred to Buyer hereunder. Seller and Shareholders further
agree, prior to the Closing Date and for the three year period following the
Closing Date, to cooperate with Sage's accountants, counsel and other agents and
representatives, and to provide access to the Seller's records and to use
reasonable commercial efforts to provide access to the records of the Seller's
independent auditors (including, without limitation, all financial and
accounting books, workpapers and any consolidating and other worksheets of its
independent auditors). Sage shall be solely responsible for the costs and
expenses associated therewith.
Section 8.05 Employee Matters. Buyer shall offer employment to all
Employees at the same salaries or wages as in effect immediately prior to the
Closing Date other than those employees identified on Exhibit 8.05. Any such
Employees accepting such offer shall become employees of Buyer (the "Hired
Employees") on the Closing Date (the "Hire Date"). Each Hired Employee shall
receive (i) credit under Buyer's employee benefit plans (including, without
limitation, pension, welfare and fringe benefit plans) for purposes of
determining eligibility and vesting under such plans and (ii) credit for
purposes of determining vacation and severance pay, for the period during which
such Hired Employee was employed by the Seller; provided, however, that in no
event shall the Buyer be required to provide such a credit to a Hired Employee
to the extent that such credit would result in a duplication of benefits. Each
Hired Employee shall be entitled to participate in the employee benefit plans
maintained by Buyer without any waiting periods, any evidence of insurability or
the application of any preexisting condition restrictions (to the extent such
waiting periods, insurability or preexisting conditions were waived under
Seller's plan) and with credit for claims incurred prior to the Hire Date for
purposes of applying co-payments, deductibles, out of pocket maximums and
similar matters.
Section 8.06 Release of Guaranties. Promptly following the Closing
Date, Sage will cause Mathew Wolf to be released from his obligations under the
First USA Merchant Services, Inc. Credit Card Processing Services Agreement
Guaranty Addendum dated April 15, 1997 and the Guaranty dated July 31, 1996 of
Mathew Wolf in respect of the Master Lease Agreement between Wolf Communications
Company and NEC America, Inc. Sage will indemnify and hold Mathew Wolf harmless
with respect to his obligations under such Guaranty Addendum and Guaranty with
respect to periods following the Closing Date.
35
<PAGE> 40
Section 8.07 Tax Reporting. With respect to the reporting of the
transactions contemplated by this Agreement for tax purposes, the parties agree
to the following:
(a) The Common Stock shall not be valued at an amount greater than
$6.67 per share except that if Sage is required by any governmental or
regulatory authority including the Securities Exchange Commission ("SEC") to
value the Common Stock issued under this Agreement at a higher amount, Sage
shall be permitted to value the Common Stock at such higher amount. On a timely
basis, Sage shall keep Seller informed as to all developments with respect to
the reporting of the value recorded for the Common Stock issued hereunder and
shall immediately inform Seller at the final determination regarding such value.
(b) The consideration paid to Seller (including the Common Stock)
shall be allocated among the assets set forth on the Company's balance sheet at
the Closing Date at the net book value thereof and the balance will be allocated
to "Section 197 Intangibles" as such term is defined in Section 197(c) of the
Code.
(c) The parties will attempt to agree on the reporting of the
transaction on Internal Revenue Service Form 8594, but each party is free to
report the transaction as it shall determine, in its sole discretion, provided
such reporting must be consistent with this Section 8.07.
(d) The receipt of additional shares of Common Stock under Section
3.01(b) is not intended to produce additional gain for Seller or to result in
additional basis for Buyer.
Section 8.08 Sage Options. (a) Seller will cooperate with Buyer to
cause all options to purchase capital stock of Seller (the "Seller Options")
outstanding, whether or not exercisable, at the Closing Date under the Wolf
Communications Company 1995 Employee Stock Option Plan, as amended and the
Interliant, Inc. Lidestri Stock Option Plan and Agreement (together the "Seller
Plan"), to be converted into options to purchase Sage's Common Stock pursuant to
the terms of the Sage Networks, Inc. 1998 Stock Option Plan (the "Sage Plan") in
such manner that Sage is "assuming a stock option in a transaction to which
Section 424(a) applied". Each Seller Option converted by Sage ("Sage Options")
shall be exercisable upon the terms and conditions set forth in Exhibit A-5 and
shall be exercisable for that whole number of shares of Sage Common Stock
(rounded down to the nearest whole share) equal to the number of shares of
Seller's common stock, $.01 par value per share, subject to such Seller Option
immediately prior to the Closing Date multiplied by .6079167 and (B) the option
price per share of Sage common stock, $.01 par value per share, subject to a
Sage Option shall be an amount equal to the option price per share of Seller's
common stock, $.01 par value per share, subject to such Seller Option in effect
immediately prior to the Closing Date divided by .3988448 (the option price per
share, as so determined, being rounded up to the next full cent).
36
<PAGE> 41
(b) The holders of Seller Options shall have 30 days following the
Closing Date in which to execute a Stock Option Substitution Agreement and a
Sage Option Agreement in the forms to be provided to such holders. In the event
that a holder of a Seller Option (a) fails to execute both a Stock Option
Substitution Agreement and a Sage Option Agreement within such 30 day period and
(b) exercises the Seller Option prior to the expiration of such 30 day period (a
"Nonparticipating Option Holder"), then, and only in such event, Sage shall
deliver to Seller (or Seller's designee), within 5 business days following the
execution and delivery to Sage of a Subscription Agreement and the Shareholders
Agreement by the Seller or Seller's designee, a number of shares of Sage Common
Stock (the "Unconverted Option Shares") equal to the number of shares of Sage
Common Stock with respect to which such Nonparticipating Option Holder would
have been granted vested Sage Options had such Nonparticipating Option Holder
executed both a Stock Option Substitution Agreement and a Sage Option Agreement
within such 30 day period.
(c) Seller agrees to hold Buyer and Sage harmless with respect to
any loss or damage suffered by either of them arising out of any claim of the
Nonparticipating Option Holder with respect to the failure of Seller to make
such shares of Sage Common Stock or equivalent value available to him or her.
(d) Seller agrees that Exhibit 8.08 sets forth a list of the holders
of each Seller Option and the number of Seller Options held by each such holder
and that each nonqualified option is preceded by the letters "NQ" and each
incentive stock option is not preceded by any letters.
Section 8.09 Escrow Deposit.
(a) Promptly following the Closing Date, a portion of the Share
Consideration shall be deposited in accordance with the provisions of Section
3(a) of the Agreement to Deliver Shares (the "Escrow Deposit").
(b) During the period from the date hereof through and including
March 31, 2000 (the "Termination Date"), Buyer may notify Mathew Wolf ("Wolf")
that Buyer is asserting a Claim pursuant to the indemnification provisions
contained in Section 8.03 hereof to all or any portion of the Escrow Deposit
("Claim Notice"). If Wolf has received a Claim Notice prior to the Termination
Date, and the Claim Notice states a claim of Buyer or Sage to all or a portion
of the Escrow Deposit (the "Claimed Amount"), Wolf and Buyer shall either:
(i) agree on the disposition of the entire Claimed Amount
(which may include a cash payment rather than the application of the Escrow
Deposit) or a portion of the Claimed Amount such agreement not to be
unreasonably withheld or delayed by Buyer or Seller; or
(ii) In the absence of such agreement, seek a final
unappealable order, judgment or decree from a court of competent jurisdiction
directing the delivery of all or a portion of the Claimed Amount.
37
<PAGE> 42
(c) If on or before the Termination Date Wolf has not received a
Claim Notice or any Claim Notice has been resolved to the parties' satisfaction,
then promptly after the Termination Date, Wolf and Buyer shall release the
Escrow Deposit then being held hereunder to Wolf.
ARTICLE IX
Miscellaneous
Section 9.01 Expenses. If the transactions contemplated hereby are
not consummated, each of the several parties hereto shall bear the fees and
expenses relating to its compliance with the various provisions of this
Agreement and its covenants to be performed hereunder, and each of such parties
shall pay all expenses (including legal fees and expenses) incurred by it in
connection with this Agreement and the transactions contemplated hereby. If the
transactions contemplated hereby are consummated, the Shareholders will pay all
legal fees, brokers fees and other expenses incurred by the Seller and the
Shareholders in connection with this Agreement and the transactions contemplated
hereby; provided, however, that the costs relating to Seller's audited financial
statements delivered pursuant to Section 5.01(i) shall be Assumed Liabilities
and Shareholders shall reimburse Sage for one half of the filing fee required in
accordance with the HSR Act. The reasonable legal fees and expenses of counsel
to the executive officers of Seller in connection with the transactions
contemplated by this Agreement in an aggregate amount not to exceed $20,000
shall be Assumed Liabilities.
Section 9.02 Termination. If the Closing pursuant to Section 4.01
shall not have occurred on or prior to March 17, 1999, this Agreement and all
obligations of, Shareholders, Seller, Buyer and Sage hereunder, except
obligations under Section 9.01, shall terminate at 11:59 p.m. New York time on
such date, unless extended by mutual agreement of the parties.
Section 9.03 Benefit; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns and not to any other person. This Agreement shall not be
assigned by any party hereto without the written consent of each of the other
parties hereto, except that (a) the rights and obligations of Buyer or Sage may
be assigned to any wholly owned subsidiary of Buyer or Sage or any entity under
common control with Buyer and Sage, but no such transfer shall relieve Sage of
its obligations hereunder, (b) the rights and obligations of any party hereto
may be assigned in connection with the dissolution of such party and (c) the
rights and obligations of Buyer and Sage may be assigned in connection with the
merger of Buyer or Sage into or sale by Buyer or Sage of substantially all its
assets and business to a third party if the successor shall have assumed all the
obligations of the Buyer or Sage, as applicable, hereunder (but, in the case of
a sale of substantially all the assets, without relieving Buyer or Sage of its
obligations hereunder).
Section 9.04 Governing Law; Jurisdiction. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of New
38
<PAGE> 43
York. The parties hereto submit and consent to the exclusive jurisdiction of the
state courts of the State of New York in the Counties of New York and/or
Westchester and the federal courts located therein with respect to any legal
actions relating to this Agreement, or any other agreements delivered in
connection herewith, between the Buyer or Sage, on the one hand, and the Seller
or the Shareholders, on the other hand, and any transactions contemplated
thereby.
Section 9.05 Breach; Failure of Condition. If either party shall
believe at any time prior to the Closing Date that any other party has breached
any representation, warranty, covenant or agreement contained in this Agreement,
or that any condition to the Closing is not reasonably likely to be satisfied,
such party shall promptly so inform such other party specifying the breach or
condition concerned, and such other party shall have a reasonable opportunity to
correct such breach or cause such condition to be satisfied, but failure to so
notify shall not release the other party from its obligations hereunder.
Section 9.06 Notices, Etc. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered in person or
by courier, telegraphed, telexed or by facsimile transmission or mailed by
certified or registered mail first-class, postage prepaid:
If to Seller or Shareholders:
Mathew Wolf
1001 Fannin, Suite 2000
Houston, Texas 77002
Telecopy No.: (713) 650-3331
with a copy to:
James Baird, Esq.
Andrews & Kurth L.L.P.
600 Travis, Suite 4200
Houston, Texas 77002
Telecopy No.: (713) 220-4285
and a copy to:
Mayor, Day, Caldwell
& Keeton, L. L. P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attention: Gary J. Winston
Telecopy No: (713) 255-7047
39
<PAGE> 44
If to Buyer or Sage:
Sage Networks, Inc.
11 Martine Avenue
White Plains, NY 10606
Attention: Bruce S. Klein, Senior Vice President
Telecopier No.: (914) 289-1909
and
E. Ann Gill, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Telecopy No.: (212) 259-6333
Any such notice, request, demand or other communication hereunder shall be
deemed to have been duly given or made and to have become effective (a) if
delivered by hand, at the time of sending thereof, (b) if sent by confirmed
telegraph, telex or facsimile transmission, at the time of the dispatch thereof,
and (c) if sent by registered or certified first class mail, postage prepaid,
upon mailing.
Any party may, by written notice to the other, change the address to
which notices to such party are to be delivered or mailed.
Section 9.07 Headings. The headings of the articles, sections and
paragraphs contained in this Agreement are inserted for convenience of reference
only and in no way modify the meanings of such articles, sections and
paragraphs.
Section 9.08 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument. This Agreement
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to the other parties.
Section 9.09 Entire Agreement. This Agreement and the other
agreements referred to herein and entered into in connection herewith set forth
the entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersede all prior agreements,
arrangements and understandings relating to the subject matter hereof including
all such agreements, arrangements and understandings between Seller,
Shareholders, Buyer and Sage.
Section 9.10 Waiver; Amendment; Modification. The parties may, by
written agreement (a) extend the time for the performance of any of the
obligations or other acts of the parties hereto or (b) waive any inaccuracies or
breaches in the representations and warranties contained in this Agreement or in
any document delivered
40
<PAGE> 45
pursuant to this Agreement. This Agreement may be amended or modified only by a
written agreement executed by the parties hereto or by their successors and
assigns.
Section 9.11 Severability. To the extent that any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, if the duration or geographic extent of, or
business activity covered by, any provision of this Agreement shall be in excess
of that which is enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may be validly
and enforceably covered.
41
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
SAGE NETWORKS ACQUISITION CORP., as
Buyer
By: /s/ Leonard J. Fassler
-------------------------------------
Leonard J. Fassler
President
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
-------------------------------------
Leonard J. Fassler
Co-Chairman
INTERLIANT, INC.,
as Seller
By: /s/ James M. Lidestri
-------------------------------------
James M. Lidestri
President and Chief Executive Officer
/s/ Mathew Wolf
-----------------------------------------
Mathew Wolf
Ann Weltchek Wolf 1995 Marital Trust
dated May 24, 1995
/s/ Erving Wolf
-----------------------------------------
By: Erving Wolf, as Trustee
Mathew D. Wolf Children's Trust
dated May 24, 1995
/s/ Erving Wolf
-----------------------------------------
By: Erving Wolf , as Trustee
/s/ Michael August
-----------------------------------------
Michael August
42
<PAGE> 47
Attachment A
DEFINITIONS
"Agreement" shall mean this Asset Purchase Agreement.
"Agreement to Deliver Shares" shall mean the Agreement to Deliver
Shares among Sage, Buyer and Seller dated the Closing Date.
"Assigned Agreements" shall mean the Leases and all other business
agreements, leases, contracts, purchase orders, documents and instruments of the
Seller, which relate to the Business of Seller and any renewals, extensions,
amendments or modifications thereof, Seller's membership interest in TitleLink,
L.L.C. and any additional agreements, leases, contracts, documents and
instruments which are made or entered into by Seller in the ordinary course of
business or with the prior written approval of the Buyer between the date of
this Agreement and the Closing Date, but only as and to the extent such
renewals, extensions, amendments, or modifications thereof, and any additional
agreements, leases contracts, documents and instruments, pertain to and are used
in the operation of the business of Seller as of the Closing Date.
Notwithstanding the foregoing, "Assigned Agreements" shall not include Excluded
Assets.
"Assignment Agreement" shall mean an assignment and assumption
agreement between Buyer and Seller in substantially the form of Exhibit A-1.
"Assumed Liabilities" shall be limited to (a) those payments due in
the ordinary course of the Business and (b) those claims, liabilities and
obligations of Seller relating to the Business of Seller becoming due or arising
after the Closing Date, and in the case of each of (a) and (b) as (i) set forth
on the Exhibits hereto, (ii) set forth on the Seller's audited financial
statements as at December 31, 1998, (iii) incurred in the ordinary course of
business since December 31, 1998 or (iv) included in or arising under the
Assigned Agreements, other than:
(a) Claims, liabilities and obligations of Seller or Shareholders
under this Agreement;
(b) Claims, liabilities and obligations of Seller or Shareholders
in respect of Taxes and in respect of any violations of
Environmental Laws;
(c) Claims, liabilities and obligations of Seller or Shareholders
in respect of litigation disclosed in Exhibit 5.01(e);
provided that up to $9,000 of settlement costs and out of
pocket legal fees and expenses in connection with the JDA
litigation described on Exhibit 5.01(e) shall be Assumed
Liabilities;
(d) Fees and expenses of Seller or Shareholders in connection with
the negotiation of or consummation of the transactions
contemplated by this Agreement except (i) costs relating to
Seller's audited
<PAGE> 48
financial statements delivered pursuant to Section 5.01(i) and
(ii) the payment by Seller of counsel to the executive
officers of Seller to the extent provided in Section 9.01
shall be Assumed Liabilities; and
(e) Claims, liabilities and obligations of Seller under any
Employee Benefit Plans (other than accrued vacation and sick
pay) to the extent not reserved on the Seller's balance sheet
at the Closing Date.
"Business" shall mean the business of Seller conducted by Seller on
and prior to the Closing Date.
"Cash" shall mean all cash, cash equivalents, restricted cash,
security deposits and other cash on hand at the offices of Seller at the opening
of business on the Closing Date excluding (i) the Cash Consideration and (ii)
any cash received from Michael August with respect to the exercise of his Seller
stock options.
"Claim" shall have the meaning set forth in Section 8.03(d).
"Closing" shall have the meaning provided in Section 4.01 of the
Agreement.
"Closing Date" shall have the meaning provided in Section 4.01 of
the Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended and
the regulations promulgated thereunder.
"Common Stock" shall mean the common stock, $.01 par value per
share, of Sage.
"Company Personnel" shall mean current or former Employees,
officers, directors, or consultants of Seller.
"Conversion Ratio" shall have the meaning provided in Section 8.08.
"Customer" shall have the meaning provided in Section 5.01(q)(ii).
"Customer Data" shall mean Seller's lists of customers and clients
and all records, whether in a written, electronic or other format, regarding
such customers and clients.
"Diluted Capital" shall mean the sum of the number of shares of
Common Stock (i) issued and outstanding immediately following the Closing, (ii)
issuable upon conversion of the Preferred Stock and (iii) issuable upon exercise
of the Sage Options. "Diluted Capital" shall not include shares of Common Stock
issuable upon exercise or
ATT-A-2
<PAGE> 49
conversion of any warrants, convertible securities, options or similar
securities issued by Sage, other than the Preferred Stock and the Sage Options.
"Employee Benefit Plans" shall mean all pension, annuity,
retirement, stock option, stock purchase, savings, profit sharing or deferred
compensation plans, or agreements, and any retainer, consultant, bonus, group
insurance, welfare, health and disability plan, fringe benefit or other
incentive or benefit contract, plan, arrangement or commitment applicable to
Company Personnel (other than regular salary and bonus arrangements).
"Employees" shall mean all full and part time employees working in
the Business.
"Employment Agreement" shall mean an agreement between Sage and each
of the persons listed on Exhibit 6.01(j) substantially in the form set forth as
Exhibit A-2.
"Employment Contracts" shall mean all employment contracts,
consulting agreements and collective bargaining agreements with respect to
employees of Seller.
"Encumbrance" shall mean any mortgage, claim, lien, pledge, option,
charge, security interest or other similar interest.
"Environmental Laws" shall mean all federal, state or local
judgments, decrees, orders, laws, licenses, ordinances, rules or regulations
pertaining to environmental matters, including, without limitation, those
arising under the Resource Conservation and Recovery Act (42 U.S.C. ss. 1801 et
seq.) ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water
Act (33 U.S.C. ss. 1251 et seq.) ("SARA"), the Federal Clean Air Act (33 U.S.C.
ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 7401 et
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss. 136
et seq.), and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et
seq.).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Deposit" shall mean the escrow deposit made in accordance
with Section 8.09 hereof.
"Excluded Assets" shall mean:
(i) Seller's rights under this Agreement or any other agreement or
document delivered to or received by Seller in connection herewith;
(ii) all corporate records of Seller, including all minutes books
and other records of corporate proceedings and ownership of Seller;
ATT-A-3
<PAGE> 50
(iii) all tax returns and related worksheets and supporting
materials of Seller;
(iv) any Interests not sold, assigned, transferred or conveyed or
deemed to have been sold, assigned, transferred or conveyed pursuant to
Section 8.02;
(v) any automobiles used for personal use;
(vi) any receivable or note payable from any Shareholder;
(vii) any claims against Shareholders, directors and employees of
Seller;
(viii) all insurance policies of the Seller; and
(ix) any assets listed on Exhibit Def-1.
"Fair Market Value", when used with respect to the Common Stock,
shall be determined as follows:
(w) if issued in the IPO, the public offering price per share of
Common Stock in connection with the IPO as set forth on the cover page of the
Prospectus for such IPO;
(x) if traded on a securities exchange or on the NASDAQ Stock
Market, the fair market value shall be deemed to be the average of the closing
prices of the Common Stock on such exchange over the twenty business day period
ending three (3) business days prior to the date of determination;
(y) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid prices over the twenty business
day period ending three (3) business days prior to the date of determination;
and
(z) if there is no active public market, the value shall be the fair
market value thereof as (I) determined by the terms of an agreement to sell
shares of Common Stock for cash or publicly traded securities to a third party
on an arms length basis or (II) if there is no such agreement, as mutually
determined by Sage and the Seller (or, if the Seller has assigned all of its
rights and interest in the Agreement to Deliver Shares, not less than a majority
in interest of the permitted assignees of the Agreement to Deliver Shares),
provided that if Sage and the Seller (or such assignees) are unable to reach
agreement, then by independent appraisal by PriceWaterhouseCoopers LLC or such
other nationally recognized accounting firm other than the accounting firms used
by Sage and Seller selected by Seller (or, if the Seller has assigned all of its
rights and interest in the Agreement to Deliver Shares, not less than a majority
in interest of the permitted assignees of the Agreement to Deliver Shares), but
reasonably acceptable to Sage.
ATT-A-4
<PAGE> 51
"Fixed Assets" shall mean the fixtures, equipment, leasehold
improvements, security systems, telephone systems, display stands, computers,
furniture, parts and accessories and similar assets located at the Sites or at
holding areas for the Sites and all infrastructure assets used in the operation
of the Business wherever located, in each case, to the extent owned, leased,
licensed or otherwise used of right by the Seller.
"GAAP" shall mean generally accepted accounting principles, as
presently in effect in the United States.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder.
"Hazardous Material" shall mean any and all hazardous wastes, that
in any physical state, might represent danger to the environmental balance
because of their corrosive, toxic, venomous, reactive, explosive, flammable,
biological or irritate conditions, such as: (a) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form that
is or is reasonably likely to become friable, urea formaldehyde foam insulation,
transformers or other equipment that contain dielectric fluid containing levels
of polychlorinated biphenyl, and radon gas; (b) any chemicals, materials,
substances or wastes which are now or hereafter become refined as or included in
the definition of "hazardous substances", "hazardous wastes", "toxic
substances", "toxic pollutants", or words of similar import, under any
applicable Environmental Laws; and (c) any other chemical, material, substance,
or waste, exposure to which is now or hereafter prohibited, limited or regulated
by any Environmental Law or by any federal, state or municipal authority.
"Intangibles" shall mean the Intellectual Properties, all business
opportunities of the Seller relative to the Business, all good will of the
Business as a going concern and all other general intangibles of Seller used in
the Business.
"Intellectual Properties" shall mean to the extent that the
following items are owned in whole or in part or licensed by Seller and used in
the Business as of the date of this Agreement all patents of any description and
pending applications therefor, all registrations of trademarks and of other
marks, all registrations of trade names, assumed names, service names, service
marks, logos, designs, formulation, labels or other trade rights, all pending
applications for any such registrations, all copyright registrations and pending
applications therefor, all other copyrights, trademarks and other marks and
trade rights, trade names assumed names, service names, service marks, logos,
slogans, designs, formulations, non-governmental licenses, computer programs and
control panels, surcharge calculators, data bases and software documentation,
all know-how, trade secrets, technology or processes, research and development
and all other inventions and designs, whether or not patentable, all telephone
numbers, fax numbers, WEB Sites, Internet Domain Addresses, email addresses,
parked Internet Domain Addresses.
"Interests" shall have the meaning provided in Section 8.02(a) of
the Agreement.
ATT-A-5
<PAGE> 52
"IPO" shall mean the initial public offering of Common Stock by
Sage.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" when used with respect to the Seller shall mean the
actual knowledge of James Lidestri, Edward Cavazos, and Paul Chollett and after
reasonable inquiry, including, without limitation, inquiry of Kristian Nelson,
when used with respect to Sage and Buyer shall mean the actual knowledge of
Leonard J. Fassler, Bradley A. Feld, Francis J. Alfano and Bruce S. Klein after
reasonable inquiry; and when used with respect to the Shareholders shall mean
the actual knowledge of Mathew Wolf after reasonable inquiry.
"Lease" shall mean each of the real property leases listed on
Exhibit 5.01(d)(i).
"Licensed Software" shall have the meaning provided in Section
5.01(a)(i) of the Agreement.
"Liquidity Event" shall mean the earliest to occur of (i) the IPO,
(ii) a sale of all or substantially all of the assets of Sage or (iii) a merger
or consolidation of Sage (including a triangular merger involving any subsidiary
thereof) with or into any other entity (other than a merger or consolidation in
which shares of Sage's voting capital stock outstanding immediately before such
merger or consolidation are exchanged or converted into or constitute shares
which represent more than fifty percent (50%) of the surviving entity's voting
capital interests after such consolidation or merger) or a transaction or series
of related transactions in which a person or group of persons (as defined in
Rule 13d- 5(b)(1) of the Securities Exchange Act of 1934, as amended), acquires
beneficial ownership (as determined in accordance with Rule 13d-3 of such Act)
of more than 50% of the voting power of Sage; provided, however, that any
reorganization, merger or consolidation involving (1) only a change in the state
of incorporation of Sage or (2) a merger of Sage with or into a wholly-owned
subsidiary of Sage that is incorporated in the United States of America shall
not constitute a "Liquidity Event".
"Option Agreements" shall mean the option agreements delivered by
the Sage to the employees and in the amounts listed on Exhibit A-4.
"Other Property" shall mean the Customer Data and Cash.
"Preferred Stock" shall mean Sage's Series A Convertible Preferred
Stock, $.01 par value per share.
"Purchase Price" shall have the meaning provided in Section 3.01(a).
"Purchase Price Shares" shall mean the aggregate amount of the Share
Consideration and the additional shares, if any, delivered pursuant to Section
3.01(b).
"Purchased Assets" shall mean the Intangibles, Receivables, Fixed
Assets, Other Property, the rights under the Assigned Agreements and all other
assets set forth or
ATT-A-6
<PAGE> 53
which should, in accordance with GAAP, be set forth on a balance sheet of Seller
as of the Closing Date; provided, however, that Purchased Assets shall not
include (i) Excluded Assets and (ii) Employee Benefit Plans.
"Receivables" shall mean all of Seller's outstanding accounts
receivable arising from the lease or sale of goods or for services rendered in
the Business, including receivables relating to contra-payable balances in the
payable accounts of Seller and receivables attributable to manufacturers' and
other vendors' reimbursement policies, but shall not include receivables due
from Employees or Shareholders.
"Returns" shall have the meaning provided in Section 5.01(k) of the
Agreement.
"Revenue" shall mean, with respect to any person for any period, the
revenue of such person for such period, all computed and calculated in
accordance with GAAP.
"Sage Options" shall have the meaning provided in Section 8.08.
"SEC" shall mean the Securities and Exchange Commission.
"Seller Option" shall have the meaning provided in Section 8.08.
"Seller Plan" shall have the meaning provided in Section 8.08.
"Share Consideration" shall have the meaning provided in the
Agreement to Deliver Shares.
"Shareholders Agreement" shall mean the Shareholders Agreement
executed by Sage, the Distributees, Broadview Holdings LLP, the holders of the
Sage Options and certain other substantial holders of Common Stock substantially
in the form attached as Exhibit A-3.
"Sites" shall mean each of the properties subject to the Leases.
"Subscription Agreement" shall mean the Subscription Agreement
executed by the Seller and each Shareholder that is issued all or any portion of
(i) the Share Consideration, (ii) shares delivered pursuant to Section 3.01(b)
of the Purchase Agreement and (iii) the Unconverted Option Shares.
"Survival Period" shall have the meaning provided in Section 8.03(a)
of the Agreement.
"Tax" or "Taxes", with respect to any person, shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, property or other taxes, customs, duties, fees,
assessments or charges of any kind whatsoever,
ATT-A-7
<PAGE> 54
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign) upon such person
or any affiliate thereof.
"Trademark Assignment" shall have the meaning provided in Section
7.01(e).
"Transaction Documents" shall mean collectively, this Agreement, the
Agreement to Deliver Shares, the Shareholders Agreement, the Option Agreements,
the Subscription Agreements, the Employment Agreements, the Assignment Agreement
and the Trademark Assignment.
"Unconverted Option Shares" shall have the meaning set forth in
Section 8.10(b).
"Wolf Notes" shall mean the notes of Seller issued to Erving Wolf
and Mathew Wolf each dated the Closing Date, in the aggregate principal amount
of $16,000,000.
ATT-A-8
<PAGE> 55
Attachment B
LIST OF SHAREHOLDERS
Name Address
- ---- -------
MATHEW WOLF 1001 Fannin Street, Suite 2000
Houston, Texas 77002
ANN WELTCHEK 1001 Fannin Street, Suite 2000
WOLF 1995 Houston, Texas 77002
MARITAL TRUST
MATHEW D. WOLF 1001 Fannin Street, Suite 2000
CHILDREN'S TRUST Houston, Texas 77002
MICHAEL AUGUST 1001 Fannin Street, Suite 2000
Houston, Texas 77002
ATT-B-1
<PAGE> 56
EXHIBIT A-1
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of March 10, 1999
between INTERLIANT, INC., a Texas corporation ("Seller"), and SAGE NETWORKS
ACQUISITION CORP., a Delaware corporation ("Buyer").
W I T N E S S E T H :
WHEREAS, Buyer, Sage Networks, Inc, Seller and certain shareholders
of Seller have entered into that certain Agreement to Purchase Assets and
Deliver Shares dated March 8, 1999 (the "Purchase Agreement") providing, among
other things, for the sale by Seller to Buyer of the Purchased Assets;
WHEREAS, Seller is entering into this Assignment and Assumption
Agreement for the purpose of assigning and transferring to Buyer all of its
rights, liabilities and obligations to be transferred by Seller pursuant to the
Purchase Agreement; and
WHEREAS, Buyer is executing and delivering this Assignment and
Assumption Agreement for the purpose of assuming Seller's liabilities and
obligations to be assumed by Buyer pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements contained herein and in the Purchase
Agreement, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned to them in
the Purchase Agreement.
Section 2. Assignment. Seller, for good and valuable consideration,
receipt of which is hereby acknowledged, does hereby sell, assign, convey,
transfer and deliver to Buyer all of Seller's right, title and interest in, to
or under the Purchased Assets.
Section 3. Assumption. Buyer accepts such assignment and hereby
absolutely and irrevocably undertakes, assumes and agrees to perform, pay,
satisfy or discharge when due, and to be solely responsible for all Assumed
Liabilities.
Section 4. Binding Agreement; Amendments. This Assignment and
Assumption Agreement shall be binding on Seller and Buyer and their respective
heirs, distributees, executors, and legal representatives, successors and
assigns. This Assignment and Assumption Agreement may not be modified except by
an instrument in writing which is signed by both parties.
<PAGE> 57
Section 5. Governing Law. This Assignment and Assumption Agreement
shall be construed and enforced in accordance with the laws of the State of New
York.
Section 6. Further Assurances. Seller hereby covenants and agrees
that, from time to time at Buyer's request after the delivery of this Assignment
and Assumption Agreement and without further consideration, Seller will do,
execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all and any such further acts, conveyances,
transfers, assignments, powers of attorney, instruments and assurances as may be
reasonably required to more effectively grant, convey, assign, transfer and set
over to and vest in Buyer any and all of the Purchased Assets.
Section 7. Other Agreements Prevail. Seller and Buyer each hereby
acknowledges and agrees that neither the representations and warranties nor the
rights or remedies of any party under the Purchase Agreement shall be deemed to
be enlarged, modified or altered in any way by this Agreement. In the event of a
conflict between the terms of this Agreement and the terms of the Purchase
Agreement, the terms of the Purchase Agreement shall prevail.
Section 8. Counterparts. This Agreement may be executed in any
number of counterparts all of which together shall constitute a single
instrument. It shall not be necessary that any counterpart be signed by both
parties so long as each party shall sign at least one counterpart.
Section 9. Evidence. The parties agree that a copy of this Agreement
may be submitted to third parties as evidence of the assignment by Seller of the
Purchased Assets and the assumption by Buyer of the Assumed Liabilities.
Exh. A-1-2
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
and Assumption Agreement to be duly executed as of the date and year first above
written.
INTERLIANT, INC.
By: /s/ James M. Lidestri
-------------------------------------
James M. Lidestri
President and Chief Executive Officer
SAGE NETWORKS ACQUISITION CORP.
By: /s/ Leonard J. Fassler
-------------------------------------
Leonard J. Fassler
President
Exh. A-1-3
<PAGE> 59
STATE OF NEW YORK }
} ss:
COUNTY OF NEW YORK }
Before me, the undersigned, a Notary Public of the State of New
York, personally appeared Leonard J. Fassler, who, having been sworn by me
according to law did depose and say he was the President of Sage Networks
Acquisition Corp., a Delaware corporation, and did acknowledge the execution of
the foregoing Assignment and Assumption Agreement on behalf of Sage Networks
Acquisition Corp.
WITNESS my hand and notarial seal this 10th day of March, 1999.
/s/ Katherine M. Scovin
------------------------------
(Written Signature)
Katherine M. Scovin
------------------------------
(Printed Signature)
<PAGE> 60
STATE OF ______________}
} ss:
COUNTY OF ____________ }
Before me, the undersigned, a Notary Public of the State of
___________, personally appeared James M. Lidestri, having been sworn by me
according to law did depose and say he was the President and Chief Executive
Officer of Interliant, Inc. (the "Company") and did acknowledge the execution of
the foregoing Assignment and Assumption Agreement on behalf of said Company.
WITNESS my hand and notarial seal this 10th day of March, 1999.
/s/ Katherine M. Scovin
------------------------------
(Written Signature)
Katherine M. Scovin
------------------------------
(Printed Signature)
<PAGE> 61
EXHIBIT A-2
<PAGE> 1
Exhibit 2.10
THIS AGREEMENT TO DELIVER SHARES dated as of March 10, 1999 (this
"Agreement") between INTERLIANT, INC., a Texas corporation ("Seller"), SAGE
NETWORKS ACQUISITION CORP., a Delaware corporation ("Buyer") and SAGE NETWORKS,
INC., a Delaware corporation ("Sage").
W I T N E S S E T H :
WHEREAS, Buyer, Sage, Seller and certain shareholders of Seller have
entered into that certain Asset Purchase Agreement dated March 8, 1999 (the
"Purchase Agreement") providing, among other things, for the sale by Seller to
Buyer of the Purchased Assets;
WHEREAS, the delivery of this Agreement to Deliver Shares is a
condition precedent to the consummation of the transactions contemplated by the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements contained herein and in the Purchase
Agreement, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned to them in
the Purchase Agreement.
Section 2. Distribution of Agreement. On the Closing Date, the
Seller shall distribute all of its right, title and interest under this
Agreement pursuant to the Plan of Liquidation of Seller dated the Closing Date
ratably to the Shareholders of the Seller in proportion to their ownership
interest in the Seller (the "Distributees").
Section 3. Agreement to Deliver Shares. Subject to satisfaction of
the conditions contained in Section 6 of this Agreement, Sage shall deliver
4,091,642 shares of Common Stock (the "Share Consideration") as follows:
(a) Promptly following the Closing Date, deposit a portion of the
Share Consideration (which shall be treated as distributed to Mathew Wolf) equal
to 350,000 shares of Common Stock in a safe deposit box in accordance with
Section 8.09 of the Purchase Agreement;
(b) On the day following the Closing Date, deliver to Broadview
Holdings LLP 114,644 shares of Common Stock (which shall be treated as
distributed to Mathew Wolf);
(c) On the day following the Closing Date, deliver to the
Distributees a portion of the Share Consideration equal to 3,608,863 shares of
Common Stock to the persons and in the amounts set forth in Schedule I under the
heading "Under 3.01(c)"; and
(d) On the first business day following January 1, 2000, deliver to
the Distributees the balance of the Share Consideration in the amounts set forth
in Schedule I under the heading "Under 3.01(d)".
Section 4. Payment of Additional Consideration. Payment of the
shares delivered pursuant to Section 3.01(b) of the Purchase Agreement shall be
made to
<PAGE> 2
the Distributees in the percentages set forth on Schedule I under the heading
"Section 4 Percentage".
Section 5. Delivery of Certificates. Shares to be delivered pursuant
to Section 3 shall be in one or more (but not more than twenty-five)
certificates for Common Stock registered in the names set forth on Schedule I
hereto.
Section 6. Conditions to Delivery of Shares. Sage shall deliver
shares of Common Stock to a person or entity in accordance with the directions
set forth in Section 3 hereof upon receipt by Sage of a fully completed and
executed Subscription Agreement and a fully executed Shareholders Agreement from
such person or entity to whom such shares are to be delivered. Upon receipt of
such fully executed agreement, Sage's obligation to deliver shares of Common
Stock to such person or entity shall be absolute and unconditional.
Section 7. Binding Agreement; Amendments. This Agreement shall be
binding on the parties hereto and their respective heirs, distributees,
executors, and legal representatives, successors and assigns. This Agreement may
not be modified except by an instrument in writing which is signed by both
parties.
Section 8. Antidilution. All references to numbers of shares shall
be appropriately adjusted if between the date hereof and the date of delivery of
additional shares of Common Stock, the outstanding shares of Common Stock are
reclassified into a greater or lesser number of shares by way of a stock
dividend, stock split, reverse stock split or other reclassification.
Section 9. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York.
Section 10. Other Agreements Prevail. Seller and Buyer each hereby
acknowledges and agrees that neither the representations and warranties nor the
rights or remedies of any party under the Purchase Agreement shall be deemed to
be enlarged, modified or altered in any way by this Agreement. In the event of a
conflict between the terms of this Agreement and the terms of the Purchase
Agreement, the terms of the Purchase Agreement shall prevail.
Section 11. Counterparts. This Agreement may be executed in any
number of counterparts all of which together shall constitute a single
instrument. It shall not be necessary that any counterpart be signed by both
parties so long as each party shall sign at least one counterpart.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date and year first above written.
INTERLIANT, INC.
By: /s/ James M. Lidestri
-------------------------------------
James M. Lidestri
President and Chief Executive Officer
SAGE NETWORKS ACQUISITION CORP.
By: /s/ Leonard J. Fassler
-------------------------------------
Leonard J. Fassler
President
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
-------------------------------------
Leonard J. Fassler
Co-Chairman
3
<PAGE> 4
Schedule I
Certificates
<TABLE>
<CAPTION>
Under Under Section 4
----- ----- ---------
Name of Registered Owner 3.01(c) 3.01(d) Percentage
- ------------------------ ------- ------- ----------
<S> <C> <C> <C>
Mathew Wolf 2,386,562 11,993 69.97
Ann Weltchek Wolf 1995 Marital
Trust 396,851 1,994 9.75
Mathew D. Wolf Children's Trust 793,702 3,988 19.50
Michael August 31,748 160 0.78
--------------------------
3,608,863 18,135
</TABLE>
4
<PAGE> 1
EXHIBIT 4.2
INVESTORS AGREEMENT
Investors Agreement dated as of January 28, 1999 (this
"Agreement") by and among Sage Networks, Inc., a Delaware corporation (the
"Company"), and each of the individuals or entities signatory hereto (each a
"Stockholder" and together the "Stockholders").
W I T N E S S E T H :
WHEREAS, the Company is authorized to issue (i) a total of
2,647,658 shares of Series A Convertible Preferred Stock, par value $0.01 per
share ("Preferred Stock"), and (ii) a total of 35,000,000 shares of Common
Stock, par value $0.01 per share ("Common Stock"); and
WHEREAS, upon the consummation of the transactions
contemplated by the Securities Purchase Agreement dated as of January 28, 1999,
among the Company and the purchasers named therein (the "Purchase Agreement")
there will be 19,217,197 shares of Common Stock issued and outstanding and
2,647,658 shares of Preferred Stock issued and outstanding; and
WHEREAS, upon the consummation of the transactions
contemplated by the Purchase Agreement, the Stockholders will own the number of
shares of Common Stock and Preferred Stock as set forth opposite their
respective names on Schedule I hereto; and
WHEREAS, it is a condition to the consummation of the
transactions contemplated by the Purchase Agreement that the parties enter into
this Agreement.
NOW THEREFORE, in consideration of the mutual promises,
agreements and covenants set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending legally to be bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Defined Terms. The following terms when used in this
Agreement, including its preamble and recitals, shall, except where the context
otherwise requires, have the following meanings, such meanings to be equally
applicable to the singular and plural forms thereof:
"Affiliate" shall mean, with respect to any Person, any person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management
<PAGE> 2
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Common Stock Equivalents" shall mean the number of shares of
Common Stock issuable upon the exercise, exchange or conversion of any security.
"Encumbrance" means any security interest, pledge, mortgage,
lien, charge, adverse claim of ownership or use, or other encumbrance of any
kind.
"Equity Securities" shall mean any Common Stock, any
securities exercisable or exchangeable for or convertible into Common Stock and
any rights, options or warrants to acquire any of the foregoing.
"Expiration Date" shall mean the earliest of (a) the
consummation of the initial public offering of Common Stock by the Company, (b)
a Sale Transaction with respect to the Company and (c) the date on which
Purchasers (in the aggregate) no longer own at least 40% of the Preferred Stock
(or Common Stock issued on conversion thereof) purchased by the Purchasers
pursuant to the Purchase Agreement.
"Investor" shall mean each owner of Stock.
"Permitted Registration Rights" shall mean all demand and
piggyback registration rights granted under this Agreement.
"Permitted Transferee" shall have the meaning set forth in
Section 3.04 herein.
"Person" shall mean and include an individual, a corporation,
a limited liability company, an association, a partnership, a joint venture, a
trust or estate, a government or any department or agency thereof, or any other
entity or governmental body.
"Preferred Stock" shall mean the Company's Series A Preferred
Stock, $.01 par value, with the rights and preferences set forth in the
Certificate of Incorporation of the Company, as amended.
"Purchasers" shall mean the Purchasers named in the Purchase
Agreement, together with their successors and assigns permitted by the Purchase
Agreement.
"Registration Expenses" shall mean all expenses incident to
the Company's performance of or compliance with its obligations under Sections
4.01 and 4.02 hereof, including without limitation, all SEC, NASD and stock
exchange or NASDAQ registration and filing fees and expenses, fees and expenses
of compliance with applicable state securities or "blue sky" laws (including,
without limitation, reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of securities
registered in accordance with this Agreement), printing expenses, messenger and
delivery expenses, the fees and expenses incurred in connection with the listing
of the securities to be registered in an initial public offering on each
securities exchange or national market system on which such securities are to be
so listed
2
<PAGE> 3
and, following such initial public offering, the fees and expenses incurred in
connection with the listing of such securities to be registered on each
securities exchange or national market system on which such securities are
listed, fees and disbursements of counsel for the Company and all independent
certified public accountants retained by the Company (including the expenses of
any annual audit and "cold comfort" letters required by or incident to such
performance and compliance), all reasonable fees and expenses of one counsel to
the Stockholders in the case of a Piggyback Registration or one counsel for all
Stockholders in the case of the exercise of a Demand Registration Right, the
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities (including the fees and expenses of any "qualified independent
underwriter" required by the NASD), the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration,
fees and expenses of other Persons retained by the Company in connection with
such registration, all transfer taxes with respect to the shares of Common Stock
sold by a Stockholder and all other expenses incurred by Stockholders customary
for and incidental to the sale and delivery of the shares of Common Stock to be
sold by such Stockholders (but not including any underwriting discounts or
commission, if any, attributable to the sale of Common Stock by holders of such
Common Stock other than the Company).
"Sale Transaction" shall mean a sale of all or substantially
all of the assets of the Company, or a merger or consolidation of the Company
with or into any other entity (other than a merger or consolidation in which
shares of the Company's voting capital stock outstanding immediately before such
merger or consolidation are exchanged or converted into or constitute shares
which represent more than fifty percent (50%) of the surviving entity's voting
capital interests after such consolidation or merger) or a transaction or series
of related transactions in which a person or group of persons (as defined in
Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as amended), acquires
beneficial ownership (as determined in accordance with Rule 13d-3 of such Act)
of more than 50% of the voting power of the Company; provided, however, that any
reorganization, merger or consolidation involving (1) only a change in the state
of incorporation of the Company, (2) a merger of the Company with or into a
wholly-owned subsidiary of the Company that is incorporated in the United States
of America, or (3) an acquisition by merger, reorganization or consolidation, of
which the Company is substantively the surviving corporation and operates as a
going concern, of another entity formed or incorporated in the United States of
America that is engaged in a business similar or related to the business of the
Company and which does not involve a recapitalization or conversion of the
Preferred Stock shall not constitute a "Sale Transaction".
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Stock" shall mean the Common Stock and the Preferred Stock.
"WHO" shall mean WEB Hosting Organization L.L.C., a Delaware
limited liability company.
3
<PAGE> 4
ARTICLE II
VOTING AGREEMENT
2.01 Board of Directors of the Company. So long as the
Purchasers own at least 40% of the issued and outstanding Preferred Stock (or
Common Stock issued on conversion thereof) purchased by the Purchasers pursuant
to the Purchase Agreement, a majority in interest of the Purchasers shall have
the right to nominate one person for election as a director of the Company (the
"Purchasers Representative"). Initially, such person shall be Charles R. Lax. At
the option of the Purchasers Representative, the Board of Directors of the
Company will cause the Purchasers Representative to be a member of the
Compensation Committee and/or the Audit Committee of the Company.
2.02 Covenant to Vote. Each of the Stockholders shall appear
in person or by proxy at any annual or special meeting of stockholders for the
purpose of obtaining a quorum and shall vote or cause the vote of the shares of
Stock owned by such Stockholder or by any Affiliate of such Stockholder, either
in person or by proxy, at any annual or special meeting of stockholders of the
Company called for the purpose of voting on the election, if such director has
been nominated for election, or removal, if such director has been designated
for removal, of directors, or by consensual action of stockholders with respect
to such election or removal of directors, in favor of such election of the
directors nominated, or removal of the director designated, in accordance with
Section 2.01 and for the replacement of the director in accordance with Section
2.01. In addition, each of the Stockholders shall appear in person or by proxy
at any annual or special meeting of stockholders for the purpose of obtaining a
quorum and shall vote or cause the vote of the shares of Stock owned by such
Stockholder or any Affiliate of such Stockholder upon any matter submitted to a
vote of the stockholders of the Company in a manner so as to be consistent and
not in conflict with, and to implement, the terms of this Agreement. If the
Purchasers do not designate a director pursuant to Section 2.01, each of the
Stockholders shall appear in person or by proxy at any annual or special meeting
of stockholders for the purpose of obtaining a quorum and shall vote for or
cause the vote of the shares of Stock owned by such Stockholder or by any
Affiliate of such Stockholder, either in person or by proxy, at any annual or
special meeting of the stockholders of the Company for the purpose of voting on
the election, and vote for the re-election of the prior director designated by
the Purchasers failing to exercise their rights to designate a director pursuant
to Section 2.01.
2.03 Vacancies/Removals. The Purchasers Representative shall
be subject to removal by the Purchasers at any time, with or without cause. The
Purchasers shall have the right to call a special meeting of Stockholders at any
time, and from time to time, for the sole purpose of removing from the Board of
Directors of the Company, with or without cause, any person or persons nominated
by him for election as a director, and in such event, the Stockholders shall
vote all of their Stock in support of such removal and for the election of such
replacements as may be nominated by the Purchasers.
4
<PAGE> 5
2.04 No Voting or Conflicting Agreements. Each of the
Investors agrees that it will not and will not permit any Affiliate to grant any
proxy or enter into or agree to be bound by any voting trust with respect to its
shares of Stock or to enter into any stockholder agreements or arrangements of
any kind with any Person with respect to its shares of Stock in any such case in
a manner that is inconsistent with the provisions of this Agreement.
2.05 Actions Consistent with Agreement. The Company shall not
take any action inconsistent with the provisions of this Agreement.
2.06 Expiration of Rights. The rights granted pursuant to this
Article 2 shall expire and be of no further force and effect as of the date that
the Purchasers no longer own at least 40% of the issued and outstanding
Preferred Stock (or Common Stock issued on conversion thereof) purchased by the
Purchasers pursuant to the Purchase Agreement.
ARTICLE III
RESTRICTIONS ON TRANSFERS BY THE INVESTORS
3.01 Restrictions on Transfers Generally. Each Investor hereby
agrees that such Investor shall not, and shall not permit any Affiliate to,
directly or indirectly, transfer, sell or otherwise dispose of, or create, incur
or assume any Encumbrance with respect to any shares of Stock or Equity
Securities other than (i) pursuant to an effective registration statement under
the Securities Act or (ii) pursuant to an exemption from registration under the
Securities Act and any state securities or Blue Sky laws.
3.02 Tag Along Right. If WHO proposes to transfer shares of
Stock or Equity Securities to any Person or Persons (other than to an
Affiliate), WHO shall notify the Purchasers in writing (the "Tag Along Notice")
of such proposed transfer and its terms and conditions. Within fifteen (15) days
of receipt of a Tag Along Notice, each Purchaser shall notify WHO if it elects
to participate in such transfer ("Tag Along Right") and shall state the number
of shares of Stock or Equity Securities that the Purchaser desires to sell. Upon
electing to transfer, each Purchaser shall be obligated to sell, at the same
price and on the same terms as WHO, the number of shares stated in its notice to
WHO. Each Purchaser may elect to sell such number of shares of Stock and number
of Equity Securities as is equal to the number of shares of Stock and number of
Equity Securities to be transferred multiplied by a fraction, the numerator of
which shall be the aggregate number of shares of Stock and Equity Securities
held by such Purchaser (calculated on a fully diluted basis) and the denominator
of which shall be the aggregate number of shares of Stock and number of Equity
Securities held by all transferors (calculated on a fully diluted basis). Each
such Purchaser shall agree to enter into a purchase agreement in form and
substance approved by WHO to the extent such agreement shall contain customary
representations as to ownership of the shares to be purchased and the absence of
liens thereon. If the sale is not consummated within one hundred eighty (180)
days following the delivery of the Tag Along Notice, then each Purchaser shall
no longer be obligated to sell such Purchaser's shares of Stock and Equity
Securities pursuant to such Tag Along Right but shall remain subject to the
provisions of this Section 3.02 with respect to any subsequent proposed transfer
described
5
<PAGE> 6
in this Section 3.02. In the event that the proposed transferee does not
purchase all the shares of Stock and number of Equity Securities that the
Purchaser elects to sell pursuant to the foregoing on the same terms and
conditions as the securities purchased from WHO, then WHO shall not be permitted
to sell any securities to the proposed transferee. If no Tag Along Notice is
received by the end of the 15 days referred to above, WHO shall have the right
for a 180 day period thereafter to transfer the securities to the proposed
transferee on terms and conditions no more favorable to WHO than those stated in
the Tag Along Notice and in accordance with the provisions of this Section 3.02.
3.03 Drag Along Right.
(a) If at any time the Company or WHO (the "Proposing
Investor") proposes to transfer in a bona fide arm's length sale all or
substantially all of the assets or shares of capital stock of the Company or the
Stock and Equity Securities owned by WHO to any Person or Persons who are not
Affiliates of the Proposing Investor (the "Proposed Transferee"), the Proposing
Investor shall have the right (the "Drag Along Right"), subject to applicable
law and compliance with any other restrictions applicable to such transfer, to
require all Investors to sell, pursuant to Section 3.03(b), to the Proposed
Transferee, on the same terms and conditions as applicable to the Proposing
Investors except as limited in Section 3.03(b), all (but not less than all) of
the shares of such Stock and Equity Securities then held by such Investors.
(b) To exercise a Drag Along Right, the Proposing Investor
shall give each Investor (each, a "Drag-Along Investor"), at least fifteen (15)
days prior to the proposed transfer to the Proposed Transferee, a written notice
(the "Drag Along Notice") containing (a) the name and address of the Proposed
Transferee and (b) the proposed purchase price and the terms of payment and
other material terms and conditions of the Proposed Transferee's offer. Each
Drag-Along Investor shall thereafter be obligated to sell all of its shares of
Stock and Equity Securities to the Proposed Transferee. Each such Drag Along
Investor shall agree to enter into a purchase agreement in form and substance
approved by the Proposing Investors to the extent such agreement shall contain
customary representations from each Drag Along Investor as to ownership of the
shares to be purchased and the absence of liens thereon and customary
indemnification provisions solely with respect to such representations from the
Drag Along Investor. If the sale is not consummated within a period of one
hundred eighty (180) days following the date of the Drag Along Notice, then each
Drag Along Investor shall no longer be obligated to sell such Investor's shares
of Stock and Equity Securities pursuant to such Drag Along Right but shall
remain subject to the provisions of this Section 3.03 with respect to any
subsequent proposed transfer described in this Section 3.03. The Drag-Along
Investor shall not be required to participate in a proposed transfer pursuant to
the exercise of a Drag Along Right unless its liability for breaches of
representations and warranties made in connection with the sale thereunder is
limited to no more than the total sale price received by such Drag-Along
Investor in such sale.
3.04 Transfers to Affiliates; Other Transfers. The Purchasers
agree not to transfer or otherwise dispose of any shares of Preferred Stock or
Equity Securities of the Company or use any shares of Preferred Stock or Equity
Securities of the Company as collateral
6
<PAGE> 7
for the purposes of securing any indebtedness for borrowed money or otherwise;
provided, however, a Purchaser (a) shall transfer its shares of Stock or Equity
Securities as required by Section 3.03, (b) may transfer its shares of Stock and
Equity Securities (i) in accordance with Section 3.02, (ii) to an Affiliate of
such Purchaser that is an investment fund or similar entity and that, in the
reasonable judgement of the Company, is not a competitor of the Company, (iii)
by gift or bequest or through inheritance to, or for the benefit of, a spouse or
children or (iv) by will or the laws of descent and distribution (each
transferee referred to in (ii), (iii) or (iv), a "Permitted Transferee").
3.05 Transferees Subject to Agreement. In the event of any
transfer of shares of Stock or Equity Securities by the Stockholders pursuant to
this Agreement, the transferee shall hold such shares of Stock or Equity
Securities so acquired with all the rights conferred by, and subject to all of
the restrictions imposed by, this Agreement, except if such transferee acquires
such shares of Stock or Equity Securities pursuant to the Company's performance
of its obligation under Sections 4.01 and 4.02 hereof. Any transferee of any
shares of Stock or Equity Securities shall, as a condition of the consummation
of such transfer, agree to be subject to the terms of this Agreement.
3.06 Right of First Refusal.(a) If, at any time, any Purchaser
desires to sell, transfer or otherwise dispose of any shares of Stock or Equity
Securities than owned by such Purchaser (other than a transfer to a Permitted
Transferee or sales pursuant to an effective registration statement under the
Securities Act) to any third party pursuant to a bona fide offer, such selling
Purchaser (the "Seller") shall first give a written notice to the Company and
WHO (the "Seller's Notice") stating the Seller's desire to make such sale,
transfer or other disposition and the terms of the offer, including the identity
of the person making the offer (the "Bona Fide Purchaser"), the amount and kind
of securities proposed to be transferred and the purchase price offered to the
Seller by the Bona Fide Purchaser. The Seller's Notice shall constitute an
irrevocable offer by the Seller to sell to WHO or its Members (the "Eligible
Investors") and the Company such securities at the price and on the terms
offered by the Bona Fide Purchaser.
(i) Within 10 business days after the receipt by WHO and the
Company of the Seller's Notice, the Company may elect to purchase such
securities at the price and on the terms offered by the Bona Fide
Purchaser in cash under this Section 3.06(a) by giving notice to the
Seller, with copies to WHO and the Eligible Investors as to the number,
if any, of such securities it is electing to purchase (the "Company
Notice"). The election to purchase such securities shall be made on
behalf of the Company by those members of the Board of Directors of the
Company not affiliated or associated with the Seller. The Company
Notice shall be deemed to be an irrevocable commitment to purchase from
the Seller in cash at the price and on the terms offered by the Bona
Fide Purchaser the number of such securities that the Company specifies
in the Company Notice. If the Company elects to purchase any of such
securities, the Company shall have 20 business days from the date the
Company Notice has been sent to fund such purchase.
(ii) If the Company does not elect to purchase all of such
securities, WHO may elect (within 5 business days after the receipt by
WHO of the Company Notice) to
7
<PAGE> 8
purchase such securities at the price and on the terms offered by the
Bona Fide Purchase in cash under this Section 3.06(a) by giving a
notice to the Seller, with copies to the Company and the Eligible
Investors, as to the number of such securities, if any, it is electing
to purchase (the "WHO Notice"). The WHO Notice shall be deemed to be an
irrevocable commitment to purchase from the Seller in cash at the price
and on the terms offered by the Bona Fide Purchaser the number of such
securities that WHO has elected to purchase pursuant to the WHO Notice.
If WHO elects to purchase any of such securities, WHO shall have 20
business days from the date the WHO Notice has been sent to fund such
purchase.
(iii) If the Company and WHO do not elect to purchase all of
such securities, any Eligible Investor may elect (within 5 business
days after the date of receipt by the Eligible Investors of the WHO
Notice) to purchase such securities at the price and on the terms
offered by the Bona Fide Purchaser in cash under this Section 3.06(a)
by giving a notice to the Seller, with a copy to the Company and WHO as
to the number of such securities, if any, it is electing to purchase
(the "Eligible Investor Notice"). Each Eligible Investor that is given
an Eligible Investor Notice shall be allocated a portion of the
remaining securities pro rata based on its ownership interest in WHO.
The Eligible Investor Notice shall be deemed to be an irrevocable
commitment to purchase from the Seller in cash at the price and on the
terms offered by the Bona Fide Purchaser the number of such securities
that the Company specified in the Eligible Investor Notice. If an
Eligible Investor elects to purchase any of such securities, such
Eligible Investor shall have 20 business days from the date the
Eligible Investor Notice has been sent to fund such purchase.
(b) If the Company, WHO and the Eligible Investors fail to
elect to purchase such securities within the time periods specified in Section
3.06(a), then the Seller (i) shall be under no obligation to sell any of such
securities to WHO, the Company or any Eligible Investors, unless the Seller so
elects, and (ii) may, within a period of three months from the date of the
Seller's Notice, sell all (but not less than all) such securities to the Bona
Fide Purchaser in cash at a price per share not less than the price and on the
terms offered by the Bona Fide Investor; provided, however, that such Bona Fide
Purchaser shall, in accordance with the provisions of Section 3.05 hereof, agree
to execute and be bound by the terms of this Agreement to the same extent and in
the same manner as the Seller of such shares.
3.07 Restrictive Legends. Each share of Stock and Equity
Securities shall bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
neither the securities nor any interest therein may be
offered, sold, transferred, pledged or disposed of in the
absence of such registration or an exemption under such Act
and the rules and regulations thereunder. The securities
represented by this certificate are subject to, and are
transferable only upon compliance with, the provisions of the
Investors Agreement dated as of
8
<PAGE> 9
January 28, 1999 among Sage Networks, Inc. and certain of its
shareholders. A copy of the above-referenced agreement is on
file at the office of Sage Networks, Inc.
3.08 Expiration of Restrictions. The restrictions set forth in
Article 3 hereof shall expire and be of no further force and effect as of the
Expiration Date.
ARTICLE IV
REGISTRATION RIGHTS
4.01 Piggyback Registration.
(a) If the Company proposes (including in connection with any
demand registration by a Stockholder) to file any registration statement under
the Securities Act with respect to any Stock or Equity Security (other than
pursuant to a registration statement on Form S-4 or S-8 or any successor or
similar forms in connection with an exchange offer or any offering of securities
solely to the Company's then existing stockholders or employees of the Company
and its subsidiaries and other than in connection with the Company's initial
public offering), the Company shall give written notice of such proposed filing
to each Stockholder at least 30 days prior to such proposed filing. Such notice
shall offer to each Stockholder the opportunity to include in such registration
statement for resale by the Stockholders, such number of shares of Common Stock
each may request in a written notice to the Company (which notice shall specify
the number of shares to be disposed of by such holder and the intended method of
disposition thereof) within 20 days after the receipt of such notice from the
Company (a "Piggyback Registration"). The Company shall permit, or shall cause
the managing underwriter of any such proposed offering to permit, the shares of
Stock or Equity Securities requested to be included in the registration to be
included on the same terms and conditions as are applicable to the other Stock
or Equity Securities included in such registration statement. The Company or
such subsidiary, as applicable, shall not be required to maintain the
effectiveness of the registration statement beyond the earlier to occur of (i)
180 days after the effective date of the registration statement; and (ii)
consummation of the distribution by the Stockholders whose shares of Stock or
Equity Securities are included in such registration statement. If a Stockholder
includes shares of Stock or Equity Securities in a Piggyback Registration with
respect to any registration of (i) shares by the Company or (ii) shares held by
one or more of the Company's other stockholders, such Piggyback Registration
shall not be deemed to be the exercise of a Demand Registration Right by such
Stockholder.
(b) If the managing underwriter or underwriters, if any,
advise the Stockholders seeking to register shares of Stock or Equity Securities
under this Section 4.01 in writing that in its or their opinion that, the number
of securities proposed to be sold in such registration (including securities to
be included pursuant to Section 4.01(a) above) will materially adversely affect
the success of such offering, the Company will include in such registration the
number of securities, if any, which in the opinion of such underwriter or
underwriters, or the Company or such subsidiary, as the case may be, can be sold
as follows: (i) first, the shares the Company
9
<PAGE> 10
proposes to sell; (ii) second, the shares of Common Stock requested to be
included in such registration by WHO and the Purchasers; and (iii) third, the
securities requested to be included by each other Person exercising any
Piggyback Registration rights; provided that (a) if all shares requested to be
included in such Piggyback Registration by members of any group set forth above
are not to be included, selection of shares to be included from within such
groups shall be made pro rata based on the number of shares that each member of
such group holds and (b) no Stockholder shall have the right to register shares
pursuant to this Section 4.01 if the Company is at such time, and has been
continuously during the immediately preceding three years, subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act and such
Stockholder is then entitled to sell all of its shares of Stock or Equity
Securities without any volume restrictions pursuant to Rule 144 of the
Securities Act or all of such shares of Stock or Equity Securities may be sold
pursuant to Rule 144(k) of the Securities Act.
4.02 Demand Registration Rights. Upon the written request (the
"Request") of such Stockholder having such rights that the Company register
under the Securities Act any or all shares of Stock or Equity Securities then
held by such Stockholder, the Company will include such shares in a registration
statement on Form S-1, Form S-2 or Form S-3 (or any equivalent form), and use
its best efforts to register such shares, under the Securities Act (a "Demand
Registration Right"). A majority in interest of the Purchasers shall have two
Demand Registration Rights with respect to the registration of shares of Form
S-1 and twenty percent in interest of the Purchasers shall have two Demand
Registration Rights with respect to the registration of shares on Form S-3 at
any time after the Company becomes eligible to use Form S-3. A Demand
Registration Right may not be exercised unless the managing underwriter or
underwriters, if any, or the Purchasers exercising such Demand Registration
Rights, if the offering is not underwritten, advise the Company that the
anticipated aggregate offering price of the shares of Common Stock to be sold by
the Purchasers exercising such Demand Registration Rights is at least
$10,000,000. The Company will promptly give written notice of such requested
registration to all other Stockholders and thereupon will use its best efforts
to effect the registration under the Securities Act of (i) the shares of Stock
or Equity Securities, which the Company has been so requested to register, for
disposition in accordance with the intended method of disposition stated in such
request; and (ii) all other Common Stock, the holders of which shall have,
within 20 days after the receipt of such written notice from the Company, made
written request (which notice shall specify the intended method of disposition
thereof) to the Company for registration thereof, all to the extent required to
permit the disposition (in accordance with the intended method thereof as
aforesaid) by all such holders of securities so to be registered; provided,
however, that the Company shall not be obligated to effect any such registration
pursuant to this Section 4.02 at any time prior to the date six months following
the consummation of the Company's initial public offering. Notwithstanding the
foregoing, the Company may defer the effective date of such Demand Registration
Right for a period of up to 180 days from the date of its receipt of exercise of
the Demand Registration Right or such shorter period provided below, if (i) at
the time of the exercise of the Demand Registration Right, the Company is
engaged in a material transaction or has an undisclosed material corporate
development, which in either case, would be required to be disclosed under the
federal securities laws in the registration statement, and (ii) the Company's
Board of Directors has made a good faith determination that making such
disclosure at such time would materially adversely affect
10
<PAGE> 11
such transaction or development (in which case, the Company shall disclose the
matter as promptly as practicable and promptly thereafter file the registration
statement). The Company may defer a Demand Registration Right for not more than
180 days in any one-year period. If the managing underwriter or underwriters, if
any, advise the Stockholders seeking to register shares of Common Stock, under
this Section 4.02 in writing that in its or their opinion the number of
securities proposed to be sold in such registration will materially adversely
affect the success of such offering, the Company will include in such
registration the number of securities, if any, which in the opinion of such
underwriter or underwriters can be sold on a pro rata basis based on the number
of shares that each Stockholder holds.
4.03 Holdback Agreement. Notwithstanding any other provision
in this Article 4, the Company and each Stockholder whose shares of Common Stock
are included in a registration statement agrees it will not, and the Company
shall use its best efforts to not permit any Affiliate to (and it shall be a
condition to the rights of each Stockholder under this Article 4 that such
Stockholder does not) offer for public sale any shares of Common Stock or Equity
Securities, or effect any sale of securities pursuant to Rule 144, during the 10
days prior to and the 180 days after the closing date of any underwritten
offering thereunder unless such shares are covered by such registration
statement or such shorter period is agreed to by any managing underwriter or
underwriters of such offering.
4.04 Expenses. All Registration Expenses, disbursements and
fees incurred by the Company and the Stockholders in connection with any
registration under this Article 4 shall be borne by the Company.
4.05 Registration Procedures. In connection with the
registration of shares of Stock or Equity Securities under the Securities Act
pursuant to this Agreement, the Company, will furnish each Stockholder whose
shares of Stock or Equity Securities re registered thereunder and each
underwriter, if any, with a copy of the registration statement (including all
exhibits thereto) and all amendments thereto and will supply each such
Stockholder and each underwriter, if any, with copies of any prospectus included
therein (including a preliminary prospectus and all amendments and supplements
thereto) in such quantities as may be reasonably necessary for the purposes of
the proposed sale or distribution covered by such registration.
Notwithstanding anything to the contrary herein, the only
securities which the Company shall be required to register pursuant to this
Article 4 shall be shares of Common Stock; provided, however, that in any
underwritten public offering, the holders of Preferred Stock and any securities
exercisable or exchangeable for or convertible into Common Stock, and any
rights, options or warrants to acquire any of the foregoing, shall be entitled
to sell such securities to the underwriters for exercise, exchange or conversion
and sale of the shares of Common Stock issued upon exercise, exchange or
conversion thereof.
In connection with the Company's registration obligations
pursuant to this Article 4, the Company will use its best efforts to effect such
registration to permit the sale of such shares of Stock or Equity Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will:
11
<PAGE> 12
(a) prepare and file with the SEC, as soon as practicable
after receiving a written notice pursuant to Section 4.02, a registration
statement on any appropriate form under the Securities Act, which form shall be
selected by the Company (and shall be reasonably acceptable to any managing
underwriter chosen by holders of shares covered by such registration statement)
and shall be available for the sale of the shares in accordance with the
intended method or methods of distribution thereof, and use its reasonable
efforts to cause such registration statement to become effective; provided that
before filing a registration statement or any prospectus related thereto or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of any registration statement, the Company will furnish
copies of all such documents proposed to be filed to the holders of the shares
covered by such registration statement and underwriters, if any, and make the
Company's representatives available for discussion of such documents and other
relevant matters and shall reasonably consider such changes in such documents
prior to the filing thereof as such holders or underwriters may timely and
reasonably request. If any Stockholder whose shares of Stock or Equity
Securities are covered by such registration statement shall reasonably object to
any disclosure in or omission from any registration statement or any amendment
thereto or any prospectus or any supplement thereto (including documents
incorporated by reference) which the Company in good faith on the advice of
counsel believes is necessary or appropriate to be included therein or omitted
therefrom, and prior to the effectiveness of such registration advises the
Company that it chooses not to participate in such offering, such Stockholder
may choose not to participate in such offering;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the registration statement as may be necessary to
keep such registration statement effective for the required duration thereof;
cause the related prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the relevant provisions of the Securities Act
during the applicable period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement or
supplement to such prospectus;
(c) notify the selling Stockholders and the managing
underwriters if any, promptly, and (if requested by any such holder) confirm
such advice in writing, (A) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to a registration
statement or any post-effective amendment, when the same has become effective,
(B) of any request by the SEC for amendments or supplements to a registration
statement or related prospectus or for additional information, (C) of the
issuance by the SEC of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that purpose,
(D) of the receipt by the Company of any written notification with respect to
the suspension of the qualification of any of the shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (E) of the existence of any fact known to the Company which results
in a registration statement, a prospectus or any document incorporated therein
by reference containing an untrue statement of a material fact or omitting to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
12
<PAGE> 13
(d) use reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement at the earliest
practicable moment;
(e) if reasonably requested by the managing underwriters or a
selling Stockholder, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters or a
selling Stockholder agree should be included therein, subject to the last
sentence of Section 4.05(a); and promptly make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment;
(f) prior to any public offering of Stock or Equity
Securities, register or qualify or cooperate with the selling Stockholders, the
managing underwriters, if any, and their respective counsel in connection with
the registration or qualification of such shares for offer and sale under the
securities or "blue sky" laws of such jurisdictions within the United States as
any seller or underwriter reasonably requests in writing and do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the shares of Common Stock covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it would not
otherwise be required to be so qualified or to take any action which would
subject itself to taxation (other than a nominal amount) in any such
jurisdiction or to general service of process in any jurisdiction where it is
not then so subject;
(g) cooperate with the selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock to be sold and not bearing any
restrictive legends; and enable such shares to be in such denominations and
registered in such names as the managing underwriters may request at least two
business days prior to any sale of shares to the underwriters;
(h) use its best efforts to cause the shares covered by the
applicable registration statement to be listed or registered with or approved by
any stock exchange or quotation system on which the shares of Stock or Equity
Securities are then listed and by such governmental agencies or authorities
within the United States as may be reasonably necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such shares;
(i) if any fact contemplated by Section 4.05 (c)(E) shall
exist, prepare a supplement or post-effective amendment to the applicable
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the shares of Stock or Equity Securities being
sold thereunder, such prospectus will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(j) provide a CUSIP number for all shares of Stock or Equity
Securities, no later than the effective date of the applicable registration
statement;
13
<PAGE> 14
(k) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such shares of Stock or Equity
Securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration: (A) make such representations and warranties to the holders of
such shares and the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten offerings;
(B) obtain opinions of counsel to the Company (including counsel which may be an
employee of the Company) and updates thereof which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, covering the matters customarily covered in opinions
requested by such holders and underwriters; (C) obtain "cold comfort" letters
and updates thereof from the Company's independent certified public accountants,
addressed to the selling holders and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comforts" letters to underwriters in connection with primary underwritten
offerings; (D) if any underwriting agreement is entered into, the same shall set
forth in full the indemnification provisions and procedures of Section 4.06 with
respect to all parties to be indemnified pursuant to such Section 4.06; and (E)
the Company shall deliver such documents and certificates as may be reasonably
requested by the holders of the Stock or Equity Securities being sold and the
managing underwriters, if any, to evidence compliance with clause (A) hereof and
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The above shall be done at each closing
under such underwriting or similar agreement or as and to the extent otherwise
reasonably required thereunder;
(l) make available for inspection during normal business hours
by a representative of each Stockholder, any underwriter participating in any
disposition pursuant to a registration statement and any attorney or accountants
retained by such selling Stockholders or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by such representative, underwriter, attorney or accountant
in connection with such registration statement; provided, that such
Stockholders, underwriters, attorneys or accountants execute prior thereto an
agreement with the Company that all such records, information or document shall
be kept confidential by such persons unless (A) disclosure of such records,
information or documents is required by law or by court or administrative order,
or (B) such records, information or documents are or become (but only when they
become) generally available to the public other than as a result of disclosure
in violation of this paragraph; and
(m) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to the
Stockholders earnings statements satisfying the provisions of Section 1 l(a) of
the Securities Act no later than 45 days after the end of any 12-month period
(or 90 days, if such period is a fiscal year) (A) commencing at the end of any
fiscal quarter in which shares of Stock or Equity Securities are sold to
underwriters in an underwritten offering, or (B) if not sold to underwriters in
such an offering beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the registration statement, which
statements shall cover such 12-month periods.
14
<PAGE> 15
The Company may require each Stockholder who is a party hereto
as to which any registration is being effected to furnish to the Company such
information and undertakings as it may reasonably request regarding such
Stockholder and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Each Stockholder who is a party hereto agrees (i) that upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 4.05 (c)(E) such Stockholder will forthwith discontinue
such Stockholder's disposition of shares of Stock or Equity Securities pursuant
to the registration statement relating to such shares until such Stockholder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 4.05(i) and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies then in such Stockholder's possession of
the prospectus relating to such shares current at the time of receipt of such
notice and (ii) that such Stockholder will immediately notify the Company, at
any time when a prospectus relating to the registration of such shares is
required to be delivered under the Securities Act, of the happening of any event
as a result of which information previously furnished by such holder to the
Company in writing for inclusion in such prospectus contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein, or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
15
<PAGE> 16
4.06 Indemnification and Contribution.
(a) Indemnification. (i) In the event of any registration
under the Securities Act of any shares of Stock pursuant to this Article 4, the
Company hereby agrees to indemnify and hold harmless each Stockholder offering
or selling such shares and any underwriter, and their respective officers,
directors, stockholders, members, partners and affiliates, in connection with
such offer or sale against such losses, claims, damages, liabilities, costs or
expenses (including reimbursement for reasonable legal and other expenses) to
which any such person may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages, liabilities, costs or expenses arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such shares
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any application or other filing under any "blue sky" or
state securities law, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof), cost or expense arises out of or is based upon an untrue
statement or omission or alleged omission made in such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, or application or other filing, in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by any holder of the Company's securities or underwriter.
(ii) In the event of any registration under the Securities Act
of any shares of Common Stock pursuant to this Article 4, each Stockholder whose
shares of Stock or Equity Securities are included in such registration hereby
agrees to indemnify and hold harmless, but only for an amount, with respect to
such Stockholder, not in excess of the net proceeds realized by such Stockholder
from the sale of its shares of Common Stock registered pursuant to such
registration statement, both the Company and its officers, directors,
stockholders and affiliates, and any underwriter, and their respective officers,
directors, stockholders and affiliates, in connection with such offer or sale
against such losses, claims, damages, liabilities, costs or expenses (including
reimbursement for reasonable legal and other expenses) to which any such person
may become subject under the Securities Act or otherwise insofar as such losses,
claims, damages, liabilities, costs or expenses arise out of or are based solely
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such shares were registered
under the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto, or
any application or other filing under any "blue sky" or state securities law, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent that
such untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
16
<PAGE> 17
prospectus, amendment or supplement, or application or other filing, is
contained in any written information furnished to the Company through an
instrument duly executed by such holder.
(b) Contribution.(i) If the indemnification provided for in
Section 4.06(a) is unavailable to persons to be indemnified pursuant thereto in
respect of any losses, claims, damages, liabilities, costs or expenses referred
to therein, then the Company, in lieu of indemnifying such person, shall
contribute to the amount paid or payable by such person as a result of such
losses, claims, damages, liabilities, costs or expenses, in such proportion as
is appropriate to reflect the relative fault of the Company and such persons in
connection with the actions which resulted in such losses, claims, damages,
liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the Company and such persons shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the Company or such persons, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, costs and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.06(b) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 4.06(b), an
indemnified person shall not be required to contribute any amounts in excess of
the amount by which the total price at which the shares of Stock or Equity
Securities were sold by such indemnified person and distributed to the public
exceeds the amount of any damages which such indemnified person has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission and provided, however, that such Stockholder's
aggregate liability shall be limited to the net proceeds realized by such
Stockholder in such offering. No person guilty of fraudulent misrepresentation
(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.
(iii) If indemnification is available under this Section 4,
the Company shall indemnify each indemnified party to the full extent provided
herein without regard to the relative fault of the Company or the indemnified
party or any other equitable consideration provided for in this Section 4.06(b).
(iv) In the event that any provisions of an indemnification
clause in an underwriting agreement executed by or on behalf of a holder differs
from a provision in this Article IV, such provision in the underwriting
agreement shall determine such holder's rights in respect thereof.
17
<PAGE> 18
ARTICLE V
RIGHT TO ACQUIRE SECURITIES
5.01 Right to Acquire Securities. If at any time the Company
proposes to issue in any non-public offering Stock or Equity Securities of the
Company (except for (i) issuances pursuant to the terms of any stock option or
other incentive plan duly approved by the Board of Directors or (ii) issuances
in connection with (w) a conversion or exchange of any outstanding securities,
(x) a stock dividend, (y) an acquisition pursuant to the Company's acquisition
strategy set forth in the Company's Confidential Offering Memorandum dated March
12, 1998, as amended through January 15, 1999, without regard to the aggregate
amount of such offering specified in such Confidential Offering Memorandum, (z)
a merger, reclassification or other reorganization, then, as to the Purchasers,
so long as they shall hold any shares of Preferred Stock or Common Stock, the
Company shall:
(a) give written notice setting forth in reasonable detail (i)
the designation and all of the terms and provisions of the equity securities
proposed to be issued (the "Proposed Securities"), including, where applicable,
the voting powers, preferences and relative participating, optional or other
special rights, and the qualification, limitations or restrictions thereof and
interest or dividend rate and maturity; (ii) the price and other terms of the
proposed sale of such securities; (iii) the amount of such securities proposed
to be issued; and (iv) such other information as may be reasonably required or
requested by any such Stockholder in order to evaluate the proposed issuance;
and
(b) each Purchaser shall have the option to acquire a number
of shares or, if applicable, share equivalents of the Proposed Securities equal
to the number of shares of the Proposed Securities multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock or Common Stock
Equivalents held by such Purchaser and the denominator of which shall be the
total number of shares of Common Stock outstanding on a fully diluted basis.
(c) Each such Purchaser that wishes to exercise its purchase
rights hereunder shall deliver a written notice to that effect to the Company
within fifteen (15) days after its receipt of the notice specified in Section
5.01(a) from the Company. To the extent that a sufficient number of shares of
Common Stock or Common Stock Equivalents are not available for such purpose, the
Company shall take all action necessary and proper to authorize and issue such
Common Stock or Common Stock Equivalents.
(d) Upon the expiration of the offering period described
above, the Company will be free to sell Proposed Securities that such Purchasers
have not elected to purchase during the ninety (90) days following such
expiration on terms and conditions (considered as a whole) no more favorable to
the buyers thereof than those offered to such Purchasers. Any Proposed
Securities offered or sold by the Company after such 90-day period must be
re-offered to such Purchasers pursuant to this Section 5.01. The election by any
such Purchaser not to exercise its
18
<PAGE> 19
subscription rights under this Section 5.01 in any one instance shall not affect
its right (other than in respect of a reduction in its percentage holdings) as
to any subsequent proposed issuance. Any sale of such securities by the Company
without first giving such Purchasers the rights described in this Section 5.01
shall be void and of no force and effect, and the Company shall cause any
correction required to be effected.
5.02 Expiration of Right. The parties hereto agree that the
rights set forth in Article V hereof shall expire and be of no further force and
effect as of the Expiration Date.
ARTICLE VI
CERTAIN REPRESENTATIONS AND COVENANTS
6.01 Stockholder Representation. Each Stockholder represents
and warrants as to itself that as of the Closing Date (after giving effect to
all transactions occurring on or as of the Closing Date) such Stockholder is not
a party with any other Person to any other agreement with respect to the
holding, voting, acquisition or disposition of shares of Stock or Equity
Securities except as previously disclosed to the other Stockholders.
6.02 Company Representation. The Company represents and
warrants that as of the Closing Date (after giving effect to all transactions
occurring on or as of the Closing Date) (i) it is not a party with any other
Person to any other agreement with respect to the holding, voting, acquisition
or disposition of shares of Stock or Equity Securities to the other
Stockholders, and (ii) it has not granted to any other Person any other
registration rights with respect to capital stock of the Company, and no holder
of any capital stock of the Company shall have as of the date hereof any right
to require registration of any capital stock of the Company under the Securities
Act or to include any security in any registration statement filed by the
Company under the Securities Act except pursuant hereto; provided, however, that
the Company is a party to the Registration Rights Agreement dated as of December
8, 1997, between the Company and WHO.
19
<PAGE> 20
ARTICLE VII
MISCELLANEOUS
7.01 Injunctive Relief. It is acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with certain of the obligations imposed on them by this
Agreement, including without limitation those obligations set forth in Article
II, Article III, Article IV and Article V and that in the event of any such
failure, an aggrieved Person will be irreparably damaged and will not have an
adequate remedy at law. Any such Person shall, therefore, be entitled to
injunctive relief and/or specific performance to enforce such obligations, and
if any action should be brought in equity to enforce any of such provisions of
this Agreement, none of the parties hereto shall raise the defense that there is
an adequate remedy at law.
7.02 Further Assurances. Each party hereto shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as any other party hereto reasonably may request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
7.03 Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of New York.
7.04 Entire Agreement; Amendment; Waiver. This Agreement (i)
contains the entire agreement among the parties hereto with respect to the
subject matter hereof, (ii) supersedes all prior written agreements and
negotiations and oral understandings, if any, with respect thereto, (iii) may
not be amended or supplemented except by an instrument or counterparts thereof
in writing signed by the Company, WHO and a majority in interest of the
Purchasers then holding Stock or Equity Securities. No waiver of any term or
provision shall be effective unless in writing signed by the party to be charged
and such waiver shall not be effective to any other provision of this Agreement.
7.05 Binding Effect. This Agreement shall be binding on and
inure to the benefit of the parties hereto and, subject to the terms and
provisions hereof, their respective legal representatives, successors and
permitted assigns.
7.06 Invalidity of Provision. The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction.
7.07 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, all of which taken together shall be
deemed but one and the same instrument.
20
<PAGE> 21
7.08 Notices. All notices and other communications provided
for or given or made hereunder shall be in writing (including delivery by
facsimile transmission) and, unless otherwise provided herein, shall be deemed
to have been given when received by the party to whom such notice is to be given
at its address set forth in the Note and Stock Purchase Agreement, or such other
address for the party as shall be specified by notice given pursuant hereto.
7.09 Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute part of this Agreement.
21
<PAGE> 22
IN WITNESS WHEREOF, this Agreement has been executed by or on
behalf of each of the parties hereto as of the date first above written.
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
------------------------------
Name: Leonard J. Fassler
Title: Co-Chairman
STOCKHOLDERS:
WEB HOSTING ORGANIZATION, L.L.C.
By: /s/ Jay M. Gates
-------------------------------
Name: Jay M. Gates
----------------
Title: Authorized Signatory
SOFTBANK TECHNOLOGY VENTURES IV, L.P.
By: STV IV LLC, its general partner
By: /s/ Charles R. Lax
-------------------------------
Charles R. Lax, Managing Member
SOFTBANK TECHNOLOGY VENTURES IV, L.P.
By: STV IV LLC, its managing partner
By: /s/ Charles R. Lax
-------------------------------
Charles R. Lax, Managing Member
SOFTBANK TECHNOLOGY ADVISORS FUND, L.P.
By: STV IV LLC, its managing partner
By: /s/ Charles R. Lax
-------------------------------
Charles R. Lax, Managing Member
<PAGE> 23
SCHEDULE I
STOCKHOLDERS' OWNERSHIP OF SECURITIES OF THE COMPANY
<TABLE>
<CAPTION>
Common Stock
- ------------
<S> <C>
WEB HOSTING ORGANIZATION, L.L.C. 18,600,000 shares
Series A Convertible Preferred Stock
SOFTBANK TECHNOLOGY VENTURES IV, L.P. 2,597,882 shares
SOFTBANK TECHNOLOGY ADVISORS FUND, L.P. 49,776 shares
Warrants
SOFTBANK TECHNOLOGY VENTURES IV, L.P. 735,532 shares of Common Stock
SOFTBANK TECHNOLOGY ADVISORS FUND, L.P. 14,093 shares of Common Stock
</TABLE>
<PAGE> 1
Exhibit 4.3
SECURITIES PURCHASE AGREEMENT
between
SAGE NETWORKS, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of January 28, 1999
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I THE PREFERRED SHARES AND THE WARRANTS ...............................1
Section 1.1. Issuance, Sale and Delivery of the Preferred Shares .........1
Section 1.2. Issuance, Sale and Delivery of the Warrants .................1
Section 1.3. Purchase Price of Preferred Shares and Warrants .............1
Section 1.4. Warrants not Issued as Compensation .........................1
Section 1.5. Closing .....................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY ......................2
Section 2.1. Organization, Qualifications and Corporate Power ............2
Section 2.2. Authorization of Agreements, Etc. ...........................3
Section 2.3. Validity ....................................................4
Section 2.4. Authorized Capital Stock ....................................4
Section 2.5. Financial Statements ........................................5
Section 2.6. Events Subsequent to the Date of the Unaudited
Financial Statements ......................................5
Section 2.7. Litigation; Compliance with Law .............................6
Section 2.8. Patents, Trademarks, Etc. ...................................7
Section 2.9. Leasehold Interests; Title to Property ......................7
Section 2.10. Insurance ...................................................8
Section 2.11. Taxes .......................................................8
Section 2.12. Agreements ..................................................8
Section 2.13. Loans and Advances ..........................................9
Section 2.14. Assumptions, Guaranties, Etc. of Indebtedness of
Other Persons .............................................9
Section 2.15. Governmental Approvals ......................................9
Section 2.16. Disclosure ..................................................9
Section 2.17. Brokers .....................................................9
Section 2.18. Officers ...................................................10
Section 2.19. Transactions With Affiliates ...............................10
Section 2.20. Employees and Consultants ..................................10
Section 2.21. ERISA ......................................................10
Section 2.22. Labor Relations ............................................11
Section 2.23. Environmental Matters ......................................11
Section 2.24. Investment Company Act .....................................12
Section 2.25. Private Offering ...........................................12
Section 2.26. Holding Company ............................................12
Section 2.27. Year 2000 Compliance .......................................12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS .................13
i
<PAGE> 3
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS ...................14
ARTICLE V COVENANTS OF THE COMPANY ...........................................17
Section 5.1. Financial Statements, Reports. Etc .........................17
Section 5.2. Inspection, Consultation and Advice ........................17
Section 5.3. Board of Directors Meetings ................................18
Section 5.4. Indemnification of Directors ...............................18
Section 5.5. Employee and Consultant Nondisclosure and Development
Agreements ...............................................18
Section 5.6. Termination of Covenants ...................................18
Section 5.7. Certain Non-Dilutive Stock Issuances .......................18
Section 5.8. Issue Tax ..................................................18
ARTICLE VI MISCELLANEOUS .....................................................19
Section 6.1. Expenses ...................................................19
Section 6.2. Survival of Agreements .....................................19
Section 6.3. Brokerage ..................................................19
Section 6.4. Parties in Interest ........................................19
Section 6.5. Notices ....................................................19
Section 6.6. Governing Law ..............................................20
Section 6.7. Entire Agreement ...........................................20
Section 6.8. Counterparts ...............................................20
Section 6.9. Amendments .................................................20
Section 6.10. Severability ...............................................20
Section 6.11. Titles and Subtitles .......................................20
Section 6.12. Assignment .................................................20
Section 6.13. Certain Defined Terms ......................................20
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
INDEX TO EXHIBITS
EXHIBIT A Form of Investors Agreement
EXHIBIT B Form of Amendment to Certificate of Incorporation
EXHIBIT C Form of Warrant
EXHIBIT D Form of Non-Disclosure and Development Agreement
ii
<PAGE> 4
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as of
January 28, 1999 between Sage Networks, Inc., a Delaware corporation (the
"Company"), and the several purchasers named in the attached Schedule I
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 2,647,658 shares (the "Preferred Shares") of the authorized but
unissued Series A Convertible Preferred Stock, $.01 par value, of the Company
(the "Series A Preferred Stock"); and
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 749,625 warrants (the "Warrants") for the purchase of Common Stock,
$.01 par value, (the "Common Stock") of the Company; and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Shares and the Warrants on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
THE PREFERRED SHARES AND THE WARRANTS
Section 1.1. Issuance, Sale and Delivery of the Preferred Shares.
The Company agrees to issue and sell to each Purchaser, and each Purchaser
hereby agrees to purchase from the Company, the number of Preferred Shares set
forth opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I.
Section 1.2. Issuance, Sale and Delivery of the Warrants. The
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Warrants set forth opposite
the name of such Purchaser under the heading "Number of Warrants to be
Purchased" on Schedule I.
Section 1.3. Purchase Price of Preferred Shares and Warrants. The
aggregate purchase price for the Preferred Shares and the Warrants to be paid by
each Purchaser is the amount set forth opposite the name of such Purchaser under
the heading "Aggregate Purchase Price" on Schedule I.
Section 1.4. Warrants not Issued as Compensation. The Company and
the Purchasers, having adverse interests and as a result of arm's length
bargaining, agree that (i) the Warrants are being issued in consideration of
certain financial accommodations provided by the Purchasers to the Company, (ii)
neither the Purchasers nor any of their affiliates or associates have rendered
or agreed to render any services to
<PAGE> 5
the Company in connection with this Agreement or the issuance of the Warrants,
and (iii) the Warrants are not being issued to the Purchasers as compensation
for services.
Section 1.5. Closing. The closing shall take place at the office of
Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York 10019, at
10 a.m., on January 28, 1999, or at such other location, date and time as may be
agreed upon between the Purchasers and the Company or via facsimile at such date
and time as may be agreed upon between the Purchasers and the Company (such
closing being called the "Closing" and such date and time being called the
"Closing Date"). At the Closing, the Company shall issue and deliver to each
Purchaser (i) a stock certificate or certificates in definitive form, registered
in the name of such Purchaser, representing the Preferred Shares being purchased
by it and (ii) a warrant or warrants in the form attached hereto as Exhibit C,
registered in the name of such Purchaser, representing the Warrants being
purchased by it, in each case, at the Closing. As payment in full for the
Preferred Shares and the Warrants being purchased by it under this Agreement,
and against delivery of the stock certificate or certificates and warrant
therefor as aforesaid, on the Closing Date each Purchaser shall deliver to the
Company by wire transfer the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price for Preferred Shares" on
Schedule I.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except
as set forth in the Disclosure Schedule attached as Schedule II:
Section 2.1. Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and perform this
Agreement and the Investors Agreement with the Purchasers in the form attached
as Exhibit A (the "Investors Agreement"), to issue, sell and deliver the
Preferred Shares and the Warrants and to reserve for issuance the shares of
Common Stock, $.01 par value, of the Company ("Common Stock") issuable upon
conversion of the Preferred Shares and upon exercise of the Warrants
(collectively, the "Conversion Shares").
(b) The Company has no subsidiaries except as set forth on Schedule
II. Except with respect to the subsidiaries listed on Schedule II, the Company
does not (i) own of record or beneficially, directly or indirectly, (A) any
shares of capital stock or securities convertible into capital stock of any
other corporation or (B) any participating
2
<PAGE> 6
interest in any partnership, joint venture or other non-corporate business
enterprise or (ii) control, directly or indirectly, any other entity. Each
subsidiary of the Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification. Each subsidiary of the
Company has the corporate power and authority to own and hold its properties and
to carry on its business as now conducted and as proposed to be conducted. All
of the outstanding shares of capital stock of each such subsidiary are owned
beneficially and of record by the Company free and clear of any liens, charges,
restrictions, claims or encumbrances of any nature whatsoever; and there are no
outstanding subscriptions, warrants, options, convertible securities, or other
rights (contingent or other) pursuant to which any such subsidiary is or may
become obligated to issue any shares of its capital stock to any person other
than the Company.
Section 2.2. Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement and
the Investors Agreement, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and delivery of the Preferred
Shares and the Warrants, and the issuance and delivery of the Conversion Shares
(i) have been duly authorized by all requisite corporate action, (ii) will not
violate any provision of law, any order of any court or other agency or
government, the Certificate of Incorporation, as amended (the "Charter") or the
By-laws of the Company, as amended, or any provision of any indenture, agreement
or other instrument to which the Company or any of its properties or assets is
bound, or conflict with, result in a breach of, constitute (with due notice or
lapse of time or both) a default under, accelerate or terminate any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company and (iii) will
not require any notice, consent or waiver under any material indenture,
agreement or other instrument to which the Company is a party or by which any of
its properties or assets are bound.
(b) When issued in accordance with this Agreement, the Preferred
Shares will be duly authorized, validly issued, fully paid and nonassessable
shares of Series A Preferred Stock with no personal liability attaching to the
ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in this Agreement, the Investors Agreement and the Charter. When
issued in accordance with this Agreement, the Warrants will be duly authorized
and validly issued and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in this Agreement, the Investors Agreement, the Warrant and the
Charter. Prior to the Closing Date, the Conversion Shares will be duly reserved
for issuance upon conversion of the Preferred Shares and exercise of the
Warrants and, when so issued, will be duly
3
<PAGE> 7
authorized, validly issued, fully paid and nonassessable shares of Common Stock
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in the Investors Agreement.
Neither the issuance, sale or delivery of the Preferred Shares or the Warrants
nor the issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company, or to any right of first
refusal or other right in favor of any person, which have not been duly and
validly waived.
Section 2.3. Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Investors
Agreement and the Warrants, when executed and delivered in accordance with this
Agreement, will constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.
Section 2.4. Authorized Capital Stock. The authorized capital stock
of the Company consists of 37,647,658 shares. Immediately prior to the Closing,
the authorized capital stock of the Company will consist of (i) 35,000,000
shares of Common Stock of which 19,217,197 shares will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and (ii) 2,647,658 shares of Preferred Stock, $.01 par
value, all of which shall have designated Series A Convertible Preferred Stock
of which no shares will have been issued. The stockholders of record and holders
of subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each, are as set forth in the attached Schedule III. The Company has
attached a copy of the post-closing capitalization schedule as a part of
Schedule III. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Amendment to the Charter, a
copy of which is attached as Exhibit B and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable in accordance with applicable laws. Except as set forth
in the attached Schedule III, (i) no person owns of record or is known to the
Company to own beneficially any share of Common Stock, (ii) no subscription,
warrant, option, convertible security, or other right (contingent or other) to
purchase or otherwise acquire equity securities of the Company is authorized or
outstanding, and (iii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities or other such rights or
to distribute to holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Charter or as set forth in
the attached Schedule II, the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as set forth in Schedule II, the Company is not a party
to any voting trusts or
4
<PAGE> 8
agreement, stockholders' agreement, pledge agreement, buy-sell agreement, or any
agreement giving rights of first refusal, preemptive rights or proxies relating
to any securities of the Company, and to the best of the Company's knowledge
there are no voting trusts or agreements, stockholders' agreements, pledge
agreements, buy-sell agreements, rights of first refusal, preemptive rights or
proxies relating to any securities of the Company. All the outstanding
securities of the Company were issued in compliance with applicable federal and
state securities laws.
Section 2.5. Financial Statements.
(a) The Company has furnished to the Purchasers the audited balance
sheet of the Company as of December 31, 1997 and the related audited statements
of income, stockholders' equity and cash flows of the Company for the year ended
December 31, 1997 (the "Audited Financial Statements"). The Audited Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the financial position of the
Company as of December 31, 1997 and the results of its operations, stockholders'
equity and cash flows for the year ended December 31, 1997.
(b) The Company has furnished to the Purchasers the unaudited
balance sheet of the Company and its consolidated subsidiaries as of December
31, 1998 and the related unaudited statements of income, stockholders' equity,
and cash flows of the Company for the year then ended (together, the "Unaudited
Financial Statements"). The Unaudited Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except that such Unaudited Financial Statements do not contain footnotes and
are subject to normal year-end adjustment including but not limited to
adjustments to purchase price of acquired companies and the effects of changes
to the useful lives of intangible assets) and fairly present the financial
position of the Company and its consolidated subsidiaries as of December 31,
1998 and the results of its operations, stockholders' equity and cash flows for
the year then ended. Since the date of the Unaudited Financial Statements,
except as disclosed to the Purchasers (i) there has been no change in the
assets, liabilities (whether accrued, fixed, contingent or other) or financial
condition of the Company from that reflected in the Unaudited Financial
Statements except for changes in the ordinary course of business which in the
aggregate have not had a Material Adverse Effect (as defined below) and (ii) no
subsequent occurrence or development, individually or in the aggregate, whether
or not insured against, has had a Material Adverse Effect. As used herein, a
"Material Adverse Effect" means any effect that is, or would reasonably be
expected to be, individually or in the aggregate, materially adverse to the
business, financial condition, property, affairs or operations of the Company
and its consolidated subsidiaries.
Section 2.6. Events Subsequent to the Date of the Unaudited
Financial Statements. Except as set forth in the attached Schedule II, since the
date of the Unaudited Financial Statements, neither the Company nor any
subsidiary thereof has (i) issued any stock, bond or other corporate security,
(ii) borrowed any amount or incurred
5
<PAGE> 9
or become subject to any liability (absolute, accrued or contingent), except
current liabilities incurred and liabilities under contracts entered into in the
ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Unaudited Financial
Statements and current liabilities incurred since the date of the Unaudited
Financial Statements in the ordinary course of business, (iv) declared or made
any payment of dividends or distribution to stockholders or purchased or
redeemed any shares of its capital stock or other security, (v) mortgaged,
pledged, encumbered or subjected to lien any of its assets, tangible or
intangible, other than liens of current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets except in
the ordinary course of business, or canceled any debt or claim, (vii) sold,
assigned, transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service mark, copyright, trade secret or other
intangible asset, (viii) suffered any material damage, destruction or loss of
property (whether or not covered by insurance) or waived any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation except in the ordinary course of business,
(x) made any material change in the manner of business or operations of the
Company or any subsidiary thereof, (xi) entered into any transaction except in
the ordinary course of business or as otherwise contemplated hereby or (xii)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
Section 2.7. Litigation; Compliance with Law. Except as set forth in
the attached Schedule II, there is no (i) action, suit, claim, proceeding or
investigation pending or, to the best of the Company's knowledge, threatened
against the Company or any of its assets or its properties, at law or in equity,
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding relating to the Company or any subsidiary thereof pending
under collective bargaining agreements or otherwise or (iii) governmental
inquiry pending or, to the best of the Company's knowledge, threatened against
the Company or any subsidiary thereof. There are no actions or proceedings
pending or threatened by the Company or any subsidiary thereof against any third
party. Neither the Company nor any subsidiary thereof is in default with respect
to any order, writ, injunction or decree served upon the Company or such
subsidiary of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. To the best of the Company's knowledge, (x) the Company and
each subsidiary thereof has complied in all material respects with all laws,
rules, regulations and orders applicable to its business, operations,
properties, assets, products and services and (y) there is no such law, rule,
regulation or order that would prohibit the Company or any subsidiary thereof
from conducting its business as conducted or as proposed to be conducted. The
Company and each subsidiary thereof has all necessary permits, licenses and
other authorizations required to conduct its business as conducted and as
proposed to be conducted, and the Company and each subsidiary thereof has been
operating its business pursuant to and in compliance with the terms of all such
permits, licenses and other authorizations, in any
6
<PAGE> 10
such case, other than any failure with such terms which would not have a
Material Adverse Effect.
Section 2.8. Patents, Trademarks, Etc. The Company owns or possesses
adequate licenses, assignments or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, copyrights, software, source code, object code,
manufacturing processes, formulae, trade secrets, customer lists and know how,
including any third party rights connected therewith (collectively,
"Intellectual Property") necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending against the Company or,
to the best of the Company's knowledge, threatened to the effect that the
operations of the Company infringe upon or conflict with the asserted rights of
any other person under any Intellectual Property. The Company has not licensed
on an exclusive basis any of its Intellectual Property.
To the knowledge of the Company, no claim is pending against the
Company or threatened to the effect that any such Intellectual Property owned or
licensed by the Company, or which the Company otherwise has the right to use, is
invalid or unenforceable by the Company. There are no restrictions on the
ability of the Company to compete against any third party.
The Company has taken reasonable measures to protect and preserve
the security, confidentiality and value of its Intellectual Property, including
its trade secrets and other confidential information. To the knowledge of the
Company, no employee or consultant of the Company has used any trade secrets or
other confidential information of any other person in the course of their work
for the Company. To the knowledge of the Company, the Company is not making
unlawful use of any confidential information or trade secrets of any past or
present employees of the Company.
The Company does not have any agreements or arrangements with former
employers of any of its employees relating to confidential information or trade
secrets of such employers. To the knowledge of the Company, the activities of
the Company's employees on behalf of the Company do not violate any agreements
or arrangements known to the Company which any such employees have with former
employers or any other entity to whom such employees may have rendered
consulting services.
Section 2.9. Leasehold Interests; Title to Property. (a) Neither the
Company nor any subsidiary thereof owns any real property. Each lease or
agreement to which the Company or any subsidiary thereof is a party under which
it is a lessee of any property, real or personal, which leases and agreements
are set forth on the attached Schedule II, is a valid and subsisting agreement.
No event has occurred and is continuing which, with due notice or lapse of time
or both, would constitute a default or event of default by the Company or any
subsidiary thereof under any such lease or agreement or, to the best of the
Company's knowledge, by any other party thereto. The Company has not received
any notice of termination under any such lease.
7
<PAGE> 11
(b) The Company and its subsidiaries own their respective properties
and assets reflected on the Unaudited Financial Statements or acquired by them
since the date of the Unaudited Financial Statements (other than properties and
assets disposed of in the ordinary course of business since the date of the
Unaudited Financial Statements), and all such properties and assets are free and
clear of mortgages, pledges, security interests, liens, charges, claims,
restrictions and other encumbrances, except for (i) liens for or current taxes
not yet due and payable, (ii) liabilities reflected on the Unaudited Financial
Statements or set forth on the attached Schedule II and (iii) liabilities which
are not material in nature or amount.
Section 2.10. Insurance. The insurance policies set forth on
Schedule II constitute all of the policies of insurance maintained by the
Company and are in full force and effect. All premiums with respect to such
policies that have become due and payable have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
Section 2.11. Taxes. The Company has filed all foreign, federal,
state and local income, excise or franchise tax returns, real estate and
personal property tax returns, sales and use tax returns and other tax returns
required to be filed by it (and such returns are true and correct in all
material respects) and has paid all taxes owed by it, except taxes which have
not yet accrued or otherwise become due or for which adequate provision has been
made in the Audited Financial Statements and Unaudited Financial Statements, as
appropriate. The provision for taxes on the Unaudited Financial Statements is
sufficient as of its date for the payment of all accrued and unpaid federal,
state, county and local taxes of any nature of the Company, and any applicable
taxes owing to any foreign jurisdiction, whether or not assessed or disputed.
All taxes and other assessments and levies which the Company is required to
withhold or collect have been withheld and collected and have been paid over to
the proper governmental authorities, except where the failure to pay would not
have a Material Adverse Effect. With regard to the income tax returns of the
Company, the Company has not received notice of any audit or of any proposed
deficiencies from any taxing authority, and no controversy with respect to taxes
of any type is pending or, to the knowledge of the Company, threatened. There
are in effect no waivers of applicable statutes of limitations with respect to
any taxes owed by the Company for any year.
Section 2.12. Agreements. The Company believes that none of the
business agreements, instruments and documents to which the Company or any
subsidiary thereof is a party are individually material to the business of the
Company and its consolidated subsidiaries based on the revenues payable or
receivable thereunder, and all such agreements, instruments and documents are
valid, binding and in full force and effect. The Company is a party to several
agreements to provide connectivity which contain penalties if the agreements are
terminated by the Company prior to the end of the stated term thereof. The
Company and each subsidiary thereof, and to the best of the Company's knowledge,
each other party thereto, have in all material respects performed all the
obligations required to be performed by them to date (or each non-performing
8
<PAGE> 12
party has received a valid, enforceable and irrevocable written waiver with
respect to its non-performance), have received no notice of default and are not
in default (with due notice or lapse of time or both) under any agreement,
instrument, commitment, plan or arrangement to which the Company or any
subsidiary thereof is a party or by which it or its property may be bound. The
Company is in compliance with all of the terms and provisions of its Charter and
By-laws, as amended.
Section 2.13. Loans and Advances. Neither the Company nor any
subsidiary has any outstanding loans or advances to any person and is not
obligated to make any such loans or advances, except, in each case, for advances
to employees of the Company or a subsidiary thereof in respect to reimbursable
business expenses anticipated to be incurred by them in connection with their
performance of services for the Company or such subsidiary.
Section 2.14. Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. Neither the Company nor any subsidiary thereof has assumed, guaranteed,
endorsed or otherwise become directly or contingently liable on any indebtedness
of any other person (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor, or otherwise to assure the
creditor against loss), except for guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
Section 2.15. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement or the Investors Agreement, the issuance, sale and delivery of
the Preferred Shares and the Warrants or, upon conversion or exercise thereof,
the issuance and delivery of the Conversion Shares, other than filings pursuant
to Federal and/or state securities laws (all of which filings have been made by
the Company, other than those which are required to be made after the Closing
and which will be duly made on a timely basis) in connection with the sale of
the Preferred Shares and the Warrants.
Section 2.16. Disclosure. To the best of the Company's knowledge and
the knowledge of each of its subsidiaries, neither this Agreement, nor any
Schedule or Exhibit to this Agreement, the Unaudited Financial Statements nor
any other document, certificate or written instrument furnished to the
Purchasers by the Company pursuant to this Agreement, contains an untrue
statement of a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading.
Section 2.17. Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
9
<PAGE> 13
Section 2.18. Officers. Set forth in Schedule II is a list of the
names of the officers of the Company. None of such persons has an employment
agreement or understanding, whether oral or written, with the Company, which
does not expire in accordance with its terms on or before December 31, 1999.
Section 2.19. Transactions With Affiliates. Except as set forth on
the attached Schedule II, no director, officer, employee or stockholder of the
Company or any subsidiary thereof, or member of the family of any such person,
or any corporation, partnership, trust or other entity in which any such person,
or any member of the family of any such person, has a substantial interest or is
an officer, director, trustee, partner or holder of more than 5% of the
outstanding capital stock thereof, is a party to any transaction with the
Company or any subsidiary, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by, rental
of real or personal property from or otherwise requiring payments to any such
person or firm, other than employment at will arrangements in the ordinary
course of business.
Section 2.20. Employees and Consultants. Except as set forth on the
attached Schedule II, each of the officers of the Company, each key employee and
each other employee now employed by the Company or any subsidiary thereof and
each consultant to the Company or any subsidiary thereof, in each case, who has
access to confidential information of the Company or any subsidiary thereof has
executed a Nondisclosure and Development Agreement (collectively, the
"Nondisclosure and Development Agreements") in the form attached hereto as
Exhibit D, and such agreements are in full force and effect. No officer or key
employee of the Company has advised the Company (orally or in writing) that he
intends to terminate employment with the Company.
Section 2.21. ERISA.
(a) Schedule II lists each Employee Plan and each Benefit
Arrangement, copies or descriptions of which have previously been made available
or furnished to the Purchasers.
(b) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its Affiliates have not incurred
any liability under Title IV of ERISA arising in connection with the termination
of any plan covered or previously covered by Title IV of ERISA. There is no
pending, threatened or anticipated action, suit or claim relating to the
Employee Plans or Benefit Arrangements (other than routine claims for benefits).
No transaction has occurred with respect to an Employee Plan that would
reasonably be expected to subject the Company to a material tax or penalty. All
contributions required to be made by the Company under the terms of any Employee
Plan or Benefit Arrangement have been timely made or have been reflected in the
Unaudited Financial Statements. No Employee Plan or Benefit Arrangement covers
any non-United States employee of the Company or non-United States former
employee of the Company.
10
<PAGE> 14
(c) Each Employee Plan and each Benefit Arrangement has been
maintained in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Employee Plan or Benefit Arrangement.
(d) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. The Company has
furnished to the Purchasers copies of the most recent Internal Revenue Service
determination letters with respect to each such plan.
Section 2.22. Labor Relations. Neither the Company nor any
subsidiary is engaged in any unfair labor practice (under any applicable Federal
or state law) that would reasonably be expected to have a Material Adverse
Effect, nor is there any charge or complaint current or pending, nor to the
Company's best knowledge, threatened against the Company or any subsidiary
thereof relating to such practice. Neither the Company's nor any it its
subsidiary's employees are not represented by a labor union and no union
organizing activity has commenced. Neither the Company nor any subsidiary
thereof is a party to any collective bargaining agreement.
Section 2.23. Environmental Matters.
(a) The Company and each subsidiary thereof has (i) complied in all
material respects with the Environmental Laws applicable to it, (ii) provided to
the Purchasers a copy of any order, notice, permit, application, or any other
written communication or report received by the Company from any governmental
authority or any other person or sent by or for the Company to a governmental
authority in connection with any matter relating to environmental laws
applicable to the Company and (iii) has provided the Purchasers with copies of
any environmental assessment reports, certificates, engineering studies or other
written material or data the Company may have relating to environmental laws
applicable to the Company. There is no Environmental Claim pending or, to the
knowledge of the Company, threatened against the Company or any subsidiary
thereof with respect to the operations or business of the Company or any
subsidiary thereof.
(b) For purposes of this Section 2.24 (i) "Environmental Claim"
means any claim, action, cause of action, investigation of which the Company,
including any of its management employees, are aware, or written notice by any
person alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (a) the presence, or release into the
environment, of any Material of Environmental Concern at any location owned,
leased, used or operated by the Company or any subsidiary thereof, or (b)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law; (ii) "Environmental Laws" means all Federal, state and local
laws
11
<PAGE> 15
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata and natural resources), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environmental Concern;
and (iii) "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, industrial, toxic or hazardous wastes, substances or constituents,
petroleum and petroleum products (or any by-product or constituent thereof),
asbestos or asbestos-containing materials, or PCBs.
Section 2.24. Investment Company Act. The Company is not a
"registered investment company" within the meaning of the Investment Act of
1940, as amended.
Section 2.25. Private Offering. Assuming the correctness of the
representations and warranties set forth in Article III hereof, the offer and
sale of the Preferred Shares and the Warrants to the Purchasers hereunder is
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"). The Company has complied and will comply with all applicable
federal and state securities laws in connection with the offer, issuance and
sale of the Preferred Shares and the Warrants. Neither the Company nor anyone
acting on its behalf has or will sell, offer to sell or solicit offers to buy
the Preferred Shares or the Warrants or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, so as to bring the issuance and
sale of the Preferred Shares and the Warrants under the registration provisions
of the Securities Act and applicable state securities laws.
Section 2.26. Holding Company. The Company is not a "holding
company" or a "subsidiary company" as such terms are defined in the Public
Utility Holding Company Act of 1934, as amended.
Section 2.27. Year 2000 Compliance. The Company is using reasonable
procedures to verify that the software used in its products will recognize and
process date fields after the turn of the century, and perform date-dependent
calculations and operations (including sorting, comparing and reporting) after
the turn of the century correctly, and is using reasonable efforts to ensure
that its software will not produce invalid and/or incorrect results as a result
of the change of century (all without human intervention, other than original
data entry of valid dates), provided that the software receives correct and
properly formatted date inputs from all software and hardware that exchanges
data with or provides data to the software.
12
<PAGE> 16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company
that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares or Warrants;
(b) it received any materials in connection with the offering of the
Preferred Shares and Warrants and first learned of such offering in the state
listed as its address set forth on Schedule I hereto, and intends that the state
securities laws of that state alone shall govern its purchase of Preferred
Shares;
(c) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(d) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(e) the Preferred Shares and the Warrants being purchased by it are
being acquired for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof without
prejudice, however, to its rights at all times to sell or otherwise dispose of
all or part of such Preferred Shares, subject to the provisions of Section 6.12
of this Agreement, or pursuant to a registration statement under the Securities
Act or pursuant to an exemption from the registration requirements under the
Securities Act;
(f) it understands that (i) the Preferred Shares, the Warrants and
the Conversion Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act, (ii) the Preferred Shares and Warrants and,
upon conversion or exercise thereof, the Conversion Shares must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration, (iii) the Preferred Shares,
the Warrants and the Conversion Shares will bear a legend to such effect and
(iv) the Company will make a notation on its transfer books to such effect; and
(g) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in order
to perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
13
<PAGE> 17
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the
Preferred Shares and the Warrants being purchased by it on the Closing Date is,
at its option, subject to the satisfaction, on or before the Closing Date, of
the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from Dewey Ballantine LLP, special counsel for the Company or from the general
counsel of the Company, one or more opinions dated as of the Closing Date, in
form and scope satisfactory to the Purchasers and their counsel, to the effect
that:
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation. The
Company has the corporate power and authority to execute, deliver and perform
this Agreement and the Investors Agreement, to issue, sell and deliver the
Preferred Shares and the Warrants and, upon conversion or exercise thereof, to
issue and deliver the Conversion Shares. The Company has the corporate power and
authority to own its properties and to conduct its business as it is presently
being conducted.
(ii) This Agreement and the Investors Agreement have been duly
authorized, executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms (subject, as to enforcement of remedies, to the
discretion of courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally), except that such counsel need not express any opinion as
to the validity or enforceability of the indemnification and contribution
provisions of the Investors Agreement.
(iii) The execution and delivery by the Company of this Agreement
and the Investors Agreement, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and delivery of the Preferred
Shares and the Warrants and, upon conversion or exercise thereof, the issuance
and delivery of the Conversion Shares, will not (x) violate any provision of law
applicable to the Company, the Charter or By-laws, as amended, of the Company,
(y) to the knowledge of such counsel, violate any order of any court or other
agency of government specifically applicable to the Company or its property or
any agreement of the Company, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a material default under,
accelerate or terminate any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company.
(iv) The authorized capital stock of the Company as of the date
hereof consists of (i) 2,647,658 shares of Series A Convertible Preferred Stock,
$.0l par value (the "Series A Preferred Stock") and (ii) 35,000,000 shares of
Common Stock.
14
<PAGE> 18
Immediately prior to the Closing, 19,217,197 shares of Common Stock will be
validly issued and outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and no shares of Series A Preferred
Stock will have been issued. The Series A Preferred Stock, when issued to the
Purchasers pursuant to the terms of this Agreement and for the consideration set
forth herein, will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof.
Immediately prior to the Closing, based on a review by such counsel of the stock
record and minute books of the Company, the amount of Common Stock issuable
pursuant to warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each, will be as set forth in Schedule II and Schedule III.
(v) Except as otherwise set forth on Schedule II of this Agreement,
to the best of such counsels' knowledge, there is no litigation or governmental
proceeding or investigation pending or threatened before any New York or United
States federal court or governmental agency or body against the Company or any
subsidiary thereof.
(vi) The Preferred Shares, the Warrants and the Conversion Shares
have been duly authorized. The issuance, sale and delivery of the Preferred
Shares and the Warrants and the issuance and delivery of the Conversion Shares
upon conversion of the Preferred Shares and the exercise of the Warrants have
been duly authorized by all required corporate action; the Preferred Shares have
been validly issued, are fully paid and nonassessable with no personal liability
attaching to the ownership thereof; the Warrants have been validly issued and
the Conversion Shares have been duly reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants and, when issued in accordance
with the terms of this Agreement and the Company's Charter, as amended, will be
validly issued, fully paid and nonassessable with no personal liability
attaching to the ownership thereof. Neither the issuance, sale or delivery of
the Preferred Shares nor the issuance or delivery of the Conversion Shares is
subject to any preemptive right of stockholders of the Company arising under law
or the Charter or By-laws of the Company, each as amended, or, to the knowledge
of such counsel, to any contractual right of first refusal or other right in
favor of any person, except as set forth on Schedule II. Except as otherwise set
forth on Schedule II of this Agreement, to the best of our knowledge, there are
no agreements to acquire shares of capital stock of the Company or commitments
on the part of the Company to issue securities or rights to securities of the
Company.
(vii) Assuming the accuracy of the representations and warranties of
the Purchasers set forth in Article III, the offer and sale of the Preferred
Shares and the Warrants pursuant to the terms of this Agreement and the
Investors Agreement are exempt from the registration requirements of Section 5
of the Securities Act, as amended, and, under such securities laws as they
presently exist, the issuance of Conversion Shares
15
<PAGE> 19
upon conversion of the Preferred Shares or exercise of the Warrants will also be
exempt from such registration and qualification requirements.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and an
authorized officer of the Company shall have certified to such effect to the
Purchasers in writing.
(c) Performance. The Company shall have performed and complied in
all material respects with all agreements contained herein required to be
performed or complied with by it prior to or at the Closing Date, and an
authorized officer of the Company shall have certified to the Purchasers in
writing to such effect and to the further effect that all of the conditions set
forth in this Article IV have been satisfied.
(d) Supporting Documents. The Purchasers and their counsel shall
have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the Secretary
of State of the State of Delaware and (B) a certificate of said Secretary dated
as of a recent date as to the due incorporation and good standing of the
Company;
(ii) a certificate of the Secretary or an Assistant Secretary of the
Company dated the Closing Date and certifying: (A) that attached thereto is a
true and complete copy of the By-laws of the Company as in effect on the date of
such certification; (B) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors and the stockholders of the
Company authorizing the execution, delivery and performance of this Agreement
and the Investors Agreement, the issuance, sale and delivery of the Preferred
Shares and the Warrants and the reservation, issuance and delivery of the
Conversion Shares, and that all such resolutions are in full force and effect;
(C) that the Charter has not been amended since the date of the certificate
delivered pursuant to clause (i)(B) above; and (D) to the incumbency and
specimen signature of each officer of the Company executing this Agreement and
the Investors Agreement, the Warrants, the stock certificates representing the
Preferred Shares and any certificate or instrument furnished pursuant hereto;
and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the Purchasers or
their counsel reasonably may request.
(e) Investors Agreement. The Company and Web Hosting Organization
LLC (the "Prior Investor") shall have executed and delivered the Investors
Agreement.
(f) Charter. The Charter shall read in its entirety as set forth in
Exhibit B.
16
<PAGE> 20
(g) Prior Investor Funding. The Prior Investor shall have exercised
all of its rights to purchase Common Stock pursuant to the Subscription
Agreement dated December 8, 1997 with the Company (the "Subscription Agreement")
and shall pay the remaining consideration thereof within 30 days following the
date of this Agreement. If such payment is not made within such period, the
Purchasers shall be entitled to (i) antidilution adjustments in accordance with
the Charter and (ii) preemptive rights in accordance with the Investors
Agreement in connection with any subsequent purchase of Common Stock in the
Company by the Prior Investor. If such payment is made during such period, the
Purchasers shall not be entitled to such antidilution adjustments or preemptive
rights.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
Section 5.1. Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser holding any Preferred Shares until the consummation of
a firm commitment underwritten public offering of Common Stock by the Company
with a nationally recognized investment banking firm which results in gross
proceeds to the Company equal to or greater than $30,000,000 and in which the
pre-money valuation of the Company immediately prior to such offering is equal
to or greater than $150,000,000 (a "Qualifying Public Offering"):
(a) within ninety (90) days after the end of each fiscal year of the
Company a consolidated balance sheet of the Company and its subsidiaries as of
the end of such fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and certified by a firm
of independent public accountants of recognized national standing selected by
the Board of Directors of the Company;
(b) within thirty (30) days after the end of each month in each
fiscal year monthly financial statements of the Company and its subsidiaries in
the form prepared for the Board of Directors of the Company;
(c) no later than forty-five (45) days prior to the start of each
fiscal year, an annual budget for the Company and its subsidiaries in respect of
such fiscal year.
Section 5.2. Inspection, Consultation and Advice. So long as a
Purchaser shall own at least 40% of the Preferred Shares purchased pursuant to
this Agreement and prior to the Company's initial public offering, the Company
shall permit and cause each of its subsidiaries to permit each Purchaser and
such persons as it may designate, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and its subsidiaries, examine their
books, discuss the affairs, finances and accounts of the Company and its
subsidiaries with their officers and public accountants
17
<PAGE> 21
and consult with the management of the Company and its subsidiaries as to their
affairs, finances and accounts, all during normal business hours and upon
reasonable prior request; provided, however, that prior to inspecting or
discussing any Confidential Information any such person (other than the
Purchasers and their employees, members or partners) shall enter into a
confidentiality agreement with the Company with respect to such Confidential
Information.
Section 5.3. Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at least
once each quarter until the Board of Directors of the Company determines that
quarterly meetings are not required. The Company will reimburse the members of
the Board of Directors for their reasonable out of pocket expenses incurred in
connection with attending such meetings.
Section 5.4. Indemnification of Directors. The Company shall at all
times maintain provisions in its By-laws or Charter indemnifying all directors
against liability to the maximum extent permitted under the laws of the state of
its incorporation.
Section 5.5. Employee and Consultant Nondisclosure and Development
Agreements. The Company shall use its reasonable commercial efforts to obtain,
and shall cause its subsidiaries to use their reasonable commercial efforts to
obtain, Nondisclosure and Development Agreements and Non-Competition Agreements
from all future employees and consultants who will have access to confidential
information of the Company or any of its subsidiaries, upon their employment by
the Company or any of its subsidiaries.
Section 5.6. Termination of Covenants. The covenants set forth in
Sections 5.1 through 5.5 shall terminate and be of no further force or effect on
the earlier of (i) the date on which the Purchasers (in the aggregate) no longer
own at least 40% of the Preferred Shares (or Common Stock issued on conversion
thereof) purchased pursuant to this Agreement and (ii) the date of consummation
of the Company's initial public offering.
Section 5.7. Certain Non-Dilutive Stock Issuances. Common Stock
issued by the Company in an amount which does not result in antidilution
protection for the Purchasers in accordance with Article IV, (c), Section
4(d)(I)(5)(H) of the Charter of the Company shall be used solely as
consideration for acquisitions by the Company pursuant to its acquisition
strategy as set forth in the Company's Confidential Offering Memorandum dated
March 12, 1998, as amended through January 15, 1999, without regard to the
aggregate amount of such offering specified in such Confidential Offering
Memorandum.
Section 5.8. Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of Series A Preferred Stock or exchange of the
Warrant shall be made without charge to the holders thereof for any issuance tax
in respect thereof, provided that the Company shall not be required to pay any
tax which may be
18
<PAGE> 22
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Preferred
Stock which is being converted or the Warrant which is being exercised.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Expenses. Each party hereto will pay its own expenses
in connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the reasonable fees and expenses of the Testa, Hurwitz & Thibeault, LLP, counsel
for the Purchasers in connection with such transactions.
Section 6.2. Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Investors Agreement shall
survive the execution and delivery of this Agreement and the Investors
Agreement, the issuance, sale and delivery of the Preferred Shares, the Warrants
and the issuance and delivery of the Conversion Shares.
Section 6.3. Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
Section 6.4. Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares, Warrants or Conversion Shares.
Section 6.5. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at 11 Martine Avenue, White Plains, N.Y.
10606, Attention: General Counsel, with a copy to E. Ann Gill, Dewey Ballantine
LLP, 1301 Avenue of the Americas, New York, N.Y. 10019; and
(b) if to any Purchaser, at the address of such Purchaser set forth
in Schedule I, with a copy to Jocelyn M. Arel, Testa, Hurwitz & Thibeault, LLP,
125 High Street, High Street Tower, Boston, MA 02110;
19
<PAGE> 23
(c) or, in any such case, at such other address or addresses as
shall have been furnished in writing by such party to the others.
Section 6.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the General Corporation Law of the State of
Delaware as to matters within the scope thereof, and by the laws of the State of
New York as to all other matters.
Section 6.7. Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, and the Investors Agreement constitutes the sole
and entire agreement of the parties with respect to the subject matter hereof.
Section 6.8. 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.
Section 6.9. Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent of
the Company and the holders of at least a majority of the Conversion Shares.
Section 6.10. Severability. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
Section 6.11. Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
Section 6.12. Assignment. The rights granted pursuant to this
Agreement may be assigned or otherwise conveyed by a Purchaser to any purchaser
of the Preferred Shares or Warrants from such Purchaser provided that (i) such
assignee is an investment fund or similar investment vehicle, (ii) such assignee
is not a direct competitor of the Company and (iii) the Purchaser shall notify
the Company of such transfer prior to its occurrence.
Section 6.13. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Benefit Arrangement" means each employment, severance or other
similar contract, arrangement or policy (written or oral) and each plan or
arrangement (written or oral) providing for severance benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits
20
<PAGE> 24
which (i) is not an Employee Plan and (ii) covers any employee or former
employee of the Company.
(b) "Confidential Information" means all confidential information
and trade secrets of the Company including, without limitation, the identity,
lists or descriptions of any customers, referral sources or organizations;
financial statements, cost reports or other financial information contract
proposals, or bidding information; business plans and training operations
methods and manuals; personnel records; fee structure; and management systems,
policies or procedures, including related forms and manuals.
(c) "Employee Plan" means each "employee benefit plan," as such term
is defined in Section 3(3) of ERISA, that (A)(i) is subject to any provision of
ERISA and (ii) is maintained to by the Company, or (B)(i) is subject to any
provision of Title IV of ERISA and (ii) is maintained or contributed to by any
of the Company's ERISA Affiliates.
(d) "ERISA" means the Employment Retirement Income Security Act of
1974, as amended.
(e) "ERISA Affiliate" of any entity means any other entity that,
together with such entity, would be treated as a single employer under Section
414 of the Code.
(f) "Multiemployer Plan" means each Employee Plan that is a
Multiemployer plan, as defined in Section 3(37) of ERISA.
(g) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE> 25
IN WITNESS WHEREOF, the Company and the Purchasers have executed
this Securities Purchase Agreement as of the day and year first above written.
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
-------------------------------------
Name: Leonard J. Fassler
Title: Co-Chairman
PURCHASERS:
SOFTBANK TECHNOLOGY VENTURES
IV, L.P.
By: STV IV LLC, its general partner
By: /s/ Charles R. Lax
-------------------------------------
Charles R. Lax, Managing Member
SOFTBANK TECHNOLOGY ADVISORS FUND,
L.P.
By: STV IV LLC, its general partner
By: /s/ Charles R. Lax
-------------------------------------
Charles R. Lax, Managing Member
22
<PAGE> 26
SCHEDULE I
Purchasers
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name and Address Number of Preferred Number of Warrants Aggregate Purchase
of Purchaser Shares to be to be Purchased Price
Purchased
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SOFTBANK 2,597,882 735,532 $12,755,600.62
TECHNOLOGY
VENTURES IV,
L.P.
333 W. San Carlos
Street, Suite 125
San Jose, CA
95110
- --------------------------------------------------------------------------------
SOFTBANK 49,776 14,093 244,400.16
TECHNOLOGY
ADVISORS FUND,
L.P.
333 W. San Carlos
Street, Suite 125
San Jose, CA
95110
- --------------------------------------------------------------------------------
Total 2,647,658 749,625 $13,000,000.78
- --------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 27
SCHEDULE II
Disclosure Schedule
Section 2.1(b) Subsidiaries
Sage Networks Acquisition Corp.
B.N. Technology, Inc.
Section 2.4 Authorized Capital Stock
The Prior Investor has the right to acquire 6.6 million additional shares
of Common Stock pursuant to the Subscription Agreement dated as of
December 8, 1997. The Prior Investor has exercised such right but has not
yet funded such purchase.
Each of Steven C. Dabbs, Santa Fe Capital Group of New Mexico, Inc.,
Software Business Technologies, Inc., All Information Systems, Inc., Jab
Web, Inc., BestWare, Inc., Bernd Neumann and Andrea Neumann, Thomas Gorny
and Thomas Heimann and Pamela Karasy have entered into letter agreements
with the Company granting the Company a right of first refusal with
respect to the shares of Common Stock of the Company owned by each of
them.
The Company has entered into letters of intent with respect to the
acquisitions of Net Daemons Associates, Inc., Digiweb, Inc. and
Telephonetics International, Inc. which are contemplated to include Common
Stock of the Company as all or a portion of the consideration.
Section 2.6 Subsequent Events
The Prior Investor has the right to acquire 6.6 million additional shares
of Common Stock pursuant to the Subscription Agreement dated as of
December 8, 1997. The Prior Investor has exercised such right but has not
yet funded such purchase.
The Company is negotiating the terms of a $6 million equipment lease
facility with Funding Resources Inc.
The Company has entered into letters of intent with respect to the
acquisitions of Net Daemons Associates, Inc., Digiweb, Inc. and
Telephonetics International, Inc. which are contemplated to include Common
Stock of the Company as all or a portion of the consideration.
24
<PAGE> 28
Section 2.7 Litigation
The Company is the subject, from time to time, of investigations by
governmental and quasi governmental entities relating to the use by its
customers of Web sites which are hosted by the Company.
Section 2.9 Leasehold Interests
The Company leases space located in the following buildings:
64 Perimeter Center East
Suite G-300
Atlanta, GA 30346
14 Piedmont Center, Suite 100
3535 Piedmont Road N.E.
Atlanta, GA 30305
(HomeCom Communications, Inc.)
215 First Street, 5th Floor
Cambridge, MA 02142
55 John Street
New York, NY
(Tri Star Web Creations)
17000 Dallas Parkway, Suite 155
Dallas, TX 75248
(All Information Systems, Inc.)
7783-7789 Sunset Blvd.
Los Angeles, CA 90046
(B.N. Technology, Inc.)
7925 Westpark Drive
Suite B1
McLean, VA 22102
8619 Westwood Center Drive
Tysons Corner, VA
11 Martine Avenue
White Plains, NY 10606
25
<PAGE> 29
Section 2.10 Insurance Policies
Section 2.18 Officers
Leonard J. Fassler, Co-Chairman, Secretary
Bradley A. Feld, Co-Chairman
Stephen Maggs, President and Treasurer
Rajat Bhargava, Executive Vice President
Bruce S. Klein, Senior Vice President, General Counsel
Francis J. Alfano, Senior Vice President, Strategic Mergers and
Acquisitions
William Wilson, Chief Financial Officer
Section 2.19 Transactions with Affiliates
Sage Equities, Inc., which is controlled by Leonard J. Fassler, and
Intensity Ventures, Inc., which is controlled by Bradley A. Feld, are
parties to oral consulting arrangements with the Company. Bradley A. Feld
is a general partner of a Purchaser.
Section 2.20 Nondisclosure and Development Agreements
Since December, 1998, the Company has required each employee to sign such
an agreement. Prior to such time, some employees may not have signed such
agreements. It is the Company's intention to require such agreements from
each employee.
Section 2.21(a) Employee Plans and Benefit Arrangements
Substantially all of the Company's employees are employed through
arrangements with TriNet Employer Group. All liability for the plans (with the
exception of the Sage Networks 401k Savings Plan) reside with TriNet Employer
Group. Benefit offerings from TriNet Employer Group became effective on February
9, 1998
Article VII Medical Plans
Preferred Provider Plans (available nationally)
United Healthcare Preferred Provider Organization (PPO)- High Plan
United Healthcare PPO - Basic Plan
HMO/EPO Plans (availability varies regionally)
United Healthcare Managed Care HMO/EPO (availability varies by location)
United Healthcare Select HMO (available most areas (except CA))
26
<PAGE> 30
Tufts HMO (New England)
Aetna/US Healthcare HMO (NY, NJ, PA)
United Healthcare Choice HMO (California)
Kaiser HMO (California)
Alliant Select HMO (Washington State)
United Healthcare EPO (in selected areas - where no HMO is available)
ARTICLE VIII Dental Insurance
Delta Dental Plan of California - available in all areas
Administered by TriNet
ARTICLE IX Vision Plan
Vision Service Plan (VSP) - available in all areas
Administered by TriNet
ARTICLE X Life/Disability Insurance
Metropolitan Life Life Insurance - 2X annual salary
Administered by TriNet
Optional Supplemental Life Insurance may be purchased in $10,000 increments up
to $800,000 from Met Life. A separate underwriting process takes place to
purchase the optional amounts.
ARTICLE XI Short Term Disability/Long Term Disability
From Metropolitan Life
Administered by TriNet
Short Term Disability - (up to 180 days) - minimum of 60% income replacement up
to $2,300/wk
Long Term Disability -- (after 180 days)- minimum of 60% income replacement up
to $10,000 per month
ARTICLE XII Section 125 Flexible Spending Accounts
Administered by TriNet per IRS and other government regulations
Health Care: Minimum Contribution: $200; Maximum $4,800.
Dependent Care: Minimum Contribution: $200; Maximum $5,000.
ARTICLE XIII Employee Assistance Programs
27
<PAGE> 31
Relationships with counseling organizations administered by TriNet
Free of charge to employees to provide assistance with personal issues
Concern EAP -- An employee assistance program (e.g. substance abuse,
emotional/psychological counseling, financial counseling, relationship
problems).
Dependent Care Referral Program -- Assistance for elder care or day care.
Employee counseling and referral service. Provider Organization: Family Care,
Inc., Pleasanton, CA
ARTICLE XIV Optional Legal Services
Legal Insurance Network Services
For employee to gain access to a "legal HMO" to obtain legal advice or lower
legal fees.
Available in all areas
Administered by TriNet
Insured by the ARAG Group
West DesMoines, Iowa
401k Plan
Employees are eligible to participate in the 401k plan after 30 days of service.
Sage Networks 401k Employee Savings Plan
MassMutual Account No. FL 51084-1-1-1
Administered by Sage Networks, Inc.
Plan Provider:
MassMutual
1295 State Street
Springfield, MA
28
<PAGE> 32
SCHEDULE III
The Company is a party to a Subscription Agreement and a Registration
Rights Agreement with the Prior Investor, each of which is dated December 8,
1997.
29
<PAGE> 1
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT
BETWEEN
SAGE NETWORKS, INC.
AND
WEB HOSTING ORGANIZATION LLC
Dated as of December 8, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Definitions .............................................................1
2. Required Registration ...................................................2
3. Incidental Registration .................................................3
4. Registration Procedures .................................................3
5. Expenses ................................................................5
6. Indemnification and Contribution ........................................5
7. Market Stand-Off Agreement ..............................................8
8. Miscellaneous ...........................................................8
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement, dated as of December __, 1997,
between SAGE NETWORKS, INC., a Delaware corporation (the "Company") and WEB
HOSTING ORGANIZATION LLC (the "Investor").
WITNESSETH
WHEREAS, the Company and the Investor have entered into a
Subscription Agreement (the "Purchase Agreement"), dated as of the date hereof,
pursuant to which the Company issued and sold to the Investor, and the Investor
purchased from the Company, an aggregate of 1,000,000 shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock"); and
WHEREAS, in order to induce the Investor to enter into the Purchase
Agreement (and to purchase such shares of Common Stock) the Company has agreed
to provide certain registration rights with respect thereto;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, it
is agreed as follows:
1. Definitions. The following terms shall have (unless otherwise provided
elsewhere in this Registration Rights Agreement) the following respective
meanings (such meanings being equally applicable to both the singular and plural
form of the terms defined):
"Agreement" means this Registration rights Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Common Stock" has the meaning given to it in the recitals hereto.
"Indemnified Party" has the meaning given to it in Section 6(c).
"Indemnifying Party" has the meaning given to it in Section 6(c).
"NASD" means the National Association of Securities Dealers, Inc.,
or any successor corporation thereto.
<PAGE> 4
"Purchase Agreement" has the meaning given to it in the recitals
hereto.
"Registering Security Holder" has the meaning given to it in Section
3.
"Registrable Securities" means, collectively, (i) the shares of
Common Stock issued and sold to the Investor pursuant to the Purchase Agreement,
(ii) any shares of Common Stock hereafter acquired by the Investor, or (iii) any
shares of Common Stock hereafter distributed to the Investor by the Company as a
stock dividend, stock spit, recapitalization, reclassification or otherwise;
provided, however, that any such securities shall cease to be Registrable
Securities when (i) such securities shall have been registered under the
Securities Act, the registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of pursuant to such effective registration
statement, (ii) such securities shall have been otherwise transferred, if new
certificates or other evidences of ownership for them not bearing a legend
restricting further transfer and not subject to any stop transfer order or other
restrictions on transfer shall have been delivered by the Company and subsequent
disposition of such securities shall not require registration or qualification
of such securities under the Securities Act or any state securities law then in
force, (iii) such securities shall cease to be outstanding or (iv) such
securities shall be eligible for sale pursuant to Rule 144(k) under the
Securities Act or any successor rule which permits resale of such securities
without restriction.
2. Required Registration. From and after the earlier of December __,
1998 or 180 days after the closing of the Company's first underwritten public
offering of its capital stock, after receipt of a written request from the
Investor the Company shall, as expeditiously as is possible, use its best
efforts to effect the registration under the Securities Act of all shares of
Registrable Securities which the Company has been so requested to register;
provided, however, that, subject to the provisions of the immediately following
sentence, the Company shall not be required to effect more than three
registrations of Registrable Securities pursuant to this Section 2. In order to
count as an "effected" registration statement, such registration statement shall
not have been withdrawn and all Registrable Securities registered pursuant to it
(excluding any overallotment shares) shall have been sold. The Company shall
have the right to defer the filing of any registration statement requested
pursuant to this Section 2 for a period not to exceed ninety (90) days if in the
good faith determination of the Board of Directors of the Company the filing of
such registration statement would be seriously detrimental to the Company.
2
<PAGE> 5
3. Incidental Registration. If the Company at any time proposes to
file on its behalf and/or on behalf of any of its security holders (the
"Registering Security Holders") a Registration Statement under the Securities
Act on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of the Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to any class of
equity security (as defined in Section 3(a)(11) of the Securities Exchange Act)
of the Company, it will give written notice to the Investor at least 30 days
before the initial filing with the Commission of such Registration Statement,
which notice shall set forth the intended method of disposition of the
securities proposed to be registered by the Company. The notice shall offer to
include in such filing the aggregate number of shares of Registrable Securities
as the Investor may request.
The Company shall thereupon include in such filing the number of
shares of Registrable Securities for which registration is so requested, subject
to the next sentence, and shall use its best efforts to effect registration
under the Securities Act of such shares. If the managing underwriter of a
proposed public offering shall advise the Company in writing that, in its
opinion, the distribution of the Registrable Securities requested to be included
in the registration concurrently with the securities being registered by the
Company or such Registering Security Holder would materially and adversely
affect the distribution of such securities by the Company or such Registering
Security Holder, then all Registering Security Holders shall reduce the amount
of securities each intended to distribute through such offering on a pro rata
basis. If, after excluding all securities desired to be offered by the
Registering Security Holders, the managing underwriter of the proposed public
offering shall advise the Company in writing that, in its opinion, the
distribution of the Registrable securities requested to be included in the
registration concurrently with the securities being registered by the Company
would materially and adversely affect the distribution of such securities, then
the Investor shall reduce the amount of Registrable Securities it intends to
distribute to the extent necessary to permit such distribution.
4. Registration Procedures. If the Company is required by the
provisions of section 2 or 3 to use its best efforts to effect the registration
of any of its securities under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of time
required for the dis-
3
<PAGE> 6
position of such securities by the holders thereof, but not to exceed 180 days;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of 180 days;
(c) furnish to the Investor such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such selling security holders may reasonably request;
(d) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or blue sky
laws of such jurisdictions within the United States and Puerto Rico as each
holder of such securities shall request (provided, however, that the Company
shall not be obligated to qualify as a foreign corporation to do business under
the laws of any jurisdiction in which it is not then qualified or to file any
general consent to service of process), and do such other reasonable acts and
things as may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such Registration
Statement;
(e) furnish, in connection with any registration of
Registrable Securities, on the date that such shares of Registrable Securities
are delivered to the underwriters for sale pursuant to such registration or, if
such Registrable Securities are not being sold through underwriters, on the date
that the Registration Statement with respect to such shares of Registrable
Securities becomes effective, (1) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then to the Investor, in customary form and covering
matters of the type customarily covered in such legal opinions; and (2) a
comfort letter dated such date, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and if such
Registrable Securities are not being sold through underwriters, then to the
Investor and, if such accountants refuse to deliver such letter to the Investor,
then to the Company in a customary form and covering matters of the type
customarily covered by such comfort letters and as the underwriters or such
holder(s) shall reasonably request;
4
<PAGE> 7
(f) enter into customary agreements (including an underwriting
agreement in customary form with customary indemnification provisions) and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities; and
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not later than 18
months after the effective date of the Registration Statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date of such Registration Statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act.
It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Agreement in respect of the securities which
are to be registered at the request of the Investor that (i) the Investor shall
furnish to the Company such information regarding the securities held by the
Investor and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required under the Securities Act in
connection with the action taken by the Company and (ii) that the Investor shall
deliver and perform under such underwriting agreement as may be reasonably
requested by the underwriters.
5. Expenses. All expenses incurred in complying with this Agreement,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company and counsel for the Investor, expenses
of any special audits incident to or required by any such registration and
expenses of complying with the securities or blue sky laws of any jurisdictions
pursuant to Section 4(d), shall be paid by the Company, except that the Company
shall not be liable for any fees, discounts or commissions to any underwriter in
respect of the securities sold by the Investor.
6. Indemnification and Contribution. (a) In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
this Agreement, the Company shall indemnify and hold harmless the Investor, its
directors and officers, and each other Person (including each underwriter) who
participated in the offering of such Registrable Securities and each other
Person, if any, who controls the Investor or such participating Person within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, the Investor or any such director or officer or
participating Person or controlling Person may become subject under the
Securities Act, the Securities Exchange Act, state securities or blue sky laws
or any other statute or at common
5
<PAGE> 8
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue 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 amendment or supplement
thereto, (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 or alleged violation by the Company of the
Securities Act, the Securities Exchange Act, state securities or blue sky laws,
any other statute or common law; and the company shall reimburse the Investor or
such director, officer or participating Person or controlling Person for any
legal or any other expenses reasonably incurred by the Investor or such
director, officer or participating Person or controlling Person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus, prospectus or amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by the
Investor specifically for use therein. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Investor
or such director, officer or participating Person or controlling Person, and
shall survive the transfer of such securities by the Investor.
(b) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, the Investor
shall indemnify and hold harmless the Company, its directors and officers, and
each other Person (including each underwriter) who participated in the offering
of such Registrable Securities and each other Person, if any, who controls the
company or such participating Person within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director or officer or participating Person or
controlling Person may become subject under the Securities Act, the Securities
Exchange Act, state securities or blue sky laws or 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 untrue 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 amendment or supplement
thereto, or arise out of or are based upon 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, in each case where such statement or
omission is in conformity with written information
6
<PAGE> 9
provided by the Investor expressly for use therein, and shall reimburse the
Company or such director, officer or participating Person or controlling Person
for any legal or any other expenses reasonably incurred by the Company or such
director, officer or participating Person or controlling Person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Investor shall not be liable for any amounts
in excess of the net proceeds received by it for the sale of its shares. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or such director, officer or participating
Person or controlling Person, and shall survive the transfer of such securities
by the Investor.
(c) Each party entitled to indemnification under this Section
6 shall give notice to the party required to provide indemnification promptly
after such indemnified party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the indemnifying party to assume the
defense of any such claim or any litigation resulting therefrom; provided, that
counsel for the indemnifying party, who shall conduct the defense of such claim
or litigation, shall be approved by the indemnified party (whose approval shall
not be unreasonably withheld); and, provided, further, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 6. The indemnified
party may participate in such defense at such party's expense; provided,
however, that the indemnifying party shall pay such expense if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between the
indemnified party and any other party represented by such counsel in such
proceeding. No indemnifying party, in the defense of any such claim or
litigation shall, except with the consent of each indemnified party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation, and no indemnified party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
indemnifying party.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
7
<PAGE> 10
considerations; provided that in the case of the Investor, such contribution
shall not exceed any amounts in excess of the net proceeds received by the
Investor for the sale of its shares. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not also guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and the Investor under this
Section 6 shall survive the completion of any offering of Registrable Shares in
a registration statement under Sections 2 and 3, and otherwise.
7. Market Stand-Off Agreement. If requested by an underwriter of
securities of the Company the Investor shall not sell or otherwise transfer or
dispose of any securities held by it during the one hundred twenty (120) day
period following the effective date of a Registration Statement; provided, that
all officers and directors of the Company, as well as all beneficial owners of
greater than 10% of the Company's Common Stock, enter into similar agreements.
8. Miscellaneous.
(a) No Inconsistent Agreements. This agreement supersedes all
prior agreements regarding registration rights between the Company and the
Investor and all such prior agreements are deemed terminated hereby. The Company
is a party to no other agreements regarding registration rights. The Company
will not hereafter enter into any agreement with respect to its securities which
is inconsistent with the rights granted to the holders of Registrable Securities
in this Agreement. It is understood and agreed that the Company shall not enter
into any agreement other than this Agreement pursuant to which any
8
<PAGE> 11
holder of securities is given the right to require that the Investor's
securities be registered under the Securities Act. The Company may enter into
agreements other than this Agreement pursuant to which the holders of the
Company's securities are granted incidental registration rights; provided,
however, that any such agreement shall provide that, in the event that an
underwriter determines that the distribution of all securities requested to be
included in the registration would materially and adversely affect the
distributions of such securities by the Company or the Investor, the security
holders party to such other agreement shall reduce the number of their
securities proposed to be registered (to zero, if necessary), prior to the
Investor reducing the number of its securities proposed to be registered.
(b) Remedies. The Investor, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless the Company and the Investor has approved the same in
writing.
(d) Notices. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement shall be sufficiently given or made if in
writing and (i) delivered in person with receipt acknowledged, (ii) sent by
registered or certified mail, return receipt requested, postage prepaid, (iii)
sent by overnight courier with guaranteed next-day delivery, or (iv) sent by
telex or telecopier, in each case addressed follows:
(i) If to the Investor, to it at:
WEB Hosting Organization LLC
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, New York 10022-4299
Attention: Thomas C. Dircks
Fax: (212) 750-9704
9
<PAGE> 12
(ii) If to the Company, to it at:
Sage Networks, Inc.
70 West Red Oak Lane
White Plains, New York 10604
Attention: Leonard J. Fassler
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail, one business day after sent
by overnight courier or on the day telexed or telecopied.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon (i) the successors of each of the parties hereto
and (ii) the assigns of the Investor, including any Person to whom Registrable
Securities are transferred if the transferee or assignee acquires at least
twenty-five percent (25%) of the then outstanding Registrable Securities, or if
the transferee or assignee of Registrable Securities is a member or other
affiliate of the Investor; provided that any such transferee or assignee shall
execute a counterpart of, or shall otherwise become bound in writing by the
requirements of, this Agreement and be considered an "Investor" for purposes of
this Agreement.
(f) Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation or reorganization, agree
in writing to assume the obligations of the Company under this Agreement, and
for that purpose references hereunder to "Registrable Shares" shall be deemed to
be references to the securities which holders of then Registrable Shares would
be entitled to receive in exchange for Registrable Shares under any such merger,
consolidation or reorganization; provided, however, that the provisions of this
Section 8(f) shall not apply in the event of any merger, consolidation or
reorganization in which the Company is not the surviving corporation if all
holders of then Registrable Shares are entitled to receive in exchange for such
Registrable Shares consideration consisting solely of (i) cash, (ii) securities
of the acquiring corporation which may be immediately sold to the public without
registration under the Securities Act, or (iii) securities of the acquiring
corporation which the acquiring corporation has agreed to register within 90
10
<PAGE> 13
days of completion of the transaction for resale to the public pursuant to
the Securities Act.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware (i.e.,
without regard to its conflicts of law rules).
(i) Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
[END OF TEXT]
11
<PAGE> 14
[SIGNATURE PAGE]
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights agreement as of the date first above written.
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
-------------------------------------
Title: Co-Chairman
WEB HOSTING ORGANIZATION LLC
By: /s/ Jay M. Gates
-------------------------------------
Title: Vice President
<PAGE> 1
Exhibit 4.5
SHAREHOLDERS AGREEMENT
Shareholders Agreement dated as of March 10, 1999 (this "Agreement")
by and among Sage Networks, Inc., a Delaware corporation (the "Company"), and
each of the individuals or entities signatory hereto (each a "Stockholder" and
together the "Stockholders").
W I T N E S S E T H :
WHEREAS, the Company is authorized to issue (i) a total of 2,647,658
shares of Series A Convertible Preferred Stock, par value $0.01 per share
("Preferred Stock"), and (ii) a total of 100,000,000 shares of Common Stock, par
value $0.01 per share ("Common Stock"); and
WHEREAS, upon the consummation of the transactions contemplated by
the Asset Purchase Agreement, dated as of March 8, 1999, and the Agreement to
Deliver Shares, dated as of the date hereof, among the Company, Interliant
and the other parties named therein (the "Purchase Agreement" and the "Delivery
Agreement," respectively) there will be 26,832,197 shares of Common Stock issued
and outstanding, 2,647,658 shares of Preferred Stock issued and outstanding and,
pursuant to the Purchase Agreement, the Company has agreed to grant options for
the purchase of Common Stock to the existing holders of options to purchase
common stock, $ .01 par value per share, of Interliant; and
WHEREAS, upon the consummation of the transactions contemplated by
the Purchase Agreement and the Delivery Agreement, the Stockholders will own the
number of shares of Common Stock as set forth opposite their respective names on
Schedule I hereto and if any Shares are delivered to such Stockholders pursuant
to Section 3.01(b) of the Purchase Agreement, Schedule I hereto shall be amended
to include such Shares; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Purchase Agreement that the parties enter into this
Agreement;
WHEREAS, it is a condition to the exercise of any of the Options
that the holder of such Options be and become a Stockholder for all purposes of
this Agreement and execute and deliver to the Company a copy of this Agreement
and in such connection Schedule I hereto shall be amended to include the name of
such exercising holder of Options and the number of shares of Common Stock
issued to such holder;
WHEREAS, if any Unconverted Option Shares are delivered to Seller
pursuant to the Purchase Agreement, the Seller shall become a Stockholder for
all purposes of this Agreement and Schedule I hereto shall be amended to include
the name of the Seller.
NOW, THEREFORE, in consideration of the mutual promises, agreements
and covenants set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound, hereby agree as follows:
<PAGE> 2
ARTICLE I.
DEFINITIONS
Section 1.01 Defined Terms. The following terms when used in this
Agreement, including its preamble and recitals, shall, except where the context
otherwise requires, have the following meanings, such meanings to be equally
applicable to the singular and plural forms thereof:
"Affiliate" shall mean, with respect to any Person, any person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Common Stock Equivalents" shall mean the number of shares of Common
Stock issuable upon the exercise, exchange or conversion of any security.
"Encumbrance" means any security interest, pledge, mortgage, lien,
charge, adverse claim of ownership or use, or other encumbrance of any kind.
"Equity Securities" shall mean any Common Stock, any securities
exercisable or exchangeable for or convertible into Common Stock and any rights,
options or warrants to acquire any of the foregoing.
"Expiration Date" shall mean the earliest of (a) the consummation of
the initial public offering of Common Stock by the Company or (b) a Sale
Transaction with respect to the Company.
"Interliant" shall mean Interliant, Inc., a Texas corporation.
"Interliant Holders" shall mean the Wolf Holders and the holders of
any shares of Common Stock issued upon exercise of the Options.
"Options" shall mean options issued under the 1998 Sage Networks,
Inc. Stock Option Plan upon conversion of options issued under the Wolf
Communications Company 1995 Employee Stock Option Plan as amended and the
Interliant, Inc. Lidestri Stock Option Plan and Agreement.
"Permitted Registration Rights" shall mean all piggyback
registration rights granted under this Agreement.
2
<PAGE> 3
"Person" shall mean and include an individual, a corporation, a
limited liability company, an association, a partnership, a joint venture, a
trust or estate, a government or any department or agency thereof, or any other
entity or governmental body.
"Preferred Stock" shall mean the Company's Series A Preferred Stock,
$.01 par value, with the rights and preferences set forth in the Certificate of
Incorporation of the Company, as amended.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with its obligations under Sections 4.01
and 4.02 hereof, including without limitation, all SEC, NASD and stock exchange
or NASDAQ registration and filing fees and expenses, fees and expenses of
compliance with applicable state securities or "blue sky" laws (including,
without limitation, reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of securities
registered in accordance with this Agreement), printing expenses, messenger and
delivery expenses, the fees and expenses incurred in connection with the listing
of the securities to be registered in an initial public offering on each
securities exchange or national market system on which such securities are to be
so listed and, following such initial public offering, the fees and expenses
incurred in connection with the listing of such securities to be registered on
each securities exchange or national market system on which such securities are
listed, fees and disbursements of counsel for the Company and all independent
certified public accountants retained by the Company (including the expenses of
any annual audit and "cold comfort" letters required by or incident to such
performance and compliance), all reasonable fees and expenses of one counsel to
the Stockholders in the case of a Piggyback Registration, the fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (including the fees and expenses of any "qualified independent
underwriter" required by the NASD), the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration,
fees and expenses of other Persons retained by the Company in connection with
such registration, all transfer taxes with respect to the shares of Common Stock
sold by a Stockholder and all other expenses incurred by Stockholders customary
for and incidental to the sale and delivery of the shares of Common Stock to be
sold by such Stockholders (but not including any underwriting discounts or
commission, if any, attributable to the sale of Common Stock by holders of such
Common Stock other than the Company).
"Sale Transaction" shall mean a sale of all or substantially all of
the assets of the Company, or a merger or consolidation of the Company
(including a triangular merger involving any subsidiary thereof) with or into
any other entity (other than a merger or consolidation in which shares of the
Company's voting capital stock outstanding immediately before such merger or
consolidation are exchanged or converted into or constitute shares which
represent more than fifty percent (50%) of the surviving entity's voting capital
interests after such consolidation or merger) or a transaction or series of
related transactions in which a person or group of persons (as defined in Rule
13d-5(b)(1) of the Securities Exchange Act of 1934, as amended), acquires
beneficial ownership (as determined in accordance with Rule 13d-3 of such Act)
of more than 50% of the voting power of the Company; provided, however, that any
reorganization, merger or consolidation involving (1) only a change in the state
of incorporation of the Company or (2) a
3
<PAGE> 4
merger of the Company with or into a wholly-owned subsidiary of the Company that
is incorporated in the United States of America shall not constitute a "Sale
Transaction".
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock" shall mean the Common Stock and the Preferred Stock.
"WHO" shall mean WEB Hosting Organization L.L.C., a Delaware limited
liability company.
"Wolf Holders" shall mean Mathew Wolf, Ann Weltchek Wolf 1995
Marital Trust, Mathew D. Wolf Children's Trust, Michael August, Broadview
Holdings LLP and the Seller if it becomes the holder of the Unconverted Option
Shares.
ARTICLE II.
VOTING AGREEMENT
Section 2.01 Board of Directors of the Company. So long as the Wolf
Holders own at least 5% of the issued and outstanding Common Stock, the Wolf
Holders shall have the right to nominate one person for election as a director
of the Company (the "Wolf Representative") which person shall be subject to the
approval of the Company, which approval shall not be unreasonably withheld. The
members of Web Hosting Organization LLC ("WEB"), the Company's principal
stockholder, have the right to nominate seven persons for election as directors
of the Company. The members of WEB are Charterhouse Equity Partners III, L .P.
and Chef Nominees Limited which collectively shall have the right to nominate
four persons for election as directors of the Company (the "Charterhouse
Representatives) and WHO Management LLC ("WHO") which shall have the right to
nominate three persons for election as directors of the Company (the "WHO
Representatives").
Section 2.02 Covenant to Vote. (a) Each of the Stockholders shall
appear in person or by proxy at any annual or special meeting of stockholders
for the purpose of obtaining a quorum and shall vote or cause the vote of the
shares of Stock owned by such Stockholder or by any Affiliate of such
Stockholder, either in person or by proxy, at any annual or special meeting of
stockholders of the Company called for the purpose of voting on the election, if
such director has been nominated by the Wolf Holders for election, or removal,
if such director has been designated by the Wolf Holders for removal, of
directors, or by consensual action of stockholders with respect to such election
or removal of directors, in favor of such election of the director so nominated,
or removal of the director so designated, in accordance with Section 2.01 and
for the replacement of the director in accordance with Section 2.01. In
addition, each of the Stockholders shall appear in person or by proxy at any
annual or special meeting of stockholders for the purpose of obtaining a quorum
and shall vote or cause the vote of the shares of Stock owned by such
Stockholder or any Affiliate of such Stockholder upon any matter submitted to a
4
<PAGE> 5
vote of the stockholders of the Company in a manner so as to be consistent and
not in conflict with, and to implement, the terms of this Agreement.
(b) WEB shall appear in person or by proxy at any annual or
special meeting of stockholders for the purpose of obtaining a quorum and shall
vote or cause the vote of the shares of Stock owned by it or by any of its
Affiliates, either in person or by proxy, at any annual or special meeting of
stockholders of the Company called for the purpose of voting on the election, if
such director has been nominated by Charterhouse or WHO for election, or
removal, if such director has been designated by Charterhouse or WHO for
removal, of directors, or by consensual action of stockholders with respect to
such election or removal of directors, in favor of such election of the director
so nominated, or removal of the director so designated, in accordance with
Section 2.01 and for the replacement of the director in accordance with Section
2.01. In addition, WEB shall appear in person or by proxy at any annual or
special meeting of stockholders for the purpose of obtaining a quorum and shall
vote or cause the vote of the shares of Stock owned by it or any of its
Affiliates upon any matter submitted to a vote of the stockholders of the
Company in a manner so as to be consistent and not in conflict with, and to
implement, the terms of this Agreement.
Section 2.03 Vacancies/Removals. The Wolf Representative shall be
subject to removal by a majority in interest of the Wolf Holders at any time,
with or without cause. The Charterhouse Representatives and the WHO
Representatives shall be subject to removal by a Charterhouse or WHO,
respectively, any time, with or without cause. Any of Charterhouse, WHO or a
majority in interest of the Wolf Holders shall have the right to call a special
meeting of Stockholders at any time, and from time to time, for the sole purpose
of designating to or removing from the Board of Directors of the Company, with
or without cause, any person or persons nominated by Charterhouse, WHO or a
majority in interest of the Wolf Holders, as the case may be, for election as a
director. If the Wolf Holders call such a special meeting, the Stockholders
shall vote all of their Stock in support of such removal and for the election of
such director or replacements as may be nominated by a majority in interest of
the Wolf Holders.
Section 2.04 No Voting or Conflicting Agreements. Each of the
Stockholders agrees that it will not and will not permit any Affiliate to grant
any proxy or enter into or agree to be bound by any voting trust with respect to
its shares of Stock or to enter into any stockholder agreements or arrangements
of any kind with any Person with respect to its shares of Stock in any such case
in a manner that is inconsistent with the provisions of this Agreement.
Section 2.05 Actions Consistent with Agreement. The Company shall
not take any action inconsistent with the provisions of this Agreement.
Section 2.06 Expiration of Rights. The rights granted pursuant to
this Article 2 shall expire and be of no further force and effect as of the date
that the Wolf Holders own less than 5% of the issued and outstanding Common
Stock.
5
<PAGE> 6
ARTICLE III.
RESTRICTIONS ON TRANSFERS BY THE STOCKHOLDER
Section 3.01 Restrictions on Transfers Generally. Each Stockholder
hereby agrees that such Stockholder shall not, and shall not permit any
Affiliate to, directly or indirectly, transfer, sell or otherwise dispose of, or
create, incur or assume any Encumbrance with respect to any shares of Stock or
Equity Securities other than (i) pursuant to an effective registration statement
under the Securities Act or (ii) pursuant to an exemption from registration
under the Securities Act and any state securities or Blue Sky laws.
Section 3.02 Tag Along Right. If WHO proposes to transfer shares of
Stock or Equity Securities to any Person or Persons (other than to an Affiliate)
in a transaction, WHO shall notify the Wolf Holders in writing (the "Tag Along
Notice") of such proposed transfer and its terms and conditions. Within fifteen
(15) days of receipt of a Tag Along Notice, each Wolf Holder shall notify WHO if
it elects to participate in such transfer ("Tag Along Right") and shall state
the number of shares of Stock that such Wolf Holder desires to sell. Upon
electing to transfer, the Wolf Holders shall be obligated to sell, at the same
price and on the same terms as WHO, the number of shares stated in its notice to
WHO. The Wolf Holders may elect to sell such number of shares of Stock as is
equal to the aggregate number of shares of Stock and number of Equity Securities
to be transferred in such transaction multiplied by a fraction, the numerator of
which shall be the aggregate number of shares of Stock held by the Wolf Holders
(calculated on a fully diluted basis) and the denominator of which shall be the
aggregate number of shares of Stock and number of Equity Securities held by all
transferors (calculated on a fully diluted basis). The Wolf Holders shall agree
to enter into a purchase agreement in form and substance approved by WHO to the
extent such agreement shall contain customary representations as to ownership of
the shares to be purchased and the absence of liens thereon. If the sale is not
consummated within one hundred eighty (180) days following the delivery of the
Tag Along Notice, then a Wolf Holder shall no longer be obligated to sell its
shares of Stock pursuant to such Tag Along Right but shall remain subject to the
provisions of this Section 3.02 with respect to any subsequent proposed transfer
described in this Section 3.02. In the event that the proposed transferee does
not purchase all the shares of Stock that a Wolf Holder elects to sell pursuant
to the foregoing on the same terms and conditions as the securities purchased
from WHO, then WHO shall not be permitted to sell any securities to the proposed
transferee. If no Tag Along Notice is received by the end of the 15 days
referred to above, WHO shall have the right for a 180 day period thereafter to
transfer the securities to the proposed transferee on terms and conditions no
more favorable to WHO than those stated in the Tag Along Notice and in
accordance with the provisions of this Section 3.02.
Section 3.03 Drag Along Right. (a) If at any time the Company or WHO
(the "Proposing Investor") proposes to transfer in a bona fide arm's-length sale
all or substantially all of the shares of capital stock of the Company or the
Stock and Equity Securities owned by WHO to any Person or Persons who are not
Affiliates of the Proposing Investor (the "Proposed Transferee"), the Proposing
Investor shall have the right (the "Drag Along Right"), subject to applicable
law and compliance with any other restrictions applicable to such transfer, to
require
6
<PAGE> 7
all Interliant Holders to sell, pursuant to Section 3.03(b), to the Proposed
Transferee, on the same terms and conditions as applicable to the Proposing
Investors except as limited in Section 3.03(b), such number of shares of Stock
as is equal to the aggregate number of shares of Stock and number of Equity
Securities to be transferred in such transaction multiplied by a fraction, the
numerator of which shall be the aggregate number of shares of Stock held by the
Interliant Holders (calculated on a fully diluted basis) and the denominator of
which shall be the aggregate number of shares of Stock and number of Equity
Securities held by all transferors (calculated on a fully diluted basis).
(b) To exercise a Drag Along Right, the Proposing Investor shall
give the Company and each Interliant Holder (each, a "Drag Along Investor"), at
least fifteen (15) days prior to the proposed transfer to the Proposed
Transferee, a written notice (the "Drag Along Notice") containing (a) the name
and address of the Proposed Transferee and (b) the proposed purchase price and
the terms of payment and other material terms and conditions of the Proposed
Transferee's offer. Each Drag Along Investor shall thereafter be obligated to
sell its shares of Stock to the Proposed Transferee (such number of shares of
Stock to be calculated in accordance with Section 3.03(a)). Each such Drag Along
Investor shall agree to enter into a purchase agreement in form and substance
approved by the Proposing Investor to the extent such agreement shall contain
customary representations from each Drag Along Investor as to ownership of the
shares to be purchased and the absence of liens thereon and customary
indemnification provisions solely with respect to such representations from the
Drag Along Investor. If the sale is not consummated within a period of one
hundred eighty (180) days following the date of the Drag Along Notice, then each
Drag Along Investor shall no longer be obligated to sell such Drag Along
Investor's shares of Stock pursuant to such Drag Along Right but shall remain
subject to the provisions of this Section 3.03 with respect to any subsequent
proposed transfer described in this Section 3.03. The Drag Along Investor shall
not be required to participate in a proposed transfer pursuant to the exercise
of a Drag Along Right unless its liability for breaches of representations and
warranties made in connection with the sale thereunder is limited to no more
than the total sale price received by such Drag Along Investor in such sale.
Section 3.04 Permitted Transfers. The Interliant Holders agree not
to transfer or otherwise dispose of any Stock of the Company or use any Stock of
the Company as collateral for the purposes of securing any indebtedness for
borrowed money or otherwise; provided, however, the Interliant Holders (a) shall
transfer their shares of Stock as required by Section 3.03, (b) may transfer
their shares of Stock (i) in accordance with Section 3.02 or Section 3.06, (ii)
to another Wolf Holder or an Affiliate of an Interliant Holder that is an
investment fund or similar entity and that, in the reasonable judgment of the
Company, is not a competitor of the Company, (iii) by gift or bequest or through
inheritance to, or for the benefit of, a spouse or children, (iv) by will or the
laws of descent and distribution or (v) to generate proceeds used to pay taxes
incurred by the Wolf Holders in connection with the transactions contemplated by
the Purchase Agreement and the Agreement to Deliver Shares.
Section 3.05 Transferees Subject to Agreement. In the event of any
transfer of shares of Stock by any Interliant Holder pursuant to this Agreement,
the transferee shall hold
7
<PAGE> 8
such shares of Stock so acquired with all the rights conferred by, and subject
to all of the restrictions imposed by, this Agreement applicable to the
transferor of such shares of Stock. Any transferee of any shares of Stock shall,
as a condition of the consummation of such transfer, agree to be subject to the
terms of this Agreement.
Section 3.06 Right of FIrst Refusal. (a) If, at any time, any
Interliant Holder desires to sell, transfer or otherwise dispose of any shares
of Stock then owned by such Interliant Holder (other than transfers pursuant to
(i) an effective registration statement under the Securities Act, (ii) Section
3.02, (iii) Section 3.03 or (iv) Section 3.04 (b)(ii), (iii) and (iv)) to any
third party pursuant to a bona fide offer, such Interliant Holder (the "Seller")
shall first give a written notice to the Company and WHO (the "Seller's Notice")
stating the Seller's desire to make such sale, transfer or other disposition and
the terms of the offer, including the identity of the person making the offer
(the "Bona Fide Purchaser"), the amount and kind of securities proposed to be
transferred and the purchase price offered to the Seller by the Bona Fide
Purchaser. The Seller's Notice shall constitute an irrevocable offer by the
Seller to sell to WHO or its Members (the "Eligible Investors") and the Company
such securities at the price and on the terms offered by the Bona Fide
Purchaser.
(i) Within 10 business days after the receipt by WHO and the Company of
the Seller's Notice, the Company may elect to purchase such
securities at the price and on the terms offered by the Bona Fide
Purchaser in cash under this Section 3.06(a) by giving notice to the
Seller, with copies to WHO and the Eligible Investors as to the
number, if any, of such securities it is electing to purchase (the
"Company Notice"). The election to purchase such securities shall be
made on behalf of the Company by those members of the Board of
Directors of the Company not affiliated or associated with the
Seller. The Company Notice shall be deemed to be an irrevocable
commitment to purchase from the Seller in cash at the price and on
the terms offered by the Bona Fide Purchaser the number of such
securities that the Company specifies in the Company Notice. If the
Company elects to purchase any of such securities, the Company shall
have 20 business days from the date the Company Notice has been sent
to fund such purchase.
(ii) If the Company does not elect to purchase all of such securities,
WHO may elect (within 5 business days after the receipt by WHO of
the Company Notice) to purchase such securities at the price and on
the terms offered by the Bona Fide Purchase in cash under this
Section 3.06(a) by giving a notice to the Seller, with copies to the
Company and the Eligible Investors, as to the number of such
securities, if any, it is electing to purchase (the "WHO Notice").
The WHO Notice shall be deemed to be an irrevocable commitment to
purchase from the Seller in cash at the price and on the terms
offered by the Bona Fide Purchaser the number of such securities
that WHO has elected to purchase pursuant to the WHO Notice. If WHO
elects to purchase any of such securities, WHO shall have 20
8
<PAGE> 9
business days from the date the WHO Notice has been sent to fund
such purchase.
(iii) If the Company and WHO do not elect to purchase all of such
securities, any Eligible Investor may elect (within 5 business days
after the date of receipt by the Eligible Investors of the WHO
Notice) to purchase such securities at the price and on the terms
offered by the Bona Fide Purchaser in cash under this Section
3.06(a) by giving a notice to the Seller, with a copy to the Company
and WHO as to the number of such securities, if any, it is electing
to purchase (the "Eligible Investor Notice"). Each Eligible Investor
that is given an Eligible Investor Notice shall be allocated a
portion of the remaining securities pro rata based on its ownership
interest in WHO. The Eligible Investor Notice shall be deemed to be
an irrevocable commitment to purchase from the Seller in cash at the
price and on the terms offered by the Bona Fide Purchaser the number
of such securities that the Company specified in the Eligible
Investor Notice. If an Eligible Investor elects to purchase any of
such securities, such Eligible Investor shall have 20 business days
from the date the Eligible Investor Notice has been sent to fund
such purchase.
(b) If the Company, WHO and the Eligible Investors fail to elect to
purchase such securities within the time periods specified in Section 3.06(a),
then the Seller (i) shall be under no obligation to sell any of such securities
to WHO, the Company or any Eligible Investors, unless the Seller so elects, and
(ii) may, within a period of one hundred and eighty (180) days from the date of
the Seller's Notice, sell all (but not less than all) such securities to the
Bona Fide Purchaser in cash at a price per share not less than the price and on
the terms offered by the Bona Fide Investor; provided, however, that such Bona
Fide Purchaser shall, in accordance with the provisions of Section 3.05 hereof,
agree to execute and be bound by the terms of this Agreement to the same extent
and in the same manner as the Seller of such shares.
Section 3.07 Restrictive Legends. Each share of Stock and Equity
Securities shall bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and neither
the securities nor any interest therein may be offered, sold,
transferred, pledged or disposed of in the absence of such
registration or an exemption under such Act and the rules and
regulations thereunder. The securities represented by this
certificate are subject to, and are transferable only upon
compliance with, the provisions of the Shareholders Agreement dated
as of March 2, 1999 among Sage Networks, Inc. and certain of its
shareholders. A copy of the above-referenced agreement is on file at
the office of Sage Networks, Inc.
9
<PAGE> 10
Section 3.08 Expiration of Restrictions. The restrictions set forth
in Article III hereof shall expire and be of no further force and effect as of
the Expiration Date.
ARTICLE IV.
REGISTRATION RIGHTS
Section 4.01 Piggyback Registration. (a) If the Company proposes
(including in connection with any demand registration by a Stockholder) to file
any registration statement under the Securities Act with respect to any Stock or
Equity Security (other than pursuant to a registration statement on Form S-4 or
S-8 or any successor or similar forms in connection with an exchange offer or
any offering of securities solely to the Company's then existing stockholders or
employees of the Company and its subsidiaries and other than in connection with
the Company's initial public offering), the Company shall give written notice of
such proposed filing to the Wolf Holders at least 30 days prior to such proposed
filing. Such notice shall offer to the Wolf Holders the opportunity to include
in such registration statement for resale by the Stockholders, such number of
shares of Common Stock each may request in a written notice to the Company
(which notice shall specify the number of shares to be disposed of by such
holder and the intended method of disposition thereof) within 20 days after the
receipt of such notice from the Company (a "Piggyback Registration"). The
Company shall permit, or shall cause the managing underwriter of any such
proposed offering to permit, the shares of Stock or Equity Securities requested
to be included in the registration to be included on the same terms and
conditions as are applicable to the other Stock or Equity Securities included in
such registration statement. The Company or such subsidiary, as applicable,
shall not be required to maintain the effectiveness of the registration
statement beyond the earlier to occur of (i) 180 days after the effective date
of the registration statement; and (ii) consummation of the distribution by the
Wolf Holders of the shares of Stock or Equity Securities that are included in
such registration statement.
(b) If the managing underwriter or underwriters, if any, advise the
Wolf Holders and in writing that in its or their opinion that, the number of
securities proposed to be sold in such registration (including securities to be
included pursuant to Section 4.01(a) above) will materially adversely affect the
success of such offering, the Company will include in such registration the
number of securities, if any, which in the opinion of such underwriter or
underwriters, or the Company or such subsidiary, as the case may be, can be sold
as follows: (i) first, the shares the Company proposes to sell; (ii) second, the
shares of Common Stock requested to be included in such registration by WHO, the
purchasers of the Preferred Stock and the Wolf Holders; and (iii) third, the
securities requested to be included by each other Person exercising any
Piggyback Registration rights; provided that (a) if all shares requested to be
included in such Piggyback Registration by members of any group set forth above
are not to be included, selection of shares to be included from within such
groups shall be made pro rata based on the number of shares that each member of
such group holds and (b) the Wolf Holders shall not have the right to register
shares pursuant to this Section 4.01 if the Company is at such time, and has
been continuously during the immediately preceding three years, subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act and such
Stockholder is then entitled to
10
<PAGE> 11
sell all of its shares of Stock or Equity Securities without any volume
restrictions pursuant to Rule 144 of the Securities Act or all of such shares of
Stock or Equity Securities may be sold pursuant to Rule 144(k) of the Securities
Act.
Section 4.02 Holdback Agreement. Notwithstanding any other provision
in this Article 4, the Company and The Wolf Holders each agree that it will not,
and the Company shall use its best efforts to not permit any Affiliate to (and
it shall be a condition to the rights of each Stockholder under this Article 4
that such Stockholder does not) offer for public sale any shares of Common Stock
or Equity Securities, or effect any sale of securities pursuant to Rule 144,
during the 10 days prior to and the 180 days after the closing date of any
underwritten offering thereunder unless such shares are covered by such
registration statement or such shorter period is agreed to by any managing
underwriter or underwriters of such offering.
Section 4.03 Expenses. All Registration Expenses, disbursements and
fees incurred by the Company and the Stockholders in connection with any
registration under this Article 4 shall be borne by the Company.
Section 4.04 Registration Procedures. In connection with the
registration of shares of Stock or Equity Securities under the Securities Act
pursuant to this Agreement, the Company, will furnish each Stockholder whose
shares of Stock or Equity Securities are registered thereunder and each
underwriter, if any, with a copy of the registration statement (including all
exhibits thereto) and all amendments thereto and will supply each such
Stockholder and each underwriter, if any, with copies of any prospectus included
therein (including a preliminary prospectus and all amendments and supplements
thereto) in such quantities as may be reasonably necessary for the purposes of
the proposed sale or distribution covered by such registration.
Notwithstanding anything to the contrary herein, the only securities
which the Company shall be required to register pursuant to this Article 4 shall
be shares of Common Stock; provided, however, that in any underwritten public
offering, the holders of Preferred Stock and any securities exercisable or
exchangeable for or convertible into Common Stock, and any rights, options or
warrants to acquire any of the foregoing, shall be entitled to sell such
securities to the underwriters for exercise, exchange or conversion and sale of
the shares of Common Stock issued upon exercise, exchange or conversion thereof.
In connection with the Company's registration obligations pursuant
to this Article 4, the Company will use its best efforts to effect such
registration to permit the sale of such shares of Stock or Equity Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will:
(a) prepare and file with the SEC, as soon as practicable after
receiving a written notice pursuant to Section 4.02, a registration statement on
any appropriate form under the Securities Act, which form shall be selected by
the Company (and shall be reasonably acceptable to any managing underwriter
chosen by holders of shares covered by such registration statement) and shall be
available for the sale of the shares in accordance with the intended
11
<PAGE> 12
method or methods of distribution thereof, and use its reasonable efforts to
cause such registration statement to become effective; provided that before
filing a registration statement or any prospectus related thereto or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of any registration statement, the Company will furnish
copies of all such documents proposed to be filed to the holders of the shares
covered by such registration statement and underwriters, if any, and make the
Company's representatives available for discussion of such documents and other
relevant matters and shall reasonably consider such changes in such documents
prior to the filing thereof as such holders or underwriters may timely and
reasonably request. If any Stockholder whose shares of Stock or Equity
Securities are covered by such registration statement shall reasonably object to
any disclosure in or omission from any registration statement or any amendment
thereto or any prospectus or any supplement thereto (including documents
incorporated by reference) which the Company in good faith on the advice of
counsel believes is necessary or appropriate to be included therein or omitted
therefrom, and prior to the effectiveness of such registration advises the
Company that it chooses not to participate in such offering, such Stockholder
may choose not to participate in such offering;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the registration statement as may be necessary to keep such
registration statement effective for the required duration thereof; cause the
related prospectus to be supplemented by any required prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the relevant provisions of the Securities Act during the
applicable period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement or supplement to such
prospectus;
(c) notify the selling Stockholders and the managing underwriters if
any, promptly, and (if requested by any such holder) confirm such advice in
writing, (A) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (B) of any request
by the SEC for amendments or supplements to a registration statement or related
prospectus or for additional information, (C) of the issuance by the SEC of any
stop order suspending the effectiveness of a registration statement or the
initiation of any proceedings for that purpose, (D) of the receipt by the
Company of any written notification with respect to the suspension of the
qualification of any of the shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, and (E) of the
existence of any fact known to the Company which results in a registration
statement, a prospectus or any document incorporated therein by reference
containing an untrue statement of a material fact or omitting to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(d) use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement at the earliest
practicable moment;
(e) if reasonably requested by the managing underwriters or a
selling Stockholder, promptly incorporate in a prospectus supplement or
post-effective amendment such
12
<PAGE> 13
information as the managing underwriters or a selling Stockholder agree should
be included therein, subject to the last sentence of Section 4.05(a); and
promptly make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(f) prior to any public offering of Stock or Equity Securities,
register or qualify or cooperate with the selling Stockholders, the managing
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such shares for offer and sale under the
securities or "blue sky" laws of such jurisdictions within the United States as
any seller or underwriter reasonably requests in writing and do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the shares of Common Stock covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it would not
otherwise be required to be so qualified or to take any action which would
subject itself to taxation (other than a nominal amount) in any such
jurisdiction or to general service of process in any jurisdiction where it is
not then so subject;
(g) cooperate with the selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock to be sold and not bearing any
restrictive legends; and enable such shares to be in such denominations and
registered in such names as the managing underwriters may request at least two
business days prior to any sale of shares to the underwriters;
(h) use its best efforts to cause the shares covered by the
applicable registration statement to be listed or registered with or approved by
any stock exchange or quotation system on which the shares of Stock or Equity
Securities are then listed and by such governmental agencies or authorities
within the United States as may be reasonably necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such shares;
(i) if any fact contemplated by Section 4.05 (c)(E) shall exist,
prepare a supplement or post-effective amendment to the applicable registration
statement or the related prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the shares of Stock or Equity Securities being sold
thereunder, such prospectus will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(j) provide a CUSIP number for all shares of Stock or Equity
Securities, no later than the effective date of the applicable registration
statement;
(k) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such shares of Stock or Equity Securities and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten
13
<PAGE> 14
registration: (A) make such representations and warranties to the holders of
such shares and the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten offerings;
(B) obtain opinions of counsel to the Company (including counsel which may be an
employee of the Company) and updates thereof which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, covering the matters customarily covered in opinions
requested by such holders and underwriters; (C) obtain "cold comfort" letters
and updates thereof from the Company's independent certified public accountants,
addressed to the selling holders and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comforts" letters to underwriters in connection with primary underwritten
offerings; (D) if any underwriting agreement is entered into, the same shall set
forth in full the indemnification provisions and procedures of Section 4.06 with
respect to all parties to be indemnified pursuant to such Section 4.06; and (E)
the Company shall deliver such documents and certificates as may be reasonably
requested by the holders of the Stock or Equity Securities being sold and the
managing underwriters, if any, to evidence compliance with clause (A) hereof and
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The above shall be done at each closing
under such underwriting or similar agreement or as and to the extent otherwise
reasonably required thereunder;
(l) make available for inspection during normal business hours by a
representative of each Stockholder, any underwriter participating in any
disposition pursuant to a registration statement and any attorney or accountants
retained by such selling Stockholders or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by such representative, underwriter, attorney or accountant
in connection with such registration statement; provided, that such
Stockholders, underwriters, attorneys or accountants execute prior thereto an
agreement with the Company that all such records, information or document shall
be kept confidential by such persons unless (A) disclosure of such records,
information or documents is required by law or by court or administrative order,
or (B) such records, information or documents are or become (but only when they
become) generally available to the public other than as a result of disclosure
in violation of this paragraph; and
(m) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to the
Stockholders earnings statements satisfying the provisions of Section 1l(a) of
the Securities Act no later than 45 days after the end of any 12-month period
(or 90 days, if such period is a fiscal year) (A) commencing at the end of any
fiscal quarter in which shares of Stock or Equity Securities are sold to
underwriters in an underwritten offering, or (B) if not sold to underwriters in
such an offering beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the registration statement, which
statements shall cover such 12-month periods.
The Company may require each Stockholder who is a party hereto as to
which any registration is being effected to furnish to the Company such
information and undertakings
14
<PAGE> 15
as it may reasonably request regarding such Stockholder and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
Each Stockholder who is a party hereto agrees (i) that upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 4.05 (c)(E) such Stockholder will forthwith discontinue
such Stockholder's disposition of shares of Stock or Equity Securities pursuant
to the registration statement relating to such shares until such Stockholder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 4.05(i) and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies then in such Stockholder's possession of
the prospectus relating to such shares current at the time of receipt of such
notice and (ii) that such Stockholder will immediately notify the Company, at
any time when a prospectus relating to the registration of such shares is
required to be delivered under the Securities Act, of the happening of any event
as a result of which information previously furnished by such holder to the
Company in writing for inclusion in such prospectus contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein, or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.05 Indemnification and Contribution. (a) Indemnification.
(i) In the event of any registration under the Securities Act of any shares of
Stock pursuant to this Article 4, the Company hereby agrees to indemnify and
hold harmless each Stockholder offering or selling such shares and any
underwriter, and their respective officers, directors, stockholders, members,
partners and affiliates, in connection with such offer or sale against such
losses, claims, damages, liabilities, costs or expenses (including reimbursement
for reasonable legal and other expenses) to which any such person may become
subject under the Securities Act or otherwise insofar as such losses, claims,
damages, liabilities, costs or expenses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
application or other filing under any "blue sky" or state securities law, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof), cost or
expense arises out of or is based upon an untrue statement or omission or
alleged omission made in such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement, or application or
other filing, in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by any holder of
the Company's securities or underwriter.
(ii) In the event of any registration under the Securities Act of any
shares of Common Stock pursuant to this Article 4, each Stockholder
whose shares of Stock or Equity Securities are included in such
registration hereby agrees to indemnify and hold harmless, but only
for an amount, with respect to such Stockholder, not in excess of
the net proceeds realized by
15
<PAGE> 16
such Stockholder from the sale of its shares of Common Stock
registered pursuant to such registration statement, both the Company
and its officers, directors, stockholders and affiliates, and any
underwriter, and their respective officers, directors, stockholders
and affiliates, in connection with such offer or sale against such
losses, claims, damages, liabilities, costs or expenses (including
reimbursement for reasonable legal and other expenses) to which any
such person may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages, liabilities, costs or
expenses arise out of or are based solely upon any untrue statement
or alleged untrue statement of any material fact contained in any
registration statement under which such shares were registered under
the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, or any application or other filing under any "blue sky" or
state securities law, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading, to the extent that such untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement, or application or other
filing, is contained in any written information furnished to the
Company through an instrument duly executed by such holder.
(b) Contribution. (i) If the indemnification provided for in Section
4.06(a) is unavailable to persons to be indemnified pursuant thereto in respect
of any losses, claims, damages, liabilities, costs or expenses referred to
therein, then the Company, in lieu of indemnifying such person, shall contribute
to the amount paid or payable by such person as a result of such losses, claims,
damages, liabilities, costs or expenses, in such proportion as is appropriate to
reflect the relative fault of the Company and such persons in connection with
the actions which resulted in such losses, claims, damages, liabilities, costs
or expenses, as well as any other relevant equitable considerations. The
relative fault of the Company and such persons shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
the Company or such persons, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities, costs and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4.06(b) were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the
immediately
16
<PAGE> 17
preceding paragraph. Notwithstanding the provisions of this Section
4.06(b), an indemnified person shall not be required to contribute
any amounts in excess of the amount by which the total price at
which the shares of Stock or Equity Securities were sold by such
indemnified person and distributed to the public exceeds the amount
of any damages which such indemnified person has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission and provided, however, that such
Stockholder's aggregate liability shall be limited to the net
proceeds realized by such Stockholder in such offering. No person
guilty of fraudulent misrepresentation (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.
(iii) If indemnification is available under this Section 4, the Company
shall indemnify each indemnified party to the full extent provided
herein without regard to the relative fault of the Company or the
indemnified party or any other equitable consideration provided for
in this Section 4.06(b).
(iv) In the event that any provisions of an indemnification clause in an
underwriting agreement executed by or on behalf of a holder differs
from a provision in this Article IV, such provision in the
underwriting agreement shall determine such holder's rights in
respect thereof.
ARTICLE V.
CERTAIN REPRESENTATIONS AND COVENANTS
Section 5.01 Stockholder Representation. Each Stockholder represents
and warrants as to itself that, in the case of the Wolf Holders, as of the
Closing Date and in the case of the other Interliant Holders as of the date such
Interliant Holder becomes a Stockholder under this Agreement (after giving
effect to all transactions occurring on or as of such date) such Stockholder is
not a party with any other Person to any other agreement with respect to the
holding, voting, acquisition or disposition of shares of Stock except as
previously disclosed to the other Stockholders.
Section 5.02 Company Representation. The Company represents and
warrants that as of the Closing Date (after giving effect to all transactions
occurring on or as of the Closing Date) (i) it is not a party with any other
Person to any other agreement with respect to the holding, voting, acquisition
or disposition of shares of Stock or Equity Securities to the other
Stockholders, and (ii) it has not granted to any other Person any other
registration rights with respect to capital stock of the Company, and no holder
of any capital stock of the Company shall have as of the date hereof any right
to require registration of any capital stock of the Company under the Securities
Act or to include any security in any registration statement filed by the
Company under the Securities Act except pursuant hereto; provided, however, that
the Company
17
<PAGE> 18
is a party to the Registration Rights Agreement dated as of December 8, 1997,
between the Company and WHO and the Investors Agreement dated as of January 28,
1999, between the purchasers of the Preferred Stock, WHO and the Company (the
"Prior Agreements"). The Prior Agreements remain in full force and effect except
as modified by Section 4.01(b) hereof.
Section 5.03 Lock-up Agreement. The Interliant Holders agree with
the Company to execute and deliver to the underwriters in connection with the
Company's initial public offering, a lock-up agreement in customary form,
restricting the transfer by the Interliant Holders of shares of Common Stock for
a period of not more than 180 days following the closing of such initial public
offering, provided that the lock-up period for any Interliant Holder shall not
be longer than the lock-up period applicable to WHO.
Section 5.04 Registration Statement on Form S-8. The Company agrees
to file a Registration Statement on Form S-8 with the Securities and Exchange
Commission promptly upon completion of the initial public offering of Company's
Common Stock in order to register the Company's 1998 Stock Option Plan (the
"Plan") and the shares of Common Stock issuable upon exercise of Options granted
pursuant to the Plan.
ARTICLE VI.
MISCELLANEOUS
Section 6.01 Injunctive Relief. It is acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with certain of the obligations imposed on them by this
Agreement, including, without limitation, those obligations set forth in Article
II, Article III, Article IV and Article V and that in the event of any such
failure, an aggrieved Person will be irreparably damaged and will not have an
adequate remedy at law. Any such Person shall, therefore, be entitled to
injunctive relief and/or specific performance to enforce such obligations, and
if any action should be brought in equity to enforce any of such provisions of
this Agreement, none of the parties hereto shall raise the defense that there is
an adequate remedy at law.
Section 6.02 Further Assurances. Each party hereto shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as any other party hereto reasonably may request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
Section 6.03 Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of New York.
Section 6.04 Entire Agreement; Amendment; Waiver. This Agreement (i)
contains the entire agreement among the parties hereto with respect to the
subject matter hereof, (ii) supersedes all prior written agreements and
negotiations and oral understandings, if any, with respect thereto, (iii) may
not be amended or supplemented except by an instrument or
18
<PAGE> 19
counterparts thereof in writing signed by the Company and WHO, and to the extent
that any such amendment or supplement adversely affects the holders of the
Preferred Stock, the Wolf Holders or the Interliant Holders, by a majority in
interest of the holders of the Preferred Stock, a majority in interest of the
Wolf Holders and a majority in interest the Interliant Holders then holding
Stock or Equity Securities and adversely affected by such amendment or
supplement. No waiver of any term or provision shall be effective unless in
writing signed by the party to be charged and such waiver shall not be effective
to any other provision of this Agreement. Notwithstanding the foregoing, no
written instrument shall be required to be signed by any Stockholder in
connection with the amendment of Schedule I to add the names of exercising
holders of Options, shares delivered pursuant to Section 3.01(b) of the Purchase
Agreement or the name of Seller and any Unconverted Shares delivered to Seller.
Section 6.05 Binding Effect. This Agreement shall be binding on and
inure to the benefit of the parties hereto and, subject to the terms and
provisions hereof, their respective legal representatives, successors and
permitted assigns.
Section 6.06 Invalidity of Provision. The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction.
Section 6.07 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, all of which taken together shall be
deemed but one and the same instrument.
Section 6.08 Notices. All notices and other communications provided
for or given or made hereunder shall be in writing (including delivery by
facsimile transmission) and, unless otherwise provided herein, shall be deemed
to have been given when received by the party to whom such notice is to be given
at its address set forth on Schedule I, or such other address for the party as
shall be specified by notice given pursuant hereto.
Section 6.09 Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute part of this Agreement.
19
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf
of each of the parties hereto as of the date first above written.
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
-------------------------------
Leonard J. Fassler
Co-Chairman
STOCKHOLDERS:
WEB HOSTING ORGANIZATION, L.L.C.
By: /s/ Jay M. Gates
-------------------------------------
Name: Jay M. Gates
-------------------------------
Title: Authorized Signatory
SOFTBANK TECHNOLOGY VENTURES IV, L.P.
By: STV IV LLC, its general partner
By: /s/ Charles R. Lax
-------------------------------------
Charles R. Lax, Managing Member
20
<PAGE> 21
SOFTBANK TECHNOLOGY ADVISORS FUND, L.P.
By: STV IV LLC, its managing partner
By: /s/ Charles R. Lax
-------------------------------------
Charles R. Lax, Managing Member
/s/ Mathew Wolf
- -----------------------------------------
Mathew Wolf
ANN WELTCHEK WOLF 1995 MARITAL TRUST
By: /s/ Erving Wolf
-------------------------------------
Erving Wolf, as Trustee
MATHEW D. WOLF CHILDREN'S TRUST
By: /s/ Erving Wolf
-------------------------------------
Erving Wolf, as Trustee
/s/ Michael August
- -----------------------------------------
Michael August
BROADVIEW HOLDINGS LLP
By: /s/ Peter J. Mooney
-------------------------------------
Name: Peter J. Mooney
Title: Vice President and Chief
Financial Officer
21
<PAGE> 22
SCHEDULE I
STOCKHOLDERS' OWNERSHIP OF SECURITIES OF THE COMPANY
Common Stock
<TABLE>
<S> <C>
WEB HOSTING ORGANIZATION, L.L.C.
70 West Red Oak Lane
White Plains, New York 10604 25,200,000 shares
MATHEW WOLF
1001 Fannin Street, Suite 2000
Houston, Texas 77002 2,386,562 shares
ANN WELTCHEK WOLF 1995 MARITAL TRUST
1001 Fannin Street, Suite 2000
Houston, Texas 77002 396,851 shares
MATHEW D. WOLF CHILDREN'S TRUST
1001 Fannin Street, Suite 2000
Houston, Texas 77002 793,702 shares
MICHAEL AUGUST
1001 Fannin Street, Suite 2000
Houston, Texas 77002 31,748 shares
BROADVIEW HOLDINGS LLP
One Bridge Plaza
Fort Lee, New Jersey 07024
Attn: David Garfinkel 114,644 shares
Series A Convertible Preferred Stock
SOFTBANK TECHNOLOGY VENTURES IV, L.P. 2,597,882 shares
333 W. San Carlos Street
Suite 125
San Jose, California 95110
SOFTBANK TECHNOLOGY ADIVSORS FUND, L.P. 49,776 shares
333 W. San Carlos Street
Suite 125
San Jose, California 95110
</TABLE>
<PAGE> 23
Warrants
<TABLE>
<S> <C>
SOFTBANK TECHNOLOGY VENTURES IV, L.P. 735,532 shares of Common Stock
see above
SOFTBANK TECHNOLOGY ADIVSORS FUND, L.P. 14,093 shares of Common Stock
see above
</TABLE>
23
<PAGE> 1
Exhibit 4.6
WHO Management LLC
70 West Oak Lane
White Plains, NY 10604
November 26, 1997
Charterhouse Equity Partners III, L.P.
and Chef Nominees Limited
Attention: Thomas C. Dirks
Re: Web Hosting Organization LLC
Dear Tom:
Once the Limited Liability Company Agreement (the "Agreement") for Web
Hosting Organization LLC ("WHO") is fully executed, it is our understanding
that the following events will then take place:
1. A Delaware "C" corporation will be formed and will be known as
SAGE Networks, Inc. ("SAGE").
2. The Board of Directors of SAGE will consist initially of seven
members, three of whom will be designated by WHO Management LLC
("Management") and the other four will be designated by Charterhouse
Equity Partners III, L.P. and Chef Nominees Limited (collectively
"CEP Members").
3. Unless we and the CEP Members all agree, the only business SAGE will
be involved in will be acquiring and operating businesses in the
web hosting industry.
4. We will mutually select the initial Chief Executive Officer and the
initial Chief Financial Officer for SAGE.
5. SAGE will provide for an employee stock option plan and will allocate
to that plan 5% of its common stock then outstanding, from time to
time, on a fully diluted basis.
6. CEP Members and Management will vote the shares of WHO in SAGE to
cause its directors to effectuate all of the above.
Kindly sign below confirming that this letter reflects the CEP Members'
understanding of the events which will follow the execution of the Agreement.
Sincerely,
/s/ Leonard J. Fassler, Manager
-------------------------------
Leonard J. Fassler, Manager
/s/ Bradley Feld, Manager
-------------------------------
Bradley Feld, Manager
CHARTERHOUSE EQUITY PARTNERS III, L.P.
By: CHUSA Equity Investors III, L.P.,
General Partner
By: Charterhouse Equity III, Inc., General Partner
By: /s/ Thomas C. Dircks
--------------------------
CHEF NOMINEES LIMITED, Member
By: /s/ Thomas C. Dircks
--------------------------
Attorney-in-Fact
<PAGE> 1
** Indicates that information has been omitted herein pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
Exhibit 10.1
PROFESSIONAL SERVICES AGREEMENT
This PROFESSIONAL SERVICES AGREEMENT (this "Agreement") is entered into by and
between Sage Networks, Inc., a Georgia corporation with principle offices at 215
First St., 3rd Floor, Cambridge, MA 02142 ("Customer") and Portal Software,
Inc., a California corporation with principle offices located at 20863 Stevens
Creek Boulevard, Suite 200, Cupertino, California 95014 ("Portal") is effective
as of July 31, 1998 ("Effective Date") and describes the terms and conditions
pursuant to which Portal will provide professional services with respect to the
software licensed by Portal to Customer ("Portal Software") pursuant to a
certain Software License and Support Agreement (the "License Agreement"). Any
capitalized terms not expressly defined in this Agreement have the meanings
given to such terms in the License Agreement.
In consideration of the mutual promises and upon the terms and conditions set
forth below, the parties agree as follows:
1 SCOPE OF SERVICES
1.1 SERVICES. Portal will provide the professional services (the "Services")
described in Schedule A attached hereto, as amended from time to time by
agreement of the parties.
1.2 MANNER OF PERFORMANCE. Portal will retain sole and exclusive right to
control or direct the manner or means by which the Services are performed and
may subcontract or assign any or all of its obligations and rights under this
Agreement. Any such subcontract or assignment is subject to Customer's consent,
which consent shall not be unreasonably withheld or delayed.
1.3 SOFTWARE. The Services will be provided for the current release of the
Portal Software, unless otherwise specifically noted. Portal will not be
responsible for the migration or implementation of the Services for Updates,
releases or versions of the Portal Software, unless Customer separately
contracts for such migration or implementation.
2 CUSTOMER'S DUTIES AND RESPONSIBILITIES
2.1 DATA AND INFORMATION. Customer shall make available at Customer's offices in
a timely manner, upon reasonable advance notice, at no charge to Portal all
technical data, computer facilities, programs, files, documentation, test data,
sample output, or other information and resources required by Portal for the
performance of the Services. Customer will be responsible for, and assumes the
risk of any problems resulting from, the content, accuracy, completeness and
consistency of all such data, materials and information supplied by Customer.
2.2 EQUIPMENT. Customer shall provide, at no charge to Portal, office space,
services and equipment (such as copiers, fax machines, and modems) as Portal
reasonably requires to provide the Services.
3 RELATIONSHIP OF PARTIES
3.1 INDEPENDENT CONTRACTORS. Each party will be and act as an independent
contractor and not as an agent or partner of, joint venturer with, the other
party for any purpose related to this Agreement or the transactions contemplated
by this Agreement, and neither party will by virtue of this Agreement will have
any right, power or authority to act or create any obligation, expressed or
implied, on behalf of the other party.
3.2 CONTACT PERSON. Each party will appoint in writing an employee or agent of
such party to act as the "Contact Person" for all communication between the
parties related to the Services. The contact person will be responsible for
monitoring the status of the Services and will schedule regular meetings with
both technical and management personnel of each party to review the status of
the Services. Either party may change its Contact Person upon written notice to
the other.
4 CONFIDENTIALITY
Each party agrees that all code, inventions, algorithms, know-how, ideas and all
other business, technical and financial information each party obtains from the
other are the confidential property of the disclosing party ("Proprietary
Information" of the disclosing party). Without limiting the generality of the
foregoing, any code, inventions, algorithms, know-how, ideas and all other
business, technical and financial information resulting from Portal's
performance of the Services shall be deemed Proprietary Information of Portal.
Except as expressly and unambiguously allowed herein, the receiving party will
hold in confidence and not use or disclose any Proprietary Information of the
disclosing party and shall similarly bind its employees in writing. The
receiving party shall not be obligated under this Section 4 with respect to
information the receiving party can document:
(a) is or has become publicly available without restriction through no fault of
the receiving party or its employees or agents;
(b) is received without restriction from a third party lawfully in possession of
such information and lawfully empowered to disclose such information;
(c) was rightfully in the possession of the receiving party without restriction
prior to its disclosure by the other party; or
(d) was independently developed by employees or consultants of the receiving
party without use or reference or access to such Proprietary Information.
5 PORTAL'S RIGHT TO DEVELOP COMPETITIVE PRODUCTS
Nothing in this Agreement shall be construed as to preclude Portal from
developing, using, or marketing programs or other materials that may be
competitive with that prepared for Customer hereunder, irrespective of whether
such programs are similar or related to the programs developed under this
Agreement.
6 FEES AND PAYMENTS
6.1 FEES. Customer shall pay Portal for the Services in accordance with the fees
and rates set forth in Schedule A attached hereto. Portal hereby reserves the
right to modify the fees by providing Customer with written notice within ninety
(90) days of such notification provided, however, Customer shall have the right
to cancel this Agreement within said ninety (90) day period in the event
Customer desires not to be bound by such modification. Portal will invoice
Customer on a biweekly basis as Services are performed. All payments for fees
and expenses must be made within thirty (30) days of the date of invoice. In the
event that within one hundred and eighty days from the Effective Date hereof
Portal reduces its fees and rates offered to other customers generally for the
same services to be rendered to
<PAGE> 2
PROFESSIONAL SERVICES AGREEMENT
Customer hereunder, below the fees and rates set forth herein, then the fees and
rates herein shall be reduced to such prevailing fees and rates.
6.2 EXPENSES. Customer shall reimburse Portal for all reasonable travel and
other related expenses incurred by Portal in connection with performance of the
Services subject to the following: (i) Portal agrees to substantially comply
with Customer's current Corporate Travel and Entertainment Policy, a copy of
which is attached hereto as Schedule B; (ii) Customer will not pay for travel
expenses in connection with Portal personnel who live within fifty miles of the
Customer site.
6.3 TAXES. Customer agrees to pay or reimburse Portal for all federal, state,
dominion, provincial or local sales taxes, fees or duties arising out of this
Agreement or the transaction contemplated by this Agreement (other than taxes on
the net income of Portal).
6.4 INTEREST AND FURTHER COSTS. Customer shall pay Portal one and one-half
percent (1 1/2% ) interest per month on the outstanding balance of any fees or
expenses not paid within thirty (30) days of the date of invoice. Customer shall
be responsible for all costs incurred by Portal in order to recover payment of
Customer's account, including without limitation, all reasonable professional
fees and legal costs. Without waving or prejudicing any other rights or
remedies, Portal shall have the right to suspend or delay the provision of
Services on a day-for-day basis equal to the number of days a payment due
hereunder is past due beginning five (5) days after notice to Customer if
Customer has not cured such payment default within such five (5) day period.
6.5 INVOICES. Services will commence as soon as practical following Portal's
receipt and acceptance of a signed copy of this Agreement and a purchase order
or other written authorization of the Services. Fees for the Services shall be
payable when invoiced and shall be deemed overdue if they remain unpaid 31 days
after they become payable. If Customer's procedures require that an invoice be
submitted against a purchase order before payment can be made, Customer will be
responsible for issuing such purchase order at least thirty (30) days before the
payment date.
7 LIMITED WARRANTY AND LIMITATION OF LIABILITY
7.1 PORTAL WARRANTS THAT THE SERVICES PROVIDED UNDER THIS AGREEMENT WILL BE
PERFORMED IN A PROFESSIONAL AND WORKMAN-LIKE MANNER CONFORMING TO GENERALLY
ACCEPTED INDUSTRY STANDARDS AND PRACTICES. EXCEPT FOR THE FOREGOING, PORTAL
MAKES NO WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, REGARDING OR
RELATING TO ANY MATERIALS OR SERVICES FURNISHED OR PROVIDED TO ANY CUSTOMER
UNDER THIS AGREEMENT OR THE RESULTS THEREOF. PORTAL SPECIFICALLY DISCLAIMS ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO SAID MATERIAL AND SERVICES, AND WITH RESPECT TO THE USE OF ANY OF THE
FOREGOING.
7.2 IN NO EVENT WILL PORTAL BE LIABLE FOR ANY LOSS OF PROFITS, LOSS OF USE,
BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER, OR INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH OR ARISING
OUT OF THE FURNISHING, PERFORMANCE OR USE OF SERVICES, WHETHER ALLEGED AS A
BREACH OF CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF PORTAL HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION, PORTAL WILL NOT BE
LIABLE FOR ANY DAMAGES CAUSED BY DELAY IN DELIVERY OR FURNISHING THE SERVICES.
PORTAL'S LIABILITY UNDER THIS AGREEMENT FOR DIRECT, INDIRECT, SPECIAL,
INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT
LIMITATION, RESTITUTION, WILL NOT, IN ANY EVENT, EXCEED THE FEES PAID BY
CUSTOMER TO PORTAL UNDER SECTION 5.1 OF THIS AGREEMENT.
7.3 Customer shall indemnify Portal against all claims by third parties related
to this Agreement.
7.4 The provisions of this Section 7 allocate risks under this Agreement between
Customer and Portal. Portal's pricing reflects this allocation of risk and
limitation of liabilities.
7.5 No action arising our of any breach or claimed breach of this Agreement or
the transactions contemplated by this Agreement may be brought by either party
more than one (1) year after the cause of action has accrued. For purposes of
this Agreement, a cause of action will be deemed to have accrued when a party
knew or reasonably should have known of the breach or claimed breach.
7.6 No employee, agent, representative, or affiliate of Portal has authority to
bind Portal to any oral representations or warranty concerning the Software or
the Services. Any written representation or warranty not expressly contained in
this Agreement will not be enforceable.
8 TERM AND TERMINATION
8.1 TERM. This Agreement will take effect on the Effective Date and will remain
in effect, unless earlier terminated in accordance with Section 8.2, until all
of the Services have been completed.
8.2 TERMINATION.
(a) This Agreement may be terminated, with or without cause, by Customer upon
thirty (30) days' prior written notice to Portal, provided that no such
termination will entitle Customer to a refund of any portion of the Services
fee.
(b) This Agreement may be terminated by Portal if Customer (i) fails to pay any
amount due to Portal under this Agreement within thirty (30) days after Portal
gives written notice of such non-payment, or (ii) commits a material
non-monetary breach of this Agreement, which breach if capable of being cured,
is not cured within thirty (30) days of written notice of such breach by Portal.
(c) This Agreement may be terminated by Portal if Customer (i) terminates or
suspends its business activities, (ii) becomes insolvent, admits in writing its
inability to generally pay its debts as they mature, makes an assignment for the
benefit of creditors, or becomes subject to direct control of a trustee,
receiver or similar authority, or (iii) becomes subject to any bankruptcy or
insolvency proceeding under federal or state statutes that is not dismissed
within ninety (90) days.
(d) In the event of any termination, each party shall pay to the other all
amounts accrued hereunder, whether billed or unbilled, as of the date of the
termination. There shall be no right of set-off.
8.3 EFFECT OF TERMINATION.
Notwithstanding the foregoing, Sections 3,4,5,6,7,9,10,11, and 12 of this
Agreement and any accrued rights to payment shall survive termination,
regardless of the reason for termination.
<PAGE> 3
PROFESSIONAL SERVICES AGREEMENT
9 ASSIGNMENT
Neither party shall have any right or ability to assign or transfer any
obligations or benefits under this Agreement except to a successor entity by way
of a sale of assets, merger or consolidation without the prior written consent
of the other party, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, either party may assign or transfer any rights to
receive payments hereunder.
10 NOTICE
All notices under this Agreement shall be in writing, and shall be deemed given
when personally delivered, or five (5) days after being sent by prepaid,
certified or registered U.S. mail ,or upon receipt after being sent by
commercial overnight courier service with tracking capabilities, to the
appropriate address set forth below.
FOR PORTAL:
ATTN: LEGAL DEPARTMENT
PORTAL SOFTWARE, INC.
20863 STEVENS CREEK BOULEVARD, SUITE 200
CUPERTINO, CA 95014
FOR LICENSEE:
SAGE NETWORKS, INC.
215 FIRST STREET
CAMBRIDGE, MA 02142
AND
ATTN: GENERAL COUNSEL
SAGE NETWORKS, INC.
11 MARTINE AVENUE
WHITE PLAINS, NY 10606
11 FORCE MAJEURE
Either party to this Agreement shall be excused from any delay or failure in
performance hereunder, except the payment of fees by Customer to Portal, caused
by reason of occurrence or contingency beyond its reasonable control, including
without limitation acts of God, earthquake, labor disputes and strikes, riots,
war or governmental requirements.
12 MISCELLANEOUS
12.1 WAIVERS AND MODIFICATIONS
The failure of either party to enforce its rights under this Agreement at any
time for any period shall not be construed as a waiver of such rights. No
changes or modifications to or waivers of any provisions of this Agreement shall
be effective unless evidenced in writing and signed by both parties.
12.2 SEVERABILITY
In the event that any provision of this Agreement shall be determined to be
illegal or unenforceable, such provision will be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
12.3 GOVERNING LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the laws of
the State of California without regard to conflicts of law provisions thereof.
In any action or proceeding to enforce rights under this Agreement, the
prevailing party will be entitled to recover costs and reasonable attorney's
fees.
12.4 HEADINGS
Headings herein are for convenience of reference only and shall in no way affect
the interpretation of the Agreement.
12.5 ENTIRE AGREEMENT
This Agreement, including all Schedules hereto, supersedes all proposals, oral
or written, all negotiations, conversations, discussions or agreements between
or among the parties relating to the subject matter of this Agreement and all
past dealing or industry custom.
IN WITNESS WHEREOF, the parties have executed this Agreement.
PORTAL SOFTWARE, INC. ("PORTAL")
By: /s/ D. Karen Ha
---------------------------------------------------------------------------
(Typed or Printed Name): D. Karen Ha
------------------------------------------------------
Title: Vice President
------------------------------------------------------------------------
Date: August 6, 1998
-------------------------------------------------------------------------
SAGE NETWORKS, INC. ("CUSTOMER")
By: /s/ Leonard J. Fassler
----------------------------------------------------------------------------
(Typed or Printed Name): Leonard J. Fassler
------------------------------------------------------
Title: Co-Chairman
------------------------------------------------------------------------
Date: July 31, 1998
-------------------------------------------------------------------------
<PAGE> 4
[PORTAL LOGO]
SCHEDULE A
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________________________
c<S> <C>
CLIENT: Sage Networks, Inc. PURCHASE ORDER NO: ___________________________________
ADDRESS: 215 First Street PURCHASE ORDER DATE: ___________________________________
Cambridge, MA 02142 PORTAL'S CONTRACT NO: ___________________________________
___________________________________________________ PORTAL LICENSE NO: ___________________________________
___________________________________________________ PROJECT ID NO: ___________________________________
__________________________________________________________________________________________________________________________
CONTRACT ADMINISTRATOR PORTAL PROJECT MANAGER
Name: _____________________________________________ Name: ______________________________________________________
Address: __________________________________________ Address: ____________________________________________________
Telephone: ________________________________________ Telephone: __________________________________________________
BILLING/ACCOUNTS PAYABLE CONTACT PORTAL PROGRAM LICENSEE IF OTHER THAN CLIENT
Name: ___________________________________________ Name: _______________________________________________________
Address: _________________________________________ Address: ____________________________________________________
___________________________________________________ _____________________________________________________________
Telephone: _______________________________________ Telephone: __________________________________________________
__________________________________________________________________________________________________________________________
SPECIAL NOTES:
__________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 5
PROFESSIONAL SERVICES AND TRAINING RATES
PORTAL PROFESSIONAL SERVICES GROUP ("PPSG") RATES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
JOB TITLE HOURLY RATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
PPSG CONSULTANT ** (plus expense)
- -----------------------------------------------------------------------------------------------------------------------------
PPSG PROJECT MANAGER ** (plus expense)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
TRAINING RATES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TITLE RATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
BASIC INFRANET DEVELOPER TRAINING **
- -----------------------------------------------------------------------------------------------------------------------------
ADVANCED INFRANET DEVELOPER TRAINING **
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The rates set forth above are for training services offered at Portal's training
facility at its Corporate headquarters in Cupertino, California.
IMPLEMENTATION SERVICES
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
DESCRIPTION AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
IMPLEMENTATION SERVICES (SEE FOLLOWING PAGES - ATTACHED SOW)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the event Portal increases its rates beyond those set forth above within the
next three (3) years following the Effective Date of this Agreement, Portal
agrees that it will honor the rates set forth above for that time period. If
Portal's professional services rates drop below those set forth above, Customer
shall be permitted to acquire professional services at Portal's then current
rates.
<PAGE> 6
SCHEDULE B
SAGE NETWORKS, INC.
CORPORATE TRAVEL AND ENTERTAINMENT POLICY
Policy Dated: February 16, 1999
General Policy
It is Sage's policy to reimburse employees for actual, reasonable and proper
business expenditures that are incurred while conducting authorized business for
Sage and that meet IRS regulations as a business expense. Managers are
responsible for ensuring that employees who incur travel or entertainment
expenses comply with the guidelines in this policy. Employees traveling on
corporate business are expected to exercise good judgement, ensure that
expenditures incurred are reasonable, necessary and in the best interest of the
Company and are within the guidelines of this policy.
Scope
All Sage employees.
Procedures
It is the responsibility of each manager reviewing and approving expense reports
to ensure that reported expenses are in accordance with these policies, and
properly documented. Reimbursement of reported expenses are subject to audit by
Sage and the IRS to ensure compliance with this policy and Internal Revenue
Service regulations.
Fraudulent entries on expense reports are considered cause for immediate
dismissal.
A. Expense Reporting/Processing
- - All employees should use the standard Sage expense report form for
reporting expenses. An electronic version is available as an excel
spreadsheet.
- - Receipts are required for all expenses.
- - Purpose of the trip (if applicable), should be noted on the expense report.
- - Expenses must be itemized in the appropriate columns. Include the business
purpose, name of restaurant and name of attendees and affiliation for all
business meals with two or more people, in the description column of the
expense report.
- - Employees submitting more than one expense report should be sure that the
receipts related to each report are attached to the appropriate report.
- - Completed expense reports should be submitted to the employee's direct
supervisor for approval. It is the responsibility of the manager to REVIEW
the expense report before approving. The report should then be submitted to
the Finance Department for
<PAGE> 7
processing. All properly approved expense reports received by 12 noon on
Friday will be processed by Finance by the following Friday, if not sooner.
- - Expense reports are to be submitted to the employee's direct supervisor for
approval within one week of completion of travel. Expense reports received
more than 60 days after the expense is incurred will not be reimbursed.
- - Unusual items not specifically approved by the Controller or COO will be
questioned via e-mail requesting an explanation of the item from the
employee. The employee's expense report will not be processed until the
unusual items are satisfactorily explained.
B. Lost Receipts
- - If an employee loses a receipt for airline tickets, hotel charges or rental
cars, the vendor can usually provide detailed copies of receipts. For
expenses paid in cash or lost receipts, a letter from the employee's
supervisor authorizing payment without receipt must be attached to the
expense report.
C. Travel Authorization
- - All travel must be approved IN ADVANCE by the employee's direct supervisor.
This should be done using the Company's Travel Authorization Form and
should indicate all options researched (i.e., flights, Saturday stay,
etc.). All approved Travel Authorization Forms should be forwarded to the
Finance Department. Expenses incurred without proper approval will not be
reimbursed.
- - Employees must make all of their own travel arrangements through Vista
Travel Agency, the Company's travel agency. Vista has negotiated corporate
air, hotel and car rental rates for the Company, which may not be available
if these providers are contacted directly. Expenses related to travel
arrangements not made through Vista may not reimbursable unless
documentation can be provided indicating that lower prices can be obtained
elsewhere.
- - Vista can be reached at (617) 621-0100 in MA or (800) 875-0100 out of MA,
ask for Sharon McHugh (x230), who is the agent handling Sage's account.
Vista's office manager is Jan Daubenspeck (x223) if Sharon is not
available. After hours or in emergencies, employees can call (800)
676-0371.
D. Air Travel
- - Whenever possible, reservations for travel should be made at least 7 days
in advance of a trip in order to take advantage of the lowest possible
airfares. Employees should evaluate the likelihood of changing plans before
booking a penalty fare.
- - Vista has been instructed to find Sage employees the lowest airfare
possible, including fares that require connections or plane changes. The
travel agency has been instructed to call the COO or Controller to approve
the selection of a more expensive flight by an employee. The employee must
provide the COO or Controller with a valid business need for the approval
of the more expensive flight.
<PAGE> 8
- - From time to time, the Company may require that employees travel with a
particular airline with which it has negotiated special rates.
- - All air travel should be coach class, except for international flights of
more than six hours, in which case business class is allowed.
- - Employees can use their own frequent flyer mileage to upgrade their
seating, however they cannot select a higher priced flight in order to be
able to upgrade their seat.
- - Employees may retain any frequent flyer miles earned while traveling on
company business. However, participation in these programs may not result
in any incremental costs to the Company when selecting a flight.
- - No more than five employees may travel on the same flight.
E. Ground Transportation
- - Each employee should assess the cost of ground transportation (i.e., car
rental vs. taxi) and choose the least expensive option.
- - No private limousines are allowed. Public airport or hotel limousine
services that are shared are acceptable. Reservations for these services
should be made through the Company's travel agency. Again, Vista Travel
Agency has negotiated corporate rates that may not be available if an
employee calls the limousine service directly.
- - When an employee's personal car is used for business travel, other than
normal commuting, the Company will reimburse the employee at a rate of $.31
cents/mile.
- - Travel to and from the airport is reimbursable.
F. Rental Cars
- - Midsize cars are to be used in all cases unless more than four people are
traveling together.
- - Employees are expected to refuel rental cars before returning them to avoid
excessive fuel charges by the rental agency.
- - As most credit card companies provide collision coverage, this coverage
should be waived to avoid unnecessary charges.
G. Hotels
- - All hotel reservations should be made through Vista Travel Agency to ensure
the lowest available rates. Employees are expected to stay in moderately
priced business class hotels or motels. From time to time, the Company may
require that employees stay in a particular hotel with which it has
negotiated special rates.
- - If a reservation must be canceled, employees should call the travel agency
as soon as possible at the phone number above or call the hotel directly to
avoid unnecessary charges.
- - In-room entertainment (movies, drinks, etc.) is not reimbursable.
H. Meals
<PAGE> 9
- - Reimbursable meals are limited to $45 per day in the following cities: New
York, Chicago, Los Angeles, San Francisco and Boston. Reimbursable meals
are limited to $35 per day in all other cities. These are maximum
reimbursable costs. Actual costs should be submitted on expense reports and
RECEIPTS ARE REQUIRED for reimbursement. Tear off tabs are not acceptable.
- - Room service meals are reimbursable as long as they are within the above
limits including any gratuities or service charges.
- - Employee lunches are not reimbursable unless they are approved by the CEO
or COO.
I. Entertainment
- - Entertainment expenses for clients or other business associates are
reimbursable if the entertainment is the setting for the business meeting.
An explanation of the business purpose, the location of the restaurant or
establishment and the name of the attendees and their company affiliation
should be indicated on the expense report.
J. Recruiting
- - Travel related to potential recruits must be approved in advance by the CEO
or COO. The Company will reimburse the recruit's expenses in accordance
with the above employee policy. All recruits must submit expense reports
with receipts. The expense report must be approved by the department
manager. Travel arrangements should be made through Vista Travel.
K. Telephone
- - Reasonable costs for phone call for business purposes are reimbursable.
These include business calls made from hotel rooms or from home office
sites.
- - Cellular phone calls will not be reimbursed.
- - Phone calls on airplanes are not reimbursable unless it is an emergency.
L. Laundry
- - Reasonable costs for laundry are reimbursable for trips that require the
employee to be away from home for five consecutive days or more.
M. Travelers Check Fees
- - The Company will reimburse fees for travelers checks. A receipt should be
submitted with the expense report.
N. Unusual Items
<PAGE> 10
- - Unusual expenses must have written approval by the department manager
attached to the expense report. Unusual items include:
- An amount spent for a reimbursable item that exceeds the normal
guidelines.
- An expenditure that is not normally considered a business expense.
O. Non-Reimbursable Expenses
- - Personal items and services purchased while traveling are not reimbursable.
These items include, but are not limited to:
- Personal air travel and personal trip insurance, including insurance
on personal cars
- Airline club memberships
- Entertainment of or travel expense for spouse
- Theater tickets/movie tickets
- In-room movies/airplane movies
- Purchase of luggage or brief case
- Exercise room fees
- Bar bills
- Golf or other sporting activities
- Traffic Fines
- Loss of cash advance
- Toiletries
- Newspapers or magazines
- Medicine
P. Overseas Conversion Rates
- - All expenses should be reported in US dollars. All currency exchange
receipts should be saved and used for conversion for actual foreign
expenses. If an expense is charged on a credit card, the actual conversion
rate should appear on the statement. This rate should be used for expense
reimbursement. If a conversion rate cannot be established by these means,
then the current rate as published in the Wall Street Journal may be used.
Q. Questions Regarding Travel Policy
- - Please refer questions regarding the Company's travel policy to your
immediate supervisor or to the Finance Department.
<PAGE> 1
Exhibit 10.2
** Indicates that information has been omitted herein pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
Portal Proprietary & Confidential
[PORTAL LOGO] AGREEMENT NUMBER:
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This Software License and Support Agreement shall be effective as of July
31, 1998, ("Effective Date") is entered into by and between Portal Software,
Inc, a California corporation with principle offices at 20863 Stevens Creek
Boulevard, Suite 200, Cupertino, California 95014 ("Portal") and Sage Networks,
Inc., a Delaware corporation with principle offices at 215 First Street,
Cambridge, MA 02142 ("Licensee") and describes the terms and conditions pursuant
to which Portal shall license to Licensee and support certain Portal Software
(as defined below).
1 DEFINITIONS
1.1 "Agreement" means this Software License and Support Agreement, including any
and all attached Schedules.
1.2 "Application" means the specific Application set forth in Schedule A hereto
of the Portal Software running on one or more related computers at a single
location, that share the same Portal Software Database.
1.3 "Confidential Information" means this Agreement and all its Schedules, any
addenda hereto signed by both parties, all software listings, Documentation,
information, data, drawings, benchmark tests, specifications, trade secrets,
object code and machine-readable copies of the Portal Software, and any other
proprietary information supplied to Licensee by Portal or by Licensee to Portal
which is clearly marked as "confidential" if in tangible form, or identified as
"confidential" if orally disclosed.
1.4 "Designated Equipment" means the hardware make and model of the server
computer(s) on which the Portal Software will be installed. Licensee will use
reasonable efforts to provide Portal with at least thirty (30) days prior
written notice describing the type and location of the server hardware initially
and if moved during the term of this Agreement.
1.5 "Portal Software" means (i) the software products designated on Schedule A
hereto provided to Licensee by Portal in executable form (but not the Source
Code), (ii) the associated program documentation ("Documentation"), (iii) any
source code or object code which Portal in its sole discretion may provide to
Licensee from time to time and (iv) any Updates, modifications, maintenance
releases, bug fixes or work-arounds which Portal may provide to Licensee from
time to time.
1.6 "Portal Software Database" means the customer database associated with the
Portal Software which contains the Customer Records.
1.7 "Production Site(s)" means the addresses and locations of the server
computer(s) on which the Portal Software will be installed. Licensee agrees to
use reasonable efforts to provide Portal with the addresses and locations of
such Production Sites at least thirty (30) days prior to any such
installation(s).
1.8 "Sage-based Services Distributors" means any entity under contract with
Licensee for the distribution of Licensee's products and services. Licensee
shall be responsible for ensuring the compliance of its Sage-based Services
Distributor with the terms and provisions of this Agreement. Any use of the
Portal Software in connection with such Sage-based Services Distributors and
their Subscribers is solely limited to the products and services of Sage
Networks, Inc., and the Application. If the Portal Software is used in
connection with customers of any Sage-based Services Distributors, those
customers shall be counted toward Licensee's Subscriber total.
1.9 "Subscriber" means an individual customer record account object ("Customer
Record") in the Portal Software Database. The total number of Subscribers is
exactly equal to the number of Customer Records in the Portal Software Database,
except that Subscribers shall not include fictitious customer records created by
Licensee solely for the purposes of testing the Portal Software in a
non-production environment.
1.10 "Updates" means any updates to the Portal Software licensed hereunder which
Portal, in its discretion, makes generally available to its Portal Software
licensees.
2 GRANT OF LICENSE
2.1 For so long as this Agreement remains in force Portal grants to Licensee a
perpetual, non-exclusive and non-transferable (subject to Section 11) right to
use the Portal Software on the Designated Equipment and on a single Portal
Software Database located at the designated Production Site only for the
specified Application. Licensee may possess only the number of copies of any
Portal Software necessary for the type of use specified above and may use such
copies only in accordance with this Agreement and the Documentation. Portal
shall at all times retain ownership of all Portal Software including any
Documentation and any copies thereof.
2.2 Portal will deliver to Licensee, as soon as is practicable, the necessary
password to enable Licensee to download from Portal's website one
machine-readable copy of the Software, along with one machine-readable copy of
the Documentation. Licensee may not reproduce the Documentation except as needed
by Licensee's employees in order to support the Application.
2.3 Licensee may copy the Portal Software for backup or archival purposes
provided that all titles, trademark symbols, copyright symbols and legends, and
other proprietary markings are reproduced.
2.4 Licensee shall be permitted to create applications using the Policy
Facilities Modules source code and Application Programming Interfaces ("Portal
Software Customization Tools") which Portal may, in its sole discretion, provide
to Licensee from time to time.
2.5 Portal grants and Licensee receives no other rights or licenses to the
Portal Software, derivative works (as defined in the United States copyright Act
of 1976, Title 17 USC Section 101 et. Seq.) or any intellectual property rights
related thereto, whether by implication, estoppel or otherwise, except those
rights expressly granted in this Section 2.
3 LICENSE RESTRICTIONS
3.1 Licensee agrees that it will not itself, or through any parent, subsidiary,
affiliate, agent or other third party:
3.1.1 sell, lease, license, sublicense, encumber or otherwise transfer any
portion of the Portal Software or Documentation;
3.1.2 except to the minimum extent necessary to comply with EC Directive, if
applicable, or other applicable legislation, decompile, disassemble, or reverse
engineer any portion of the Portal Software or attempt to discover any source
code or underlying ideas or algorithms of any Portal Software;
Portal SLSA Page 1 of 5
<PAGE> 2
Portal Proprietary & Confidential
3.1.3 other than to the extent permitted by Section 2.4 above, create any
Derivative Work based on the Portal Software or any Portal Confidential
Information;
3.1.4 use the Portal Software to provide processing services to third parties
(except Sage-based Services Distributors or their customers), commercial
timesharing, rental or sharing arrangements, or on a "service bureau" basis or
otherwise use or allow others to use the Portal Software for the benefit of any
third party;
3.1.5 provide, disclose, divulge or make available to, or permit use of the
Portal Software by persons other than Licensee's employees who shall be bound by
the confidentiality terms and provisions contained in Section 12 below, without
Portal's prior written consent;
3.1.6 use any Portal Software, or allow the transfer, transmission, export, or
re-export of any Portal Software or portion thereof in violation of any export
control laws or regulations administered by the U.S. Commerce Department, OFAC,
or any other government agency. All the limitations and restrictions on the
Portal Software in this Agreement also apply to the Documentation.
4 MANNER OF PAYMENT
All payments due hereunder shall be made inside the U.S., in U.S. dollars and
are exclusive of any sales, use or other taxes, fees or duties arising out of
this Agreement. In addition to any remedies Portal may have hereunder or at law,
any payments more than thirty (30) days overdue will bear a late payment fee of
1.5% per month, or, if lower, the maximum rate allowed by law. Delays in payment
will result in a day-for-day delay of the Portal Software implementation
timetable.
5 LICENSE FEE
5.1 In consideration of the rights granted herein, Licensee shall pay Portal the
license fee specified in Schedule A on the Effective Date.
6 MAINTENANCE AND TECHNICAL SUPPORT
6.1 Provided Licensee remains current on its Gold Level Maintenance Support
payment obligations, Licensee shall be entitled to receive Updates and technical
support in accordance with Portal's Gold Level Support Policy, a current copy of
which is provided at Schedule B. The first annual Gold Level Maintenance Support
payment shall be due upon the earlier of: (i) completion of implementation
services, or (ii) 180 days from the Effective Date hereof, whichever shall be
first.
6.2 Support Services shall consist of (i) error correction and telephone support
provided during Portal's normal business hours to Licensee's technical support
contact concerning the installation and use of the then current release of the
Portal Software and (ii) product Updates that Portal in its discretion makes
generally available and are not designated by Portal as products for which it
charges a separate fee. Portal shall have no obligation to support (a) altered,
damaged or modified Portal Software (except as authorized by Portal or if such
modifications or customizations are performed by Portal Professional Services
Group during implementation) or any portion of the Portal Software incorporated
into other software, (b) Portal Software that is not the then current or
immediately previous sequential release, (c) problems caused by Licensee's
negligence, abuse, or misapplication, or use of the Portal Software other than
as specified in Portal's user documentation or other causes beyond the control
of Portal, or (d) Portal Software installed on a system that is not supported by
Portal. Portal shall have no liability for any changes in Licensee's hardware
which may be necessary to use the Portal Software.
6.3 Portal may elect on sixty (60) days notice (i) effective on any Annual
Maintenance Fee payment date thereafter with respect to any particular Portal
Software, to change the Annual Maintenance Fee and support services terms for
that Portal Software to its then standard fees and terms and/or (ii) effective
on the third or any later Annual Maintenance Fee payment date with respect to
any particular Portal Software, not to provide Support Services to Licensee for
that Portal Software, in which cases Licensee may elect to forego further
Support Services and Annual Maintenance Fees for such Portal Software, whereupon
Portal shall refund Licensee any Support Services fees pro-rated for the balance
of the annual term.
6.4 Upon completion of the implementation of the Portal Software by Portal,
Portal will provide Licensee with a letter confirming that such installation of
the Portal Software was authorized and that Portal's maintenance, technical
support and warranty obligations hereunder shall not have been waived.
7 TERMINATION
7.1 This Agreement commences on the Effective Date and will remain in force
until it is terminated.
7.2 Licensee may, upon thirty (30) days prior written notice to Portal,
terminate this Agreement. However, no such termination will entitle Licensee to
a refund of any portion of any monies which have been paid to Portal.
7.3 Portal may, by written notice to Licensee, terminate this Agreement if any
of the following events ("Termination Events") occur, provided that no such
termination will entitle Licensee to a refund of any portion of any monies which
have been paid to Portal;
7.3.1 Licensee is in breach of this Agreement in any material respect, which
breach, if capable of being cured, is not cured within thirty (30) days after
Portal gives Licensee written notice of such breach; or Portal may terminate
this Agreement immediately upon notice if Licensee breaches any of its
obligations under Section 3 above in any material respect;
7.3.2 Licensee terminates its business activities or becomes insolvent, admits
in writing to its inability to generally pay its debts as they mature, makes an
assignment for the benefit of creditors, or becomes subject to direct control of
a trustee, receiver or similar authority, unless Licensee remains current on all
payment obligations hereunder and any such payments are not reasonably
susceptible to being reclaimed or refunded.
7.4 Termination will become effective immediately under Section 7.3.2 or on the
date set forth in the written notice of termination under Section 7.3.1 provided
such date is not less than thirty (30) days from delivery of said notice.
Termination of this Agreement will not affect the provisions regarding
Licensee's or Portal's treatment of Confidential Information, provisions
relating to the payments of amounts due, provisions limiting or disclaiming
Portal's liability, and/or provisions regarding applicable law, which provisions
will survive termination of this Agreement.
7.5 Upon termination, all licenses granted hereunder shall cease to be effective
and Licensee shall immediately cease all use of any affected Portal Software,
Documentation and Portal Confidential Information.
7.6 Within fourteen (14) days of the date of termination or discontinuance of
this Agreement for any reason whatsoever, Licensee shall return the Portal
Software, derivative works and all copies thereof, in whole or in part, all
related Documentation and all copies thereof, and any other Confidential
Information in its possession. Licensee shall furnish Portal with a certificate
signed by an executive officer of Licensee verifying that the same has been
done.
7.7 Termination is not an exclusive remedy and all other remedies will be
available whether or not termination occurs.
Portal SLSA Page 2 of 5
<PAGE> 3
Portal Proprietary & Confidential
8 INDEMNIFICATION FOR INFRINGEMENT
8.1 Portal shall, at its expense defend or settle any claim, action or
allegation brought against Licensee that the Portal Software infringes any
patent, copyright, trade secret or other proprietary right of any third party,
and Portal will similarly indemnify and hold harmless Licensee from damages and
costs incurred by Licensee (including reasonable attorneys' fees and costs) as a
result of any such claims of infringement and shall pay any final judgment
awarded or settlements entered into; provided that Licensee gives prompt written
notice to Portal of any such claim, action or allegation of infringement and
gives Portal the authority to proceed as contemplated herein. Portal will have
the exclusive right to defend any such claim, action, or allegation and make
settlements thereof at its own discretion, and Licensee may not settle or
compromise such claim, action or allegation, except with prior written consent
of Portal. Licensee shall give such assistance and information as Portal may
reasonably require to settle or oppose such claims.
8.2 In the event any such infringement, claim, action, or allegation is brought
or threatened, Portal may, at its sole option and expense:
8.2.1 Procure for Licensee the right to continue use of the Portal Software or
the infringing portion thereof;
8.2.2 Modify, amend or replace the Portal Software or infringing part thereof
with other software which has substantially the same or better capabilities;
8.2.3 If neither of the foregoing is commercially practicable, Portal shall
refund the portion of the licensee fee specified on Schedule A related to the
infringing part thereof less one-forty-eighth (1/48) thereof for each month or
portion thereof that this Agreement has been in effect. In the event that such
refund is made, Licensee shall immediately cease using the infringing portion of
the Portal Software and will remove the same from its system and so certify to
Portal. By paying a refund in the manner herein contemplated Portal will be
released from any further obligation whatsoever to Licensee in connection with
the infringing part of the Portal Software. If, as a result of having terminated
its licenses with respect to any infringing Portal Software, Licensee is unable
to use any or all of the other components of the Portal Software licensed
hereunder, Licensee shall be permitted to terminate its licenses for those other
Portal Software components upon the same terms and conditions as applicable to
the infringing Portal Software Components set forth above.
8.3 THE FOREGOING OBLIGATIONS SHALL NOT APPLY TO THE EXTENT THE INFRINGEMENT
ARISES AS A RESULT OF MODIFICATIONS TO THE PORTAL SOFTWARE MADE BY ANY PARTY
OTHER THAN PORTAL OR PORTAL'S AUTHORIZED REPRESENTATIVE. THIS SECTION 8 STATES
THE ENTIRE LIABILITY OF PORTAL WITH RESPECT TO INFRINGEMENT OF ANY PATENT,
COPYRIGHT, TRADE SECRET OR OTHER PROPRIETARY RIGHT.
9 WARRANTY AND LIMITATION OF LIABILITY
9.1 Portal warrants to Licensee that the Portal Software will perform in
substantial accordance with the Documentation for a period of one hundred eighty
(180) days from the Effective Date. Portal represents and warrants that the
Portal Software is designated to be used prior to, during and after the calendar
year 2000 and that the Portal Software will operate during each such time period
without error relating to, or the product of, date data which references
different centuries or more than one century. If the Portal Software does not
perform as warranted, Portal shall undertake to correct the non-conforming part
of the Portal Software, or if correction is reasonably not possible, replace
such non-conforming part of the Portal Software free of charge. If neither of
the foregoing is commercially practicable, Portal shall refund the monies paid
by Licensee for that non-conforming part of the Portal Software. In the event
that such refund is made, Portal may amend Schedule A with respect to the
non-conforming part of the software program. The foregoing Year 2000 Warranty
shall not apply to the extent that the Portal Software is used or interfaced
with other software, data or operating systems which are not Year 2000 compliant
and it is reasonably established that such non-compliant software, data or
operating system is the source of the Year 2000 problem or if the Portal
Software has been modified in a manner not authorized by Portal. THE FOREGOING
ARE LICENSEE'S SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF WARRANTY. The warranty
set forth above is made to and for the benefit of Licensee only and will be
enforceable against Portal only if:
9.1.1 The Portal Software has been properly installed and has been used at all
times in accordance with the Documentation and this Agreement;
9.1.2 All modifications, alterations or additions to the Portal Software, if
any, have been made using Portal Software Customization Tools provided by Portal
to Licensee; and
9.1.3 Licensee has not made or caused to be made modifications, alterations or
additions to the Portal Software that cause it to deviate from the
Documentation.
9.2 Except as set forth above, Portal makes no warranties, whether express or
implied, or statutory regarding or relating to the Portal Software or the
Documentation, or any materials or services furnished or provided to Licensee
under this Agreement. Specifically, Portal does not warrant that the Portal
Software will be error free or will perform in an uninterrupted manner. To the
maximum extent allowed by law, Portal specifically disclaims all implied
warranties of merchantability and fitness for a particular purpose (even if
Portal had been informed of such purpose) with respect to the Portal Software,
Documentation and support and with respect to the use of any of the foregoing.
9.3 IN NO EVENT WILL PORTAL OR ITS SUBCONTRACTORS BE LIABLE FOR ANY LOSS OF
PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER OR
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION
WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE PORTAL SOFTWARE
OR SERVICES PERFORMED HEREUNDER OR ANY DELAY IN DELIVERY OR FURNISHING THE
PORTAL SOFTWARE OR SAID SERVICES WHETHER ALLEGED AS A BREACH OF CONTRACT OR
TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF PORTAL HAD BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE.
9.4 PORTAL'S MAXIMUM AGGREGATE LIABILITY (WHETHER IN CONTRACT, TORT OR ANY OTHER
FORM OF LIABILITY) FOR DAMAGES OR LOSS, HOWSOEVER ARISING OR CAUSED, WHETHER OR
NOT ARISING FROM PORTAL'S NEGLIGENCE, SHALL IN NO EVENT BE GREATER THAN (a) IN
THE EVENT SUCH DAMAGE IS NOT RELATED TO SUPPORT, THE LICENSE FEE SPECIFIED IN
SCHEDULE A RELATED TO THE PARTICULAR PORTAL SOFTWARE PROGRAM WHICH CAUSED THE
DAMAGE OR LOSS, OR (b) IN THE EVENT SUCH DAMAGE OR LOSS IS RELATED TO SUPPORT,
THE SUPPORT FEES PAID BY LICENSEE FOR THE THEN CURRENT SUPPORT TERM.
9.5 No employee, agent, representative or affiliate of Portal has authority to
bind Portal to any oral representations or warranty concerning the Portal
Software. Any written representation or warranty not expressly contained in this
Agreement is unenforceable.
10 EMBEDDED REPORTING /COMPLIANCE ROUTINE; AUDIT RIGHTS
Licensee shall keep and maintain full, accurate and detailed records regarding
the License and the number of End Users of the Portal Software. Portal or its
representatives shall be entitled to review and audit such books and records
and/or Licensee's compliance with the provisions of this Agreement from time to
Portal SLSA Page 3 of 5
<PAGE> 4
Portal Proprietary & Confidential
time during normal business hours upon thirty (30) days prior written notice
reasonable notice to Licensee.
11 ASSIGNMENT/BINDING AGREEMENT
Neither this Agreement nor any rights under this Agreement may be assigned or
otherwise transferred by Licensee, in whole or in part, whether voluntary or by
operation of law, except by way of sale of assets, merger or consolidation,
without the prior written consent of Portal, which consent shall not be
unreasonably withheld or delayed, provided that in the case of any such sale of
assets, merger or consolidation, the number of Subscribers shall not be
increased beyond the maximum number of Subscribers in the block of Subscribers
then applicable immediately prior to such sale of assets, merger or
consolidation. Subject to the foregoing, this Agreement will be binding upon and
will inure to the benefit of the parties and their respective successors and
assigns. Notwithstanding the foregoing, no transfer or assignment of Licensee's
rights hereunder shall be effective unless and until (1) Licensee has paid and
remains current on all amounts due hereunder, and (2) the purported assignee
agrees in writing to be bound by all of the obligations of Licensee hereunder.
Further, neither this Agreement nor the licenses granted hereunder shall be
transferable to any direct competitor of Portal.
12 CONFIDENTIALITY
12.1 Each Party acknowledges that the Confidential Information constitutes
valuable trade secrets and each party agrees that it shall use the Confidential
Information of the other party solely in accordance with the provisions of this
Agreement and it will not disclose, or permit to be disclosed, the same directly
or indirectly, to any third party without the other party's prior written
consent. Each party agrees to exercise due care in protecting the Confidential
Information from unauthorized use and disclosure. However, neither party bears
any responsibility for safeguarding any information that it can document in
writing (i) is in the public domain through no fault of its own, (ii) was
properly known to it, without restriction, prior to disclosure by Disclosing
Party, (iii) was properly disclosed to it, without restriction, by another
person with the legal authority to do so, (iv) is independently developed by
Receiving Party without use or reference to Disclosing Party's Proprietary
Information or (v) is required to be disclosed pursuant to a judicial or
legislative order or proceeding; provided that, to the extent permitted by and
practical under the circumstances, Receiving Party provides to Disclosing Party
prior notice of the intended disclosure and an opportunity to respond or object
to the disclosure or if prior notice is not permitted or practical under the
circumstances, prompt notice of such disclosure.
12.2 In the event of actual or threatened breach of the provisions of Section 3
or Section 12.1, the non-breaching party will be entitled to immediate
injunctive and other equitable relief, without bond and without the necessity of
showing actual damage.
13 NOTICE
Any notice required or permitted under the terms of this Agreement or required
by law must be in writing and must be (a) delivered in person, (b) sent by
registered mail, return receipt requested, (c) sent by overnight air courier, or
(d) by facsimile, in each case forwarded to the appropriate address set forth
below.
FOR PORTAL:
ATTN: LEGAL DEPARTMENT
PORTAL SOFTWARE, INC.
20863 STEVENS CREEK BOULEVARD, SUITE 200
CUPERTINO, CA 95014
FOR LICENSEE:
SAGE NETWORKS, INC.
215 FIRST STREET
CAMBRIDGE, MA 02142
AND
ATTN: GENERAL COUNSEL
SAGE NETWORKS, INC.
11 MARTINE AVENUE
WHITE PLAINS, NY 10606
Either party may change its address for notice by written notice to the other
party. Notices will be considered to have been given at the time of actual
delivery in person, three (3) business days after posting, or one days after
(vi) delivery to an overnight air courier service or (vii) the moment of
transmission by facsimile.
14 MISCELLANEOUS
14.1 Force Majeure. Neither party will incur any liability to the other on
account of any loss or damage resulting from any delay or failure to perform all
or any part of this Agreement if such delay or failure is caused, in whole or in
part, by event, occurrences, or causes beyond its control and without negligence
of the parties. Such events, occurrences or causes will include, without
limitation, acts of God, strikes, lockouts, riots, acts of war, earthquakes,
fire and explosions, but the ability to meet financial obligations is expressly
excluded.
14.2 Waiver. Any waiver of the provisions of this Agreement or of a party's
rights or remedies under this Agreement must be in writing to be effective.
Failure, neglect or delay by a party to enforce the provisions of this Agreement
or its rights or remedies at any time will not be construed to be deemed a
waiver of such party's rights under this Agreement and will not in any way
affect the validity of the whole or any part of this Agreement or prejudice such
party's right to take subsequent action.
14.3 Severability. If any term, condition or provision in this Agreement is
found to be invalid, unlawful or unenforceable to any extent, the parties shall
endeavor in good faith to agree to such amendments that will preserve, as far as
possible, the intentions expressed in this Agreement. If the parties fail to
agree on such an amendment, such invalid term, condition or provision will be
severed from the remaining terms, conditions and provisions, which will continue
to be valid and enforceable to the fullest extent permitted by law.
14.4 Entire Agreement. This Agreement (including the Schedules and any addenda
hereto signed by both parties) contains the entire agreement of the parties with
respect to the subject matter of this Agreement and supercedes all previous
communications, representations, understandings and agreements, either oral or
written, between the parties with respect to said subject matter.
14.5 Standard Terms of Licensee. No terms, provisions or conditions of any
purchase order, acknowledgement or other business form that Licensee may use in
connection with the acquisition or licensing of the Portal Software will have
any effect on the rights, duties or obligations of the parties under, or other
otherwise modify, this Agreement, regardless of any failure of Portal to object
to such terms, provisions, or conditions.
14.6 Public Announcements/Publicity. Licensee and Portal agree to cooperate
regarding public relations activities, including public announcements, joint
press releases, and other activities to be mutually agreed. Neither party will
perform such activities without the prior written consent of the other party,
which consent shall not be unreasonably withheld.
14.7 Counterparts. This Agreement may be executed in counterparts, each of which
so executed will be deemed to be an original and such counterparts together will
constitute one and the same Agreement.
14.8 Applicable Law. This Agreement will be interpreted and construed pursuant
to the laws of the State of California and the United States without regard to
conflicts of laws provisions thereof, and without regard to the United Nations
Convention on the International Sale of Goods. Any waivers or amendments shall
be effective only if made in writing. This Agreement is the complete and
exclusive statement of the mutual understanding of the parties and supersedes
and cancels all previous written and oral agreements and communications relating
to the subject matter of this Agreement. The prevailing party in any action to
enforce this Agreement will be entitled to recover its reasonable attorney's
fees and costs in connection with such action. Licensee represents that it is
not a government agency and it is not acquiring the license pursuant to a
government contract or with government funds. In the event of a conflict between
the terms and provisions of this Agreement and any other document or agreement,
this Agreement shall be controlling.
Portal SLSA Page 4 of 5
<PAGE> 5
Portal Proprietary & Confidential
IN WITNESS WHEREOF, the authorized representatives of the parties hereby bind
the parties by signing below:
SAGE NETWORKS, INC.
BY: /s/ Leonard J. Fassler
-------------------------------------------------------------------
PRINT NAME: Leonard J. Fassler
-------------------------------------------------------------------
TITLE: Co-Chairman
-------------------------------------------------------------------
DATE: July 31, 1998
-------------------------------------------------------------------
PORTAL SOFTWARE, INC.
BY: /s/ John Little
-------------------------------------------------------------------
PRINT NAME: John Little
-------------------------------------------------------------------
TITLE: President and Chief Executive Officer
-------------------------------------------------------------------
DATE: August 6, 1998
-------------------------------------------------------------------
Portal SLSA Page 5 of 5
<PAGE> 6
Schedule A
to
Portal Proprietary & Confidential
SCHEDULE A
SECTION 1.0 PORTAL SOFTWARE
The following Portal Software products and their associated online documentation
will be provided:
- - Infranet, including Infranet Server, Infranet Developer, Infranet
Administrator, Infranet Payment Tool, Infranet Pricing Tool, Policy
Configuration Tool, Invoice Designer Tool, Infranet Insite;
SECTION 2.0 APPLICATION DESCRIPTION/EQUIPMENT/INITIAL SUBSCRIBER LIMIT
2.1 APPLICATION: BILLING AND CUSTOMER MANAGEMENT OF SUBSCRIBERS TO LICENSEE'S
ONLINE WEB HOSTING SERVICE.
2.2 PLATFORM (O/S): SUN/SOLARIS UNIX
2.3 INITIAL SUBSCRIBER LIMIT: **
SECTION 3.0 INSTALLATION SITES
3.1 PRODUCTION SITE: 64 PERIMETER CENTER EAST, G1, ATLANTA, GA 30346
3.2 DEVELOPMENT SITE: 64 PERIMETER CENTER EAST, G1, ATLANTA, GA 30346
3.3 BACKUP SITE: 64 PERIMETER CENTER EAST, G1, ATLANTA, GA 30346
SECTION 4.0 LICENSE AND MAINTENANCE SUPPORT SERVICE FEES
4.1 PORTAL SOFTWARE LICENSE FEES
The following Price List describes the price for licensing the Portal
Software for the above-stated Application for the up to ** total Subscribers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PORTAL SOFTWARE COMPONENT LIST PRICE DISCOUNT FINAL PRICE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFRANET ** ** **
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
4.2 ANNUAL GOLD LEVEL SUPPORT SERVICE FEES
Portal will provide Gold Level Maintenance Support Services for a term of
one year pursuant to Attachment B at the following price:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PORTAL SUPPORT SERVICE ANNUAL FEE ANNUAL PAYMENT DATE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GOLD LEVEL MAINTENANCE SUPPORT ** **
(** SUBSCRIBERS)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SLSA Schedule A Page A-1
<PAGE> 7
Portal Proprietary & Confidential
4.3 ADDITIONAL SUBSCRIBER LICENSE AND MAINTENANCE SUPPORT FEES
For up to three (3) years from the Effective Date ("Option Period")
Licensee shall be entitled to license Additional Subscribers at the rates set
forth in the following table. After expiration of the Option Period, Licensee
will license Additional Subscribers at Portal's then current rates. Such
Additional Subscribers may only be licensed in the incremental blocks specified
and not one at a time. Applicable Annual Maintenance Support Fees must be
licensed and paid before such Additional Subscribers are called into use. Annual
Maintenance Support fees will be prorated over the remainder of the annual
support term during which they are added. In the event Portal reduces its list
pricing below those prices offered to Licensee for Additional Subscribers
hereunder during the Option Period, Licensee shall be permitted to apply the
discount schedule below to Portal's then current rates.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUBSCRIBER NUMBERS SUBSCRIBERS DISCOUNT PRICE PER PRICE PER BLOCK ANNUAL GOLD SUPPORT
IN BLOCK SUBSCRIBER FEE PER BLOCK
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25,001- 50,000 25,000 **(1) ** ** **
- --------------------------------------------------------------------------------------------------------------------
50,001-100,000 50,000 ** ** ** **
- --------------------------------------------------------------------------------------------------------------------
100,001-200,000 100,000 ** ** ** **
- --------------------------------------------------------------------------------------------------------------------
200,001-450,000 250,000 ** ** ** **
- --------------------------------------------------------------------------------------------------------------------
450,001-950,000 500,000 ** ** ** **
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SECTION 5.0 PAYMENT SCHEDULE
Licensee agrees to make payment in accordance with the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION AMOUNT PAYMENT DUE DATE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LICENSE FEE ** **
- --------------------------------------------------------------------------------------------------------------------
ANNUAL GOLD SUPPORT PAYMENT ** **
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
1 Licensee shall be entitled to receive a ** discount on the first block of
** Additional Subscribers if Licensee purchases such Additional
Subscribers within ** days of the Effective Date hereof.
SLSA Schedule A Page A-2
<PAGE> 8
[PORTAL LOGO]
SCHEDULE B
[INFRANET(TM)]
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
PORTAL SOFTWARE, INC.
20863 Stevens Creek Boulevard
Suite 200
Cupertino, CA 95014
U.S.A.
<PAGE> 9
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
<TABLE>
<S> <C>
PRODUCT SUPPORT .............................................. 1
GUIDELINES, POLICIES AND DEFINITIONS ......................... 1
SUPPORT OVERVIEW ............................................. 3
PORTAL ERROR TRACKING SYSTEM (PETS) ........................ 3
WEB-BASED SUPPORT .......................................... 3
PORTAL ERROR TRACKING SYSTEM (PETS) .......................... 4
PETS TICKET SEVERITY DEFINITIONS: .......................... 4
PETS TICKETS RESPONSE TIME ................................. 6
PHASE DEFINITIONS: ......................................... 6
CHANGING SEVERITY LEVEL OF A PETS TICKET: .................. 7
STATUS DEFINITIONS IN PETS: ................................ 7
TYPICAL PROGRESSION THROUGH STATUS ......................... 8
CHANGING THE STATUS OF A PETS TICKET ....................... 8
ACTIVITY LOG IN PETS TICKETS ............................... 9
PETS REVIEW CYCLES ......................................... 9
PETS SEVERITY 1 TICKETS .................................... 9
PETS SEVERITY 2 TICKETS .................................... 9
PETS SEVERITY 3, 4, 5 AND 10 TICKETS ....................... 10
PORTAL WEB-BASED SUPPORT ..................................... 10
CASE SUBMISSION ............................................ 10
TECHNICAL SUPPORT CONTACTS ................................. 11
SUPPORT AND ESCALATION PROCESS ............................... 11
FOR SEVERITY 1 & 2 ......................................... 11
FOR GENERAL SUPPORT ISSUES AND ERRORS OF ANY SEVERITY ...... 12
SOFTWARE ERRORS .............................................. 12
FIRST CUSTOMER SHIP RELEASES AND UPDATE RELEASES ........... 12
PRODUCT SUPPORT PERIOD ..................................... 13
DIRECTIONS FOR PETS .......................................... 14
</TABLE>
Page B 2
<PAGE> 10
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
SUPPORT OVERVIEW
As Portal grows we are committed to continuing to develop our world-class
technical support service organization to provide the best support services to
our customer. The following are procedures that we would like to implement to
ensure that you, as a customer, receive the proper and prompt assistance when
needed.
There are currently two methods of addressing issues raised for support. They
are:
PORTAL ERROR TRACKING SYSTEM (PETS)
Production related errors are defects/bugs of Infranet that occurred during the
execution of a production system and should be reported as such in Portal's
Error Tracking System (PETS).
Please submit an error report for the problem using PETS -- www.pin.com (there
are separate instructions for how to logon to PETS and use it). Our response
time for the defect will be based on the severity levels and individual
customer's support contract. If the defect is not resolved in a satisfactory
manner, please escalate the situation per the escalation process.
WEB-BASED SUPPORT
For all those technical, development, non-production related questions, please
start by submitting the question/issue via our Web-Based Support:
www.portal.com/WebSupport/login.htm
Each customer contact is provided with a login ID and unique password. To
obtain your login and password, register by completing our online registration
form:
www.portal.com/professional_services/plreg.htm
Page B 3
<PAGE> 11
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
PORTAL ERROR TRACKING SYSTEM (PETS)
PETS Ticket Severity Definitions:
SEVERITY 1- PRODUCTION ISSUE - Major product defect causing complete loss of
service. Resolution: work until complete
(Portal found bugs - major product defect that would likely cause full loss of
service to a customer's production system)
Examples:
- System failure prevents end-users from accessing network service.
- Failover not successful in routing around problems.
- Repeated data loss or data corruption occurs to object data.
- Repeated software failures that result in total interruption of
service.
SEVERITY 2 - PRODUCTION ISSUE/EMERGENCY DEVELOPMENT ISSUE - Serious product
defect causing major but intermittent loss of production service or preventing
imminent deployment of system under development. No workaround is available, but
operation can continue in a restricted fashion. Resolution: Work until complete.
(Portal found bugs - serious product defect that would likely cause major but
intermittent loss of service at a customer site.)
Examples:
- System failure prevents end-users from signing up for service, but
allows end users to access network services.
- System failure prevents billing collections from occurring, but allows
end-users to access network service.
SEVERITY 3 - Significant product defect causing loss of service of one or more
functions. Workaround is not available, or functionality loss is critical to
system operation. Resolution: Patch or next release, if imminent
Examples:
- System failure prevents admin users from performing specific account
updates, but all other functions are working. However, the missing
function is critical to determining customer's sales commissions.
- System failure prevents end-users from accessing web pages for account
information, but allows end-users to access network service. However,
for many users, the web is the only access available to them.
Page B 4
<PAGE> 12
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
SEVERITY 4 - Product defect causing loss of service of one or more functions.
Workaround is available, or functionality loss is not critical to system
operation. Resolution: Next or future release
Examples:
- System failure prevents admin users from performing specific account
updates, but all other system functions are working.
- System failure prevents end-users from accessing web pages for account
information, but allows end-users to access network service.
SEVERITY 5 - Minor product defect causing little or no end-user visible loss of
service. This category includes cosmetic errors or defects where the impact to
a customer's operation is minor. Resolution: Candidate for future release
Examples:
- Documentation errors requiring correction or clarification.
- Most error message problems.
- System failure that occurs rarely and where failover successfully
routes around the failure.
SEVERITY 10 -Enhancement request to Infranet for new feature or modification to
existing feature rendering the feature more effective, complete or easier to
use. Resolution: Candidate for future release
Examples:
- Additional summary reports by cycle, accounts, etc.
- Additional screens in the web interface.
Page B 5
<PAGE> 13
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
PETS Tickets Response Time
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SEVERITY LEVEL CALL TARGET RESOLUTION
BACK FOR
TIME INITIAL
ANALYS
IS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Complete loss in production 30 minutes 4 hours work until complete
2 Serious defect causing major but 4 hours 8 hours work until complete
intermittent loss in production or
preventing deployment.
3 Significant defect causing minor loss 2 business 5 business Patch or next release
in production with no workaround days days
4 Minor defect causing minor loss with Via PETS Via PETS Next or future release
workaround updates updates
5 Minor defect causing no loss Via PETS Via PETS Candidate for future
updates updates release
10 Request for Enhancement Via PETS Via PETS Candidate for future
updates updates release
- ------------------------------------------------------------------------------------------------------
</TABLE>
Phase Definitions:
- CALL BACK TIME - Initial callback from Portal by a qualified
technical support representative.
- TARGET FOR INITIAL ANALYSIS - Targeted response time for first
detailed analysis of problem, including any possible workaround
and plan for complete resolution.
- RESOLUTION - Estimate of when fix or workaround is available to
customer to eliminate symptoms of problem.
Page B 6
<PAGE> 14
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
Changing Severity Level of a PETS Ticket:
When a PETS ticket is initially submitted, the submitter makes their best
estimate of the appropriate severity level of the ticket and files it as
such. As Portal and the submitter work on the reported issue, it may
become clear that the severity level should be changed. If the submitter
wishes to change the severity level, they should send an email to
[email protected] listing the PETS id number, what severity level to
change from and to, and why the change is being requested.
If in reviewing the PETS ticket, Portal's analysis is that a change in
severity levels is consistent with the definitions above, Portal will
change the severity level and notify the submitter.
Status Definitions in PETS:
SUBMITTED - Ticket has been logged into PETS for tracking
PENDING - Not enough information has been logged in the ticket; more
information is needed from the submitter for Portal to further analyze the
problem. Information to include when submitting a PETS ticket includes:
how to reproduce the error, any non-reproducible symptoms and any error
messages. Customers should update the PETS ticket with the additional
information and inform support by sending an email to
[email protected]. Technical support will change the status of the
ticket so that it is continued to be worked on.
QUALIFIED - Infranet Technical Support has reviewed the ticket and qualified
it as warranting Engineering evaluation. If the issue can be resolved
without Engineering evaluation, the Technical Support personnel will drive
resolution rather than qualifying it to pass to Engineering for
evaluation.
ASSIGNED - Engineering resources have been assigned to resolve the error.
EVALUATED - Engineering has evaluated the ticket and considers the ticket to
contain enough information to proceed.
INTEGRATED - The error is fixed and tested. The fix is incorporated into a
release of Infranet.
DELIVERED - The fix is delivered to the customer as either a patch or a
future release. Delivered is the final status for any PETS ticket that
requires code changes.
Page B 7
<PAGE> 15
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
CLOSED - No action needed because the reported issue is a duplicate of an
existing ticket, it turns out not to be an error or it cannot be
reproduced. Closed is the final status for any PETS ticket that does not
require code changes.
Typical Progression Through Status
The order in which the status indicators are listed in the prior pages is
close to the typical progression through to resolution of a PETS ticket.
All tickets are automatically tagged with a status of Submitted when they
are filed. Infranet Technical Support personnel are the first ones at
Portal to review a PETS ticket. They will do one of three things. 1) They
may see that more information is needed, note what information is needed
in the activity log of the PETS ticket and change the status to Pending
until more information is submitted to [email protected]. 2) They
may determine that this PETS ticket warrants review by Portal Engineering
and mark the status as Qualified. Or 3) they answer the question
themselves if the answer does not require any code changes, and then mark
the status as Closed.
Once a PETS ticket is marked as qualified, then Portal Engineering reviews
it, assigns it to an appropriate engineer and marks the status as
Assigned. When an engineer reviews the PETS ticket, they may do one of
three things: 1) Evaluate it, determine they have enough information to
reach a resolution and mark the status as Evaluated. 2) Evaluate it,
determine that more information is necessary, list what information is
necessary in the activity log of the PETS ticket and mark the status as
Pending. 3) Evaluate the ticket, determine that it should be closed for
some reason, indicate the reason (such as duplicate of another PETS
ticket, not reproducible or not an error) and change the status to Closed.
After a Portal engineer has evaluated a PETS ticket and determined that
enough information is available, the engineer will work on a fix for the
error. Once a fix has been implemented, tested and integrated into an
Infranet build, then the engineer will change the status to Integrated.
After the build in which the fix has been integrated is delivered (posted
to the Portal web site) as a Release or an Update, then the PETS ticket
status is changed to Delivered and the activity log is updated with the
name of the Release or Update. Delivered is the final status for any PETS
ticket that requires code change. Closed is the final status for PETS
tickets that do not require code changes.
Changing the Status of a PETS Ticket
Page B 8
<PAGE> 16
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
As the ticket progresses through to resolution, Portal will update the
status of the PETS ticket. If the submitter wishes to update the status of
a ticket, for example when they've provided requested additional
information in response to a status of Pending, the submitter should send
an email to [email protected] requesting the status change.
Activity Log in PETS Tickets
Portal will add to the activity log of a PETS ticket as it progresses
through to resolution. Any information that is pertinent will be added to
the log. In particular when a ticket's status is changed to Pending,
details of what information is needed is described in the activity log.
PETS Review Cycles
Portal does a full review of outstanding PETS tickets at least once during
the course of each Infranet release. Since Infranet releases are scheduled
3 times a year, all the outstanding PETS ticket will be reviewed at least
three times a year.
COMMUNICATION
PETS Severity 1 Tickets
For Severity 1 tickets Portal provides updates to submitter as pertinent
information is available. These updates are provided via phone, fax or
email as the situation warrants. The definition of Severity 1 as complete
loss of service in production will be strictly adhered to and any tickets
that do not fall within this definition either initially or after a work
around has been provided will be reassigned to a lower severity level.
PETS Severity 2 Tickets
For Severity 2 tickets Portal provides updates to submitter as pertinent
information is available. These updates are provided via phone, fax or
email as the situation warrants. The definition of Severity 2 as major
loss of service in production or preventing deployment will be strictly
adhered to and any tickets that do not fall within this definition either
initially or after a work around has been provided will be reassigned to a
lower severity level.
Page B 9
<PAGE> 17
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
PETS Severity 3, 4, 5 and 10 Tickets
Portal communicates updates on these tickets via PETS as pertinent
information is available. The PETS system permits users to search for
recently updated tickets and it will also send out an automatic email when
a ticket is changed.
WEB-BASED SUPPORT
Technical support is available to all Portal customers with a current customer
support contract. Portal's Web-Based support provides fast and easy access to
all your technical support cases. It allows you to add a new case, or update and
monitor the status of an existing case. Each case is associated with a case
number for reference and tracking purposes.
Case Submission:
When you submit a question or issue to us, please make sure you do the following
so we can best serve you:
1. Give us a DETAILED DESCRIPTION OF YOUR PROBLEM.
2. Give us a DETAILED DESCRIPTION OF WHAT YOU HAVE DONE to try to solve the
problem on your own. Have you read the documentation? Have your looked in the
error log?
3. Email any configuration or log files to [email protected]. Please include
your case number and company name in the subject header of the email. For
example, "Portal case# 1234: dm_oracle pinlog files"
NOTE: Be aware that when you CC people in your email to us with aliases, we
may not get the full email address of the CC'ed person. If that is the case,
we will be unable to send a reply to them. You will need to forward our reply
to them yourself.
All questions submitted are researched and answered in a timely manner. Portal
will log all questions/issues in the order they are received and will work on
them IN THAT ORDER. Once the question has been understood and analyzed, an
estimate of how long it would take to resolve it will be provided back to the
customer IF an answer or a solution is not available in a reasonable amount of
time.
Technical Support Contacts
To ensure that we provide uniform support to each of our customers, each
customer account is required to designate two senior level contacts to function
as the technical
Page B 10
<PAGE> 18
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
support liaison to Portal. Please send an email to [email protected] stating
the name, phone number and email address of your contacts. Your designated
contacts will be added to our call tracking database and will be the only
individuals allowed to submit issues into technical support. To change your
contact information, please send an email request to [email protected].
Additional contacts can be negotiated into the Support Maintenance Contract at
additional cost.
SUPPORT AND ESCALATION PROCESS
To ensure our customers are getting the appropriate level of attention and
service, the following are procedures to use when dealing with any Infranet
product defects.
For Severity 1 or 2 Errors:
For PRODUCTION defects entered into PETS as SEVERITY 1 or 2, please call
our 24-Hour answering service AFTER you have entered the error into PETS
so we can respond to your submittal in a timely manner.
SEVERITY 1 & 2: (408) 752 - 7430
Customers on 7 by 24 hours support, should call at any time, others should
call during our normal business hours between 8:00am - 5pm PST.
An agent with the answering service will receive your call and collect the
following information from you: your name, phone number, company which you
represent, severity, and a brief message. The answering service will
escalate your call to the appropriate Portal individual. Our internal
escalation guidelines are as follows:
FOR SEVERITY 1:
1. Page primary on-call support engineer.
2. If primary on-call person does not respond in 10 minutes, page
secondary on-call support engineer.
3. If the secondary on-call person does not respond in 10 minutes
page and call the Technical Support Manager
4. If the manager does not respond in 10 minutes, page and call the
regional Director and the VP of Portal's Professional Services
Group.
FOR SEVERITY 2:
1. Page the primary on-call support engineer.
2. If the primary on-call person does not respond in 1 hour, page
the secondary on-call support engineer.
Page B 11
<PAGE> 19
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
3. If the secondary on-call person does not respond in 1 hour, page
and call the Technical Support Manager.
4. If the Manager does not respond in 1 hour, page the regional
Director.
5. If the Director does not respond in 1 hour, page the VP of
Portal's Professional Services Group.
For General Support Issues and Errors of Any Severity:
If you feel that an error or defect of any severity submitted via PETS is
not being resolved appropriately, please call the Technical Support phone
number at:
Technical Support: (408) 343-4410 (voicemail)
and leave a voicemail with your name, phone number, company which you
represent and brief problem description. A Technical Support engineer will
be paged automatically to assist you. If the Technical Support engineer is
unable to address your needs, please feel free to contact the Technical
Support Manager at:
Technical Support Manager (West): (408) 697-5037 (pager)
Technical Support Manager (East): (888) 550-0405 (pager)
If the problem is not progressing at a speed with which you are satisfied,
you may ask the Technical Support Manager to escalate the issue. S/He will
work with you to set up a conference call with the VP of Portal's
Professional Services Group.
SOFTWARE ERRORS
First Customer Ship Releases and Update Releases
Portal will work on tickets of severity 1, 2, and 3 until they are
resolved. Fixes for these tickets are targeted to be included in an Update
Release of the currently shipping Infranet release as well as in the
following release.
Portal schedules one Update Release four weeks after the First Customer
Ship (FCS) of an Infranet Release. An Update Release is a full Infranet
release with additional fixes integrated. After the scheduled Update
Release that Portal posts to the web 4 weeks after FCS, any other Update
Releases are posted on an as-needed basis. For example, Portal posted
Infranet 5.1 Update 5. Update Releases contain the cumulative set of fixes
available for a given release. Update Releases should be downloaded and
installed in full to ensure that you have the most recent, supported
version of Infranet.
Page B 12
<PAGE> 20
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
Tickets of severity 4 are targeted for fixing in the next release,
severity 5 for fixing in a future release and tickets of severity 10 are
candidates for a future release.
Product Support Period
Infranet releases are supported for a period of 6 months after the
subsequent release of Infranet ships. For example, Infranet 5.1 will be
supported for 6 months after the release of Infranet 5.2 or for a total of
10 months after shipping 5.1 (since 5.2 ships 4 months after 5.1, 5.1 is
supported for that 4 months plus an additional 6 months for a total of 10
months.). Portal highly encourages customers to upgrade to the latest
release of Infranet in order to benefit from the latest features and
fixes. Yet, we understand that it does take time to migrate to the latest
release, so we have allocated a period of a total of ten months to support
a release: four months until the next release ships (Infranet releases
ship three times a year, every four months) plus six months after the next
release ships.
Page B 13
<PAGE> 21
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
DIRECTIONS TO USING PETS2
GETTING STARTED
You can get to PETS2, login via the www.pin.com web site. Log into this site
using your current user name and password. Once on, click on PETS2. The system
will ask you for another login and password. This is not the same user
login/password that was used in PETS. Support will let you know your new login.
The password is the same as before. When you type in your login and password,
make sure you use capitals when specified. PETS2 is now case sensitive.
- --------------------------------------------------------------------------------
Select one of the schemas in the list below.
Click on Query OR Submit (or use the buttons which follow the list) to open the
selected schema for Query OR Submit.
PETS2 PETS:User Comments
Click on QUERY OR SUBMIT to start working with the selected schema.
- --------------------------------------------------------------------------------
You will see the above when you first login. The PETS2 schema is used for
tickets. The PETS:User Comments schema is used for User Comments.
SEARCHING AND MODIFYING A TICKET
To search or modify a ticket, choose the PETS2 schema and click on QUERY. You
may search on any one of the fields you see. You may select from the pulldown
menu for any or all of these fields. If a field is left blank, that field is
considered a wildcard. If you leave all the fields blank, all wildcards, you'll
get all your tickets in PETS2.
After you've made your search criteria selection, hit RUN QUERY and a list of
all tickets matching your set of criteria will appear. You can either view or
modify those tickets.
SUBMITTING A TICKET
To submit a ticket, choose the PETS2 schema and click on the SUBMIT button at
the top of the page to get a blank ticket. Currently, the only way to get back
to the PETS2 page is to use a bookmark or to hit "back" in your browser. We are
looking into changing that.
There are several fields that are required in submitting a ticket. They are the
following:
- - Severity - Release - Product - OS - Problem Summary
- - Problem Detail - Last Name - Caller ID - Hdwr - DB
Page B 14
<PAGE> 22
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
If you don't fill in all the fields, you'll get an error message and your ticket
won't be submitted.
After you've filled everything out, click on SUBMIT at the top or bottom of the
screen. The next screen will tell you if the submission was successful. To get
back to the any of the previous screens, just hit "back" on your browser.
SUBMITTING SUGGESTIONS FOR IMPROVING OR FIXING PETS2
There are two ways to do suggest improvements for PETS2. You can either file a
ticket against PETS2 by following the instructions above and choosing PETS as a
product or you can submit a comment.
To submit a suggestion for improving or changing PETS2 itself, choose the
"PETS:User Comments" schema in the first screen after logging in and click on
SUBMIT. Fill in the Description field and the optional Comments field and click
on SUBMIT.
SEARCHING FOR A USER COMMENT
You can search for a user's comment by filling in any one of the fields. Most
likely, you will only fill in the "Company Name" field. PETS2 is case sensitive
so be sure to fill in the "Company Name" exactly as it appears when you
submitted it. Hit QUERY when you have entered in the field. PETS2 will give you
a list of comments matching your criteria. You can only view the comment even
though it says you can modify it. If you try to modify, it will give you an
error. We will change that for future releases.
THE QUERY BAR
The query bar is used for complex queries. We don't suggest you use it.
Portal is a registered trademark in the United States, and Portal
Software, the Portal logo, the Real Time - No Limits tagline and Infranet
are trademarks of Portal Software, Inc. Copyright 1998 Portal Software,
Inc.
Page B 15
<PAGE> 23
[Portal Logo]
[Infranet Logo]
Portal Professional Services Group
Sage Networks
Implementation Statement of Work
PORTAL SOFTWARE, INC.
20863 Stevens Creek Boulevard
Suite 200
Cupertino, CA 95014 USA
(408) 343-4400
<PAGE> 24
SAGE NETWORKS
STATEMENT OF WORK
PROJECT OVERVIEW
The Portal Professional Services Group (PPSG) is pleased to present this
statement of work (SOW) to Sage Networks. PPSG provides client assistance
in the areas of implementation, training and technical support. This SOW
describes our concept of support for the implementation of Infranet in the
Sage Networks environment.
Among the many benefits of Infranet is its ability to reduce Sage Networks
time to market for new products. Therefore, PPSG's goal is to get Sage
Networks operational within the business space as quickly as possible. To
accomplish this, we will perform an implementation customized to meet Sage
Networks specific requirements. In addition to the Phase 1 implementation
effort Portal will, in parallel, assist Sage Networks in the further
development of a roll out strategy and project plan for phases beyond the
initial implementation.
SCOPE
The scope of this statement of work includes the following:
- The performance of a mini-workshop (3 days) to further define
implementation requirements and the final Phase 1
deliverables.
- The development of a project workbook and detailed design
specification.
- The installation of Infranet Foundation, client applications,
and any purchased managers, i.e., email manager.
- Configuration and customization of Infranet as necessary.
- Unit and integration testing
- Cutover assistance
- Management reporting and meetings
02/16/99 PROJECT SUBJECT Page - A- 4
SAGE NETWORKS STATEMENT OF WORK
<PAGE> 25
SAGE NETWORKS
STATEMENT OF WORK
DELIVERABLES
1. Mini-workshop with project workbook and project plan.
2. Detailed design document.
3. Installation of Infranet Foundation, client applications, and optional
managers.
4. Development of an event collection and process capability.
5. Installation and customization, as necessary, of dm_ICVerify module.
6. Installation and integration of MCIS manager, if purchased.
7. Installation and integration of dm_email, if purchased.
8. Development of an interface to the Great Plains general ledger system.
9. Assistance and mentoring in developing a data conversion process
10. Installation of the Insite reporting tool.
11. Assistance in the development of the price plan.
12. Management reports and meetings
TIME ESTIMATES
<TABLE>
<CAPTION>
Estimated
Staff Days to
Task No. Task Complete
- -------- ---- -------------
<S> <C> <C>
1 Mini-workshop with project workbook and project plan 6
2 Detailed design document 4
3 Installation of Infranet Foundation 1
4 Installation client applications 0
5 Development of an event collection and process capability 15
6 Installation and customization, as necessary, of dm_ICVerify 3
7 Installation and integration of MCIS manager 5*
8 Installation and integration of dm_email 3*
9 Development of an interface to the general ledger system 3
10 Configuration of default policies 5
11 Conversion assistance 5
12 Installation of Insite Reporting Tool 0
13 Assistance in the development of the price plan 5
14 Production assistance 2
15 Management reports and meetings 5
--
Total person Days 54
Elapsed Time (approximately 54 working days = 5 work weeks)
</TABLE>
Notes: * = additional time required if manager purchased
02/16/99 PROJECT SUBJECT Page - A- 5
SAGE NETWORKS STATEMENT OF WORK
<PAGE> 26
SAGE NETWORKS
STATEMENT OF WORK
SCHEDULE
The start date for the effort outlined in this document will be August 24,
1998.
STAFFING
Portal Professional Services Group will staff the Customer project with 2
full time consultants starting on August, 24, 1998. The consultants will
work a standard 8-hour working day. Hours billed above the 8 hours per day
must be pre-approved by the Customer or Project Manager.
The Project Manager from Portal assigned to the Sage Networks account is
Steve Stratton.
Contact information:
Project Manager 703-918-4911 [email protected]
CONSULTING RATES
The following rates will be used for the Portal Staffing effort under this
agreement. All tasks are billed on a time and material basis.
<TABLE>
<CAPTION>
TEAM MEMBERS $ HOURLY RATE $ DAILY RATE
------------ ------------- ------------
<S> <C> <C>
Title
TECHNICAL CONSULTANT $220 $ 1,760
$280 $ 2,240
PROJECT MANAGER
ESTIMATED CONSULTING TOTAL $ 95,000
ESTIMATED TRAVEL TOTAL $ 20,000
ESTIMATED PROJECT TOTAL $ 115,000
</TABLE>
EXPENSES
Expenses will be the responsibility of the customer. All expenses will be billed
back to the customer for the actual amount paid by the consultant. The PPSG team
will ensure that all expenses are reasonable for the local area.
02/16/99 PROJECT SUBJECT Page - A- 6
SAGE NETWORKS STATEMENT OF WORK
<PAGE> 27
SAGE NETWORKS
STATEMENT OF WORK
ACCEPTANCE AND SIGN-OFF
Each deliverable described in this statement of work will require a sign-off
from the customer. Upon completion of a document it will be distributed to the
appropriate persons at the customer site. The customer will review and submit
one of the following back to the Portal project manager:
- The accepted document with comments to be incorporated
- The accepted document as it was submitted
- The document with comments to be incorporated and resubmitted
for approval
The customer has 5 days to review each document and submit comments and
acceptance back to the Portal Project manager. If the document has not been
received back from the customer within 5 days, the documents will be deemed
accepted by the customer.
The undersigned hereby incorporates this Statement of Work into the Professional
Services Agreement between Portal Software, Inc., and Sage Networks, Inc. dated
July 31, 1998, as provided in Section 1.1 of the agreement.
PORTAL SOFTWARE INC. SAGE NETWORKS, INC.
/s/ D. Karen Ha /s/ Leonard J. Fassler
- ----------------------------- ----------------------------------
NAME
Vice President Co-Chairman
- ----------------------------- ----------------------------------
TITLE
August 6, 1998 July 31, 1998
- ----------------------------- ----------------------------------
DATE
02/16/99 PROJECT SUBJECT Page - A- 7
SAGE NETWORKS STATEMENT OF WORK
<PAGE> 1
EXHIBIT 10.3
[VANTIVE LOGO]
VANTIVE AGREEMENT NUMBER: KHB080498
THE VANTIVE CORPORATION
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement (the "Agreement") is between The
Vantive Corporation with its principal place of business at 2455 Augustine
Drive, Santa Clara, CA 95054. ("Vantive") and SAGE NETWORKS, INC. ( legal name)
with its principal place of business at 215 FIRST STREET, CAMBRIDGE,
MASSACHUSETTS, 02142 ("Client"). The terms of this Agreement shall apply to each
Product license granted, and to all services provided under this Agreement. When
completed and executed by both parties, an Order Form shall evidence the Product
licenses granted and the services that are to be provided by Vantive.
I. DEFINITIONS
1.1. "PRODUCT" OR "PRODUCTS" shall mean the computer software in object code
form, and, in certain parts, source code form, owned or distributed by
Vantive for which Client is granted a license pursuant to this Agreement;
the media; the user guides and manuals for use of the software
("DOCUMENTATION"); and Updates.
1.2. "ORDER FORM" shall mean Vantive's standard form for ordering Product
licenses and services. When placing orders under this Agreement, Client
shall reference the Vantive Agreement number above and the Effective Date
of this Agreement.
1.3. "PRICE LIST" shall mean Vantive's standard commercial fee schedule that is
in effect when and where a Product license or any other product or service
is ordered and utilized by Client.
1.4. "DESIGNATED SYSTEM" shall mean the computer hardware and operating system
designated on the relevant Order Form.
1.5. "SUPPORTED PRODUCT LICENSE" shall mean a Product license for which Client
has ordered Customer Support for the relevant time period. "Customer
Support" shall mean Product support provided under Vantive's policies in
effect on the date Customer Support is ordered or renewed.
1.6. "COMMENCEMENT DATE" shall mean the date on which the Products are shipped
by Vantive to Client, or if no delivery is necessary, the Effective Date
set forth on the relevant Order Form.
1.7. "UPDATE(S)" shall mean subsequent releases of the Products which are
generally made available for Supported Product Licenses at no additional
charge, other than media and handling charges. Updates shall not include
any releases, options or future products which Vantive licenses
separately.
1.8. "USER," "NAMED USER" unless otherwise specified in the Order Form, shall
mean an individual or process which is authorized by Client to use
specified Products, regardless of whether the individual or process is
actively using the Products at any given time. A "CONCURRENT USER" shall
mean each User who is using a specified Product, directly or indirectly,
at a given point in time. "MOBILE USER" shall mean a workstation that is
authorized to use Vantive "On-the-Go" Product.
1.9. "LIMITED PRODUCTION PRODUCTS" shall be Products not specified on the Price
List or specified as Limited Production or "Alpha" or "Beta" by Vantive.
II. PRODUCT LICENSE
2.1 RIGHTS GRANTED
A. Vantive grants to Client a non-exclusive license to use the Products
Client obtains under this Agreement, as follows:
i. to use the Products solely for Client's own internal data
processing operations on the Designated System or on a backup
system if the Designated System is inoperative, up to any
applicable maximum number of designated Users or Concurrent Users
consistent with applicable licensed use limitations. Client may
not relicense the Products or use the Products for third party
training, commercial time-sharing, rental or service bureau use;
ii. to use the Documentation provided with the Products in support of
Client's authorized use of the Products;
iii. to copy the Products for archival or backup purposes; no other
copies shall be made without Vantive's prior written consent. All
titles, trademarks, copyright and restricted rights notices shall
be reproduced in such copies. All archival and backup copies of
the Products are subject to the terms of this Agreement; and
iv. to modify the Products or combine them with other software
products. The Products or such portions thereof included in such
software products shall remain the property of Vantive and shall
be subject to the terms of this Agreement.
Client shall not copy or use the Products (including the
Documentation) except as otherwise specified in this Agreement or an
Order Form. Client shall have the right to allow Client's third party
agents ("Agents") to use the Products for Client's internal use
purposes so long as Client ensures that Agents use the Products in
accordance with the terms of this Agreement.
<PAGE> 2
B. Client agrees not to cause or permit the reverse engineering,
disassembly or decompilation of the Products. In jurisdictions where
a right to reverse engineer is provided by law unless information is
available about products in order to achieve interoperability,
functional compatibility, or similar objectives, Client agrees to
submit a detailed written proposal to Vantive concerning Client's
information needs before engaging in reverse engineering. Vantive
may, in its sole discretion, propose to Client terms and conditions
under which it is willing to make such information available.
C. Vantive or its licensor's shall retain all title, copyright, trade
secrets, patents, trademarks and other proprietary rights in the
Products and all modifications, enhancements, and other works
derivative of the Products. Client does not acquire any rights,
express or implied, in the Products, other than those specified in
this Agreement.
D. The Products are not intended for use in any nuclear, aviation, mass
transit, medical, life support or other inherently dangerous
applications or support thereof. It shall be Client's responsibility
to take all appropriate measures to ensure the safe use of such
applications if the Products are used for such purposes, and Vantive
disclaims liability for any damages caused by such use of the
Products and Client agrees to indemnify, defend and hold Vantive
harmless for all claims arising from or related to such use.
E. Other Vantive products and/or runtime versions of third party
software, including but not limited to relational database management
systems, may be embedded in or delivered with Vantive Products
licensed under this Agreement ("Ancillary Product"). Client shall be
limited to use of Products licensed under this Agreement. Client's
right to use any Ancillary Product shall be only as described in the
Order Form or Documentation and limited to the use necessary to
implement the Vantive Product ordered, as designated on the Order
Form. Client shall have no right to use such Ancillary Product other
than as necessary for the licensed ordinary use of the Vantive
Product ordered and grants Vantive's licensors the right to protect
its interests under this Agreement and agrees that such licensors are
benefited by the provisions of this Agreement.
F. As an accommodation to Client, Vantive may supply Client with Limited
Production Products. These Products are not suitable for production
use.
2.2 TRANSFER AND ASSIGNMENT
A. Client may transfer a Product license within its organization upon
written notice to Vantive; transfers are subject to the terms and
fees, if any, specified in Vantive's transfer policy in effect at the
time of the transfer.
B. Client may not assign this Agreement to a third party (i.e. a legal
entity separate from Client) without the prior written consent of
Vantive, and any such attempt shall be void. Vantive shall not
unreasonably withhold such consent.
2.3 VERIFICATION
On Vantive's written request, not more frequently than annually, Client
shall furnish Vantive with a signed certification (a) verifying that the
Products are being used pursuant to the terms of this Agreement and
applicable Order Form; and (b) listing the locations, and types of the
Designated Systems on which the Products are run.
Vantive may, at its expense, audit Client's use of the Products. Any such
audit shall be conducted during regular business hours at Client's
facilities and shall not unreasonably interfere with Client's business.
Audits shall be conducted no more than once annually.
III. PROFESSIONAL SERVICES
3.1 CUSTOMER SUPPORT SERVICES
Customer Support services ordered by Client will be provided subject to
Vantive's Customer Support policies and fees in effect on the date
Customer Support is ordered or renewed. Reinstatement of lapsed Customer
Support Services is subject to Vantive's Customer Support reinstatement
fees in effect on the date Customer Support is re-ordered, subject to
payment by Client of the applicable fee. Client may obtain Customer
Support Services for pre-production releases of Products and Limited
Production Products on a time and materials basis.
3.2 CONSULTING AND TRAINING SERVICES
Vantive will provide consulting and training services agreed to by the
parties under the terms of this Agreement. All consulting services shall
be billed on a time and materials basis unless the parties expressly agree
otherwise in writing. Any consulting or training services acquired from
Vantive shall be bid separately from the Product licenses and Client may
acquire either Product licenses or consulting services without acquiring
the other.
Client agrees if Client hires any Vantive employee, consultant or
subcontractor within twelve (12) months from the last date such person
provided services hereunder, Client agrees to pay Vantive 50% of the first
year's total compensation package offered by Client to that Vantive
employee, consultant or subcontractor.
3.3 INCIDENTAL EXPENSES
For any on site services requested by Client, Client shall reimburse
Vantive for actual, reasonable travel and out-of pocket expenses incurred.
<PAGE> 3
IV. TERM AND TERMINATION
4.1 TERM
If not otherwise specified on the Order Form, each Product license granted
under this Agreement shall remain in effect perpetually, unless terminated
as provided in Section 4.2 or 4.3 below or otherwise as provided herein.
4.2 TERMINATION BY CLIENT
Client may terminate any Product license at any time; however, termination
shall not relieve Client's obligations specified in Section 4.4.
4.3 TERMINATION BY VANTIVE
Vantive may terminate this Agreement or any Product license upon written
notice if Client breaches this Agreement and fails to correct the breach
within 30 days following written notice specifying the breach.
4.4 EFFECT OF TERMINATION
Termination of this Agreement or any license shall not limit either party
from pursuing any other remedies available to it, including injunctive
relief, nor shall such termination relieve Client's obligation to pay all
fees that have accrued or are otherwise owed by Client under any Order
Form or other similar ordering document under this Agreement. The parties'
rights and obligations under Sections 2.1.B, 2.1.C, 2.1.D, 2.1.E and
2.2.B, and Articles IV, V, VI,VII, and VIII shall survive termination of
this Agreement.
4.5 HANDLING OF PRODUCTS UPON TERMINATION
If a license granted under this Agreement expires or otherwise terminates,
Client shall (a) cease using the applicable Products, and (b) certify to
Vantive within one month after expiration or termination that Client has
destroyed or has returned to Vantive the Products and all copies. This
requirement applies to copies in all forms, partial and complete, in all
types of media and computer memory, and whether or not modified or merged
into other materials. Before returning Products to Vantive, Client shall
acquire a Return Material Authorization ("RMA") number from Vantive.
V. INDEMNITY, WARRANTIES, REMEDIES
5.1 INFRINGEMENT INDEMNITY
Vantive will defend and indemnify Client against a claim that Products
furnished and used within the scope of this Agreement infringe a United
States copyright or patent provided that: (a) Client notifies Vantive in
writing within 30 days of the claim; (b) Vantive has sole control of the
defense and all related settlement negotiations; and (c) Client provides
Vantive with the assistance, information and authority necessary to
perform Vantive's obligations under this section. Reasonable out-of-pocket
expenses incurred by Client in providing such assistance will be
reimbursed by Vantive.
Vantive shall have no liability for any claim of infringement based on;
(a) use of a superseded or altered release of Products if the infringement
would have been avoided by the use of a current unaltered release of the
Products that Vantive provides to Client; or (b) the combination,
operation or use of any Products furnished under this Agreement with
software, hardware or other materials not furnished by Vantive if such
infringement would have been avoided by the use of the Products without
such software, hardware or other materials.
In the event the Products are held or are believed by Vantive to infringe,
Vantive shall have the option, at its expense, to (a) modify the Products
to be non infringing, (b) obtain for Client a license to continue using
the Products; or (c) terminate the license for the infringing Products and
refund the license fees paid for those Products, prorated over a five year
term from the Commencement Date. This Section 5.1 states Vantive's or
Vantive's licensor's entire liability and Client's exclusive remedy for
infringement or any intellectual property warranty.
5.2 WARRANTIES AND DISCLAIMERS
A. PRODUCT WARRANTIES
Vantive warrants that each unmodified Product for which the Client has
a Supported Product License will perform the functions described in the
Documentation when operated on the Designated System.
B. MEDIA WARRANTY
Vantive warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days from
the Commencement Date.
C. SERVICES WARRANTY
Vantive warrants that its Customer Support and consulting services will
be performed consistent with generally accepted industry standards.
This warranty shall be valid for 90 days from performance of service.
D. DISCLAIMERS
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
VANTIVE DOES NOT WARRANT THAT THE PRODUCTS WILL MEET CLIENT'S
REQUIREMENTS, THAT THE PRODUCTS WILL OPERATE IN THE COMBINATIONS WHICH
CLIENT MAY SELECT FOR USE, THAT THE OPERATION OF THE PRODUCTS WILL BE
UNINTERRUPTED OR ERROR-FREE, OR THAT ALL PRODUCT ERRORS WILL BE
CORRECTED. VANTIVE DOES NOT WARRANT LIMITED PRODUCTION PRODUCTS.
LIMITED PRODUCTION PRODUCTS AND PRE-PRODUCTION RELEASES OF PRODUCTS ARE
DISTRIBUTED "AS IS."
<PAGE> 4
5.3 EXCLUSIVE REMEDIES
For any breach of the warranties contained in Section 5.2 above, Client's
exclusive remedy, and Vantive's entire liability, shall be:
A. For Products
The correction of Product errors that cause breach of the warranty,
or if Vantive is unable to make the Products operate as warranted,
Client shall be entitled to recover the fees paid to Vantive for the
Product license or Update as applicable and shall cease using the
applicable Product or Update.
B. For Media
The replacement of defective media returned within 90 days of the
Commencement Date.
C. For Services
The reperformance of the services, or if Vantive is unable to perform
the services as warranted, Client shall be entitled to recover the
fees paid to Vantive for the unsatisfactory services.
VI. PAYMENT PROVISIONS
6.1 INVOICING AND PAYMENT
Invoices for payment of license fees shall be payable on the Commencement
Date. Customer Support fees shall be payable annually in advance, net 30
days from the renewal date; such fees will be those in effect at the
beginning of the period for which the fees are paid. All other applicable
fees shall be payable when invoiced. All fees shall be deemed overdue if
they remain unpaid 31 days after they become payable. Any amounts payable
by Client hereunder which remain unpaid 31 days after the due date shall
be subject to late penalty fees equal to 1.5 % per month from the due date
until such amount is paid. If Client's procedures require that an invoice
be submitted against a purchase order before payment can be made, Client
will be responsible for issuing the purchase order at the time of order.
Client agrees to pay applicable media and shipping charges.
6.2 TAXES
The fees listed in this Agreement do not include taxes; if Vantive is
required to collect or pay sales, use, property, value-added or other
taxes based on the licenses or services granted in this Agreement or on
Client's use of Programs or services, then such taxes shall be billed to
and paid by Client. This Section shall not apply to taxes based on
Vantive's income.
VII. GENERAL TERMS
7.1 NONDISCLOSURE
By virtue of this Agreement, the parties may have access to information
that is confidential to one another ("Confidential Information").
Confidential Information shall be limited to the Products, the terms and
pricing under this Agreement, and all information clearly identified as
confidential.
A party's Confidential Information shall not include information that: (a)
is or becomes a part of the public domain through no act or omission of
the other party; (b) was in the other party's lawful possession prior to
the disclosure and had not been obtained by the other party either
directly or indirectly from the disclosing party; (c) is lawfully
disclosed to the other party by a third party without restriction on
disclosure; or (d) is independently developed by the other party. Client
shall not disclose the results of any benchmark tests of the Products to
any third party without Vantive's prior written approval.
The parties agree to hold each other's Confidential Information in
confidence during the term of this Agreement and for a period of two years
after termination of this Agreement. The parties agree, unless required by
law, not to make each other's Confidential Information available in any
form to any third party or to use each other's Confidential Information
for any purpose other than the implementation of this Agreement. Each
party agrees to take all reasonable steps to ensure that Confidential
Information is not disclosed or distributed by its employees or agents in
violation of the terms of this Agreement.
7.2 GOVERNING LAW
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the laws of the State of California,
without regard to the conflict of law principals or regard to the United
Nations Convention on Contracts for the International Sale of Goods and
shall be deemed to be executed in Santa Clara, California.
7.3 JURISDICTION
Any legal action or proceeding relating to this Agreement shall be
instituted in any state or federal court in San Francisco or Santa Clara
County, California. Vantive and Client agree to submit to the jurisdiction
of, and agree that venue is proper in, the aforesaid courts in any such
legal action or proceeding.
7.4 NOTICE
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when
mailed by first class mail or personal delivery (including overnight mail
by private carrier) to the first address listed in the relevant Order Form
(if to Client) or to the Vantive Address on the Order Form (if to
Vantive).
To expedite order processing, Client agrees that Vantive may treat
documents faxed by Client to Vantive as original
<PAGE> 5
documents; nevertheless, either party may require the other to exchange
original signed documents.
7.5 SEVERABILITY
In the event any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in
full force.
7.6 WAIVER
The waiver by either party of any default or breach of this Agreement
shall not constitute a waiver of any other or subsequent default or
breach. Except for actions for nonpayment or breach of Vantive's propriety
rights in the Products, no action, regardless of form, arising out of this
Agreement may be brought by either party more than one year after the
cause of action has accrued.
7.7 EXPORT ADMINISTRATION
Client agrees to comply fully with all relevant export laws and
regulations of the United States ("Export Laws") to assure that neither
the Products nor any direct product thereof are (1) exported, directly or
indirectly, in violation of Export Laws; or (2) are intended to be used
for any purposes prohibited by the Export Laws, including, without
limitation, nuclear, chemical, or biological weapons proliferation.
7.8 U.S. GOVERNMENT
For any Products acquired directly or indirectly on behalf of a unit or
agency of the United States Government, this provision applies.
A. For civilian agencies: Products
(i.) were developed at private expense; are existing computer software and
no part of them were developed with government funds;
(ii.)are a trade secret of Vantive for all purposes of the Freedom of
Information Act;
(iii.) are commercial items and thus, pursuant to Section 12.212 of the
Federal Acquisition Regulations (FAR), the Government's use, duplication
or disclosure of the Products is subject to the restrictions set forth in
Vantive's standard commercial agreement incorporated into the contract or
purchase order between Vantive and the U.S. government agency.;
(iv.)in all respects are proprietary data of Vantive; and
(v.) are unpublished and all rights are reserved under the copyright laws
of the United States.
B. For units of the Department of Defense ("DoD"): The Products are
commercial computer software (and commercial computer software
documentation), and pursuant to DoD FAR Supplement Section 227.7202, use
duplication or disclosure of the Products is subject to the restrictions
set forth in Vantive's standard commercial agreement incorporated into the
contract or purchase order between Vantive and the U.S. Government agency.
7.9 RELATIONSHIP BETWEEN THE PARTIES
Vantive is an independent contractor; nothing in the Agreement shall be
construed to create a partnership, joint venture or agency relationship
between the parties
7.10 ENTIRE AGREEMENT
This Agreement constitutes the complete agreement between the parties and
supersedes all prior or contemporaneous agreements or representations,
written or oral, concerning the subject matter of this Agreement. This
Agreement may not be modified or amended except in a writing signed by a
duly authorized representative of each party; no other act, document,
usage or custom shall be deemed to amend or modify this Agreement.
It is expressly agreed that the terms of this Agreement and any Order Form
shall supersede and nullifies the terms in any Client purchase order or
other ordering document. This Agreement shall also supersede the terms of
any Vantive unsigned or shrinkwrap license included in any Vantive
package, media, or electronic version of Vantive software, provided the
use limitations contained in such license agreement shall be effective for
the specified license.
VIII. LIABILITY
8.1 LIMITATION OF LIABILITY
EXCEPT AS PROVIDED AT THE END OF THIS PARAGRAPH, IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES OR DAMAGES FOR LOSS OF PROFITS, REVENUE, DATA OR USE INCURRED BY
EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT,
EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR INDEMNIFICATION OF CLIENT FOR
CLAIMS OF INFRINGEMENT UNDER SECTION 5.1, VANTIVE'S LIABILITY FOR DAMAGES
HEREUNDER SHALL IN NO EVENT EXCEED THE AMOUNT OF FEES PAID BY CLIENT UNDER
THIS AGREEMENT, AND IF SUCH DAMAGES RESULT FROM CLIENT'S USE OF THE
PRODUCT OR SERVICES, SUCH LIABILITY SHALL BE LIMITED TO FEES PAID FOR THE
RELEVANT PRODUCT OR SERVICES GIVING RISE TO THE LIABILITY, PRORATED OVER A
FIVE-YEAR TERM FROM THE COMMENCEMENT DATE OF THE APPLICABLE LICENSE OR THE
DATE OF PERFORMANCE OF THE APPLICABLE SERVICES. CLIENT'S LIABILITY FOR
BREACH OF ITS NONDISCLOSURE OBLIGATIONS UNDER SECTION 7.1 OR FOR BREACH OF
THE SCOPE OF ITS LICENSE RIGHTS UNDER SECTION 2.1 SHALL NOT BE SUBJECT TO
THE FOREGOING LIMITATION OF DAMAGES OR LIABILITY.
The provisions of this Agreement allocate the risks between Vantive and
Client. Vantive's pricing reflects this allocation of risk and the
limitation of liability specified herein.
<PAGE> 6
THE EFFECTIVE DATE OF THIS AGREEMENT IS SEPTEMBER 29, 1998
EXECUTED BY VANTIVE:
Authorized Signature: /s/ Mike Loo
_________________________
Name: Mike Loo
_________________________________________
Title: Vice President of Finance
________________________________________
EXECUTED BY CLIENT:
Authorized Signature: /s/ Steve Maggs
__________________________
Name: Steve Maggs
__________________________________________
Title: President
_________________________________________
<PAGE> 1
EXHIBIT 10.4
ADDENDUM NO. KHB080498 TO THE SOFTWARE LICENSE AND SERVICES AGREEMENT BETWEEN
THE VANTIVE CORPORATION AND SAGE NETWORKS, INC.
VANTIVE AGREEMENT NUMBER: KHB080498
This Addendum (the "Addendum"), effective as of September 29, 1998 (the
"Addendum Effective Date") supplements and amends the terms of the Software
License and Services Agreement No. KHB080498 dated September 29, 1998
("Agreement") between The Vantive Corporation ("Vantive") and Sage Networks,
Inc. ("Client"). Capitalized terms not otherwise defined shall have the meaning
set forth in the Agreement.
The Parties agree to the following terms and conditions:
1. Section 2.1 A.i. of the Agreement, last line, after the words "rental
or" and before the words "service bureau", is hereby amended to add the
following: "third party".
2. Section 2.2 B. of the Agreement, is hereby amended to add the following
language to the end of this section: "Notwithstanding anything to the
contrary set forth in this Agreement, Client may assign this Agreement
or any Product licensed hereunder to Client's parent corporation or to
an affiliate(s) or to an entity which Client has sold all or
substantially all of its assets provided: (i) Client provides Vantive
with prior written notice; (ii) Client and any assignee are current in
all license and Customer Support fee payments to Vantive; (iii) the
assignee does not compete directly or indirectly with Vantive; (iv) the
assignee is not in the primary business of providing service bureau,
outsourcing or facility management services; (v) any such assignee
agrees in writing to be bound by the terms and conditions of the
Agreement; (vi) Vantive has had an opportunity to check the financial
ability of the assignee to pay for all license and Customer Support fee
payments and; (vii) the discounts shall not apply to the assignee for
orders placed after the date of assignment without the prior written
consent of Vantive. Additionally, upon written notice to Client,
Vantive may assign this Agreement to a parent, subsidiary or affiliate,
pursuant to a sale of substantially all of its assets or capital stock
or pursuant to its merger or consolidation with another party."
3. Section 2.3 of the Agreement, last line, after the word "annually", is
hereby amended to add the following: "so long as Vantive provides
reasonable advance notice to Client prior to conducting such audits."
4. Section 3.2 of the Agreement, the second paragraph is hereby deleted in
its entirety and replaced with the following: "Client agrees if Client
solicits or hires any Vantive employee, consultant or subcontractor on
the Vantive Implementation Project team within twelve (12) months from
the last date such person provided services hereunder, Client agrees to
pay Vantive 50% of the first year's total compensation package offered
by Client to that Vantive employee, consultant or subcontractor. For
purposes of this section, the Vantive Implementation Project team shall
include those employees,
<PAGE> 2
consultants or subcontractors involved in the design, customization and
implementation of the Products."
5. Section 3.3 of the Agreement, at the end of the first sentence after
the word "incurred", is hereby amended by adding the following:
"pursuant to Vantive's travel policy which is attached hereto as
Exhibit A."
6. Section 5.1 of the Agreement, first paragraph, is hereby amended to
delete the first three lines starting with the words "Vantive will
defend" and ending with the words "scope of this Agreement" and replace
them with the following: "Vantive will defend and indemnify Client
against any claim, damages, costs, or expenses (collectively referred
to as "claim"), including without limitation reasonable attorney's fees
and expenses related to Vantive's defense of the claim which shall mean
failure to defend a claim as described in this Section, that Products
furnished and used within the scope of this Agreement"
7. Section 5.1 of the Agreement, at the end of the section, is hereby
amended to add the following language: "Both parties agree that in the
event of breach of this Section 5.1 the other party shall be entitled
to attorney's fees, provided such party is the prevailing party."
8. Section 5.1 of the Agreement, first paragraph, fourth line down, after
the words "within 30 days" and before the words "of the claim", is
hereby amended to add the following: "of Client's receipt of notice"
9. Section 5.1 of the Agreement, second paragraph, fifth line down, is
hereby amended by deleting the word "provides" and replacing it with
"provided"
10. Section 5.1 of the Agreement, second paragraph, fifth line down, after
the words "to Client," is hereby amended to add the following:
"reasonably prior to the incident which gave rise to the claim"
11. Section 5.1 of the Agreement, third paragraph, at the end of the first
sentence, after the words "Commencement Date.", is hereby amended to
add the following sentence: "Notwithstanding the foregoing, Vantive
shall not be relieved of its obligations set forth in the first
paragraph of this Section 5.1."
12. Section 7.3 of the Agreement is hereby deleted in its entirety.
13. Section 7.4 of the Agreement is hereby modified by amending the
following language after the end of the first paragraph: "With a copy
to: Sage Networks, Inc."
11 Martine Avenue
White Plains, NY 10606
Attn.: General Counsel
Except as amended above, the Agreement shall remain unchanged and in full force
and effect.
<PAGE> 3
Executed by Client
Authorized
Signature: /s/ Steve Maggs
-------------------------------------------
Name: Steve Maggs
-------------------------------------------------
Title: President
-------------------------------------------------
Executed by The Vantive Corporation
Authorized
Signature: /s/ Mike Loo
---------------------------------------
Name: Mike Loo
---------------------------------------------
Title: Vice President of Finance
---------------------------------------------
<PAGE> 4
EXHIBIT A
VANTIVE POLICY REGARDING INVOICING FOR CUSTOMARY TRAVEL
AND LIVING EXPENSES
Vantive invoices its customers for customary travel and living expenses incurred
in the process of providing consulting, training or customer support services
that have been request by Vantive's customers.
The purpose of this document is to describe the guidelines that Vantive has
established for its consultants and other personnel ("consultants" hereafter in
this document) regarding travel and living expenses and Vantive's policies
regarding invoicing Vantive customers for such travel and living expenses.
Vantive consultants are encouraged to be prudent at all times regarding
incurring travel and living expenses. Special guidelines for travel and living
expenses and other administrative is described below.
We hope that this document provides you with useful information. If you have any
questions, please contact Vantive's Director of Finance at Vantive's corporate
headquarters of the Vantive regional consulting manager who handles consulting
services for your account.
GUIDELINES FOR TRAVEL AND LIVING EXPENSES
Air Travel
Vantive consultants travel non-stop coach class whenever possible.
Vantive's travel agency has been instructed to book Vantive consultants
on the lowest fare for non-stop flights that result in the consultant
traveling between the hours of 6:00 a.m. and 11:00 p.m. In general,
Vantive consultants are not asked to incur extra stops or take
"red-eye" flights in order to reduce the cost of air travel.
Overnight Lodging
Vantive consultants are encouraged to ask Vantive's customers for
recommendations regarding lodging. Vantive consultants attempt to stay
in accommodations that are located close to the customer's site and in
accommodations where the customer has negotiated preferred rates for
lodging.
Meals
Vantive consultants are allowed to submit either tactual expenses for
meals, or a per diem meal rate. For example, the Internal Revenue
Service standard per diem (a flat rate which includes amounts spent on
food, beverages, taxes and related tips) for meal allowance is $38 a
day for Santa Clara County, California. There are designated per diem
meal rates for other locations in the United States. Please check the
attached per diem chart for guidelines. Vantive consultants are
encouraged to keep their daily meal expenses to $35 or less per day.
The default method for handling meal expenses may vary depending upon
the specific consultant who is performing work on a particular project.
If you (the customer) have a preference for actual expenses or per
diem, please inform the Vantive consulting manager who is responsible
for your project prior to the commencement of the project.
Incidental
Incidental expenses include costs for laundry, cleaning and tips for
services. Incidental expenses are normally not charged on consulting
engagements where the consultant is on the customer's site for less
than two weeks consecutively.
VANTIVE CONFIDENTIAL
Page 1
<PAGE> 5
EXHIBIT A
Automobile. Public Transportation
Vantive consultants use their judgement in determining the use of
rented automobiles, tax, subway, etc. when traveling between airports,
train stations, places of overnight lodging and customer sites.
Automobile rentals are usually made on special corporate rates from
either Hertz, Avis or Budget rental car services.
Mileage Rate, Parking Fees and Tolls
The standard mileage rate for the cost of operating a consultant's
automobile is 30 cents per mile for all business miles. In addition to
using the standard mileage rate, consultants may submit all
business-related parking fees and tolls.
Other expenses that are directly related to the services provided by
Vantive
Vantive consultants are encouraged to make prudent purchasing decisions
for materials that are directly related to the providing of consulting,
training and customer support services. Expenses for these types of
materials are invoiced to Vantive's customers.
Other expenses that are not directly related to the services provided
by Vantive
Vantive does not invoice its customers for expenses incurred by Vantive
consultants for movies, shows and other types of expenses that are not
directly related to the providing of services to Vantive's customers.
Travel Expense Reports, Receipts, Administrative Costs and Invoices
Vantive consultants are required to submit travel expense reports for all travel
associated with Vantive Company business. The amounts to be invoiced to
customers are clearly indicated on the expense reports. Vantive consultants are
required to submit receipts for all expenses over $15. Vantive uses relevant
consultant expense reports in computing the amounts that are invoiced to
Vantive's customers. Copies of relevant expense reports are included with
invoices for travel and living expenses. Receipts are not included along with
the invoices. Receipts are provided upon request. If receipts are requested, a
15% administrative cost is added to the expenses that are invoiced to the
customer. If receipts are not requested, the travel and living expenses are
invoiced to the customer at Vantive's out of pocket cost.
Currency Conversions
For international expenses that require currency conversion, Vantive makes
reasonable efforts to compute the currency conversion at the average rate that
was in effect for the relevant international currencies during the time that the
Vantive employee was incurring international expenses.
Timing of Invoices
Vantive invoices its customers for travel and living expenses as soon as
possible after the receipt of the relevant expense reports from Vantive
consultants. These invoices are usually sent to customers within the two weeks
of the conclusion of the trip to the customer site by the Vantive consultant.
Invoices that require computation of currency conversions may require additional
time for processing.
VANTIVE CONFIDENTIAL
Page 2
<PAGE> 1
** Indicates that information has been omitted herein pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
Exhibit 10.5
[UUNET Technologies, Inc. Letterhead]
MASTER DISCOUNTED INTERNET SERVICES AGREEMENT
This Master Internet Services Agreement ("Agreement") is made by and between
UUNET Technologies, Inc., with its principal offices at 3060 Williams Drive,
Fairfax, VA 22031 ("UUNET") and Sage Networks, Inc. ("Customer") with its
principal offices located at 64 Perimeter Center, Atlanta, Georgia 30341 for the
purpose of setting forth the terms and conditions relating to the purchase of
UUNET's Internet products and services by the Eligible Participants, as defined
in Section 1 below.
1. DEFINITIONS.
"Eligible Participants" means Customer, its Affiliates and any other entities
that UUNET and Customer mutually agree upon, are eligible to participate in the
offerings under this Agreement. "Affiliate" means with respect to a party, an
entity controlled by, controlling or under common control with such party.
"Effective Date" means the effective date of this Agreement which shall be the
last date of the signatures of a duly authorized representative of a party
affixed below.
2. SERVICES.
The services that are currently available hereunder from UUNET and its
Affiliates (the "Services") are set forth in the attached Schedule 1. UUNET may
amend Schedule 1 or Schedule 2 at any time and from time to time remove Services
if they should be discontinued or add new services (which shall be included
within the term "Services" upon such addition) by providing a revised copy
thereof to Customer. Such amendments shall be prospective only and shall not
affect any existing Service being provided by UUNET or any of its Affiliates to
Eligible Participants at the time of amendment which Services shall continue to
be offered to Customer for the balance of the Term hereof at the prices and with
the discounts set forth on Schedule 1 attached hereto.
3. PRICING AND DISCOUNTS.
3.1 The prices and discounts for Services applicable to this Agreement are
detailed in Schedule 1, and shall be applicable for the duration of the initial
term set forth in Section 6 unless otherwise amended as provided for below in
this Section 3.2. The discounts shall not be combined with promotional discounts
as may be available from time to time from UUNET. An Eligible Participant may
elect, at the time of any order for Services, the applicable discount set forth
in Schedule 1 or the terms of any promotion then in effect. In either event, the
discount or promotion shall only be available if Eligible Participant agrees to
the standard terms and conditions applicable to such Service and commits to
purchase that Service for a minimum one year term or such longer term as may be
specified in the applicable Service Agreement.
3.2 The parties acknowledge and agree that they have negotiated competitive
pricing for the Services.
3.2.1 Not more often than once every six months ** may request that ** review
whether the pricing available to Customer hereunder is ** purchased from UUNET
** by **, and if ** determines that this ** then ** may ** adjust the fees for
the Services to make ** upon sixty days written notice.
3.2.2 After two years of the Effective date of this Agreement, if ** purchased
in ** is different than the ** set forth in Schedule 1, at Customer's request,
the parties shall ** to make the **.
3.2.3 For purposes of making price adjustments hereunder, UUNET may consider,
among other things, the minimum Mbps commitment, the number and type of
telecommunications lines being serviced, and the term of comparable contracts.
<PAGE> 2
4. FORECASTS.
Two weeks prior to the end of each calendar quarter Customer shall, based on the
best available information, provide UUNET a forecast of orders likely to be
generated pursuant to this Agreement on a per service and per country basis.
Customer and UUNET shall meet at Customer's principal office during the first
two weeks of each calendar quarter during the term of this Agreement to discuss
Customer's estimate of anticipated Eligible Participants' needs for Services on
a per service and per country basis for the ensuing calendar quarter.
Additionally, these meetings will be designed to promote discussions of the
most appropriate network architecture to service Sage Networks' customers. Each
of these meetings shall be followed by an executive meeting at which at least
one officer of Customer attends.
5. SERVICE ORDERS AND COORDINATION.
Eligible Participants will coordinate all orders for Services through UUNET's
designated Account Manager. Only Eligible Participants who identify themselves
as Eligible Participants under this Agreement will be offered the discount set
forth in Schedule 1. The Eligible Participant ordering Service will enter into a
service agreement with UUNET for each Service. Each service agreement shall set
forth the terms, conditions, and pricing of the Service. The current terms and
conditions applicable to purchases of dedicated Internet connections are set
forth in Schedule 2. If any Eligible Participant believes that the level of such
Service or support in any case is insufficient, that Eligible Participant may
contact UUNET's designated Account Manager for assistance with problem
resolution.
6. TERM OF THE AGREEMENT.
(a) Unless terminated by Customer in accordance with the provisions of
paragraph (b) of this Section 6. The initial term of this Agreement shall
be three years from the Effective Date which term shall be automatically
renewed for an additional one year term, provided that neither party has
delivered to the other a written notice of intent not to renew for the
forthcoming term not less than 60 days in advance of the end of the
then-current term. The term commitment will commence and continue for three
years from the Commitment date (as stated in Schedule 1) upon which
Customer will have ordered the minimum Mbps commitment set forth in
Schedule 1.
(b) UUNET acknowledges that it is Customer's primary Internet service provider.
UUNET agrees that that if in any calendar quarter Customer receives credits
under the applicable Service Level Agreement referenced in Section 7 of
Schedule 2 for more than ** of the circuits ordered from UUNET then **.
7. CONSULTING.
UUNET will (at no additional charge) provide one day of on-site assistance once
quarterly and provide remote assistance as reasonably required to assist
Customer in routing traffic and configuring equipment.
8. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY STATED OR IMPLIED HEREIN OR IN
ANY SERVICE AGREEMENT, NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER
PARTY WHATSOEVER FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR
SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF PROFIT, LOSS OF REVENUE,
OR LOSS OF BUSINESS SUFFERED BY THE OTHER OR BY ANY ELIGIBLE PARTICIPANT,
ASSIGNEE OR OTHER TRANSFEREE OF THE OTHER, EVEN IF INFORMED IN ADVANCE OF THE
POSSIBILITY OF SUCH DAMAGES.
9. ACCEPTABLE USE.
UUNET's services may only be used for lawful purposes. Use of any Service must
comply with the then-current version of the UUNET Acceptable Use Policy
("Policy") for the country in which the service is provided, available at the
following URL:www.uu.net/usepolicy, and in the event no Policy is available for
that country the U.S. policy shall apply. UUNET reserves the right to change
the Policy from time to time, effective upon posting of the revised Policy at
the URL. UUNET reserves the right to suspend the Service or terminate this
Agreement effective upon notice for a violation of the Policy.
10. INVOICING AND PAYMENT.
UUNET will invoice each Eligible Participant for the applicable Service in
accordance with the terms of the applicable service agreement. The Eligible
Participant obtaining Service will make payment for Services in accordance with
the terms of each applicable service agreement.
11. MARKETING AND PUBLICITY.
UUNET and Customer will design and implement a joint marketing program, and
promptly after execution of this Agreement the respective points of contract of
each party shall
<PAGE> 3
agree upon a plan setting forth the approved joint activities. Such joint
marketing program shall include, but not be limited to, (i) allowing Customer to
resell UUNET Service through Customer's network of resellers, (ii) cooperating
on mutually beneficial hosting and co-location remarketing programs and (iii)
cooperation on international co-location facilities agreements. Other than (a)
identifying UUNET to Eligible Participants as Customer's preferred internet
service provider, and (b) any mutually approved joint marketing programs,
neither party shall publicize the existence of this Agreement without the
written consent of the other, except as may be required by applicable law,
regulation, or government order. Neither party may use the name, logo,
trademarks, service marks or other proprietary identifying symbols of the other
party in any advertising, signage, marketing materials, brochures or any other
materials in any medium without the other party's express advance written
consent. Any such permitted use shall be only within guidelines provided by such
party. Neither party shall issue any press release, announcement or public
statement with respect to this Agreement or the other party without the other
party's express advance written consent. Any breach of this Section shall be a
material breach of this Agreement constituting cause for termination.
12. PRIMARY PROVIDER.
Both parties understand that this is a "non-exclusive" agreement. However,
Customer agrees that subject to the terms of this Section, UUNET will become and
remain the primary provider of internet services for the Sage Networks. In the
event Customer obtains ** for internet traffic in years two and three of the
term commitment, ** of any ** shall be purchased from UUNET. If the **
requirement is not met, Customer will pay UUNET ** in the amount of ** for each
** by which Customer has ** of the ** requirement. Customer shall notify UUNET
immediately upon determining that the ** requirement in this Section has not
been met. Customer shall provide UUNET relevant records relating to this Section
at each quarterly business review held pursuant to Section 4. Notwithstanding
anything to the contrary stated herein, this Section 12 shall be inapplicable if
Customer has ** from UUNET in an amount equal to or greater than **.
13. AUDIT.
In order to verify the statements issued by Customer in connection with Section
12 or the performance of Customer's financial obligations to UUNET hereunder,
UUNET may cause, upon ten (10) days' prior notice (i) an audit to be made of the
Customer's relevant customer books and records and/or (ii) an inspection to be
made of the Customer's relevant facilities and procedures. Any audit and/or
inspection shall be conducted during regular business hours at Customer's
facilities and in a manner that does not interfere with Customer's normal
business activities. Any audit shall be conducted by an independent certified
public accountant selected by UUNET (other than on a contingent fee basis) who
will be subject to the confidentiality provisions of this Agreement. UUNET will
be entitled to receive the final written report from the selected auditor. All
records and the final written report shall remain the confidential information
of UUNET. Customer agrees to provide the selected auditor access to the relevant
records and facilities. UUNET agrees to, or to cause the auditor to, deliver a
copy of the final report to Customer promptly upon completion of the audit.
Customer shall notify UUNET within thirty (30) days of its receipt of the report
of any disagreements with the findings contained therein. Such notice shall
state the basis upon which Customer disagrees with the findings and shall be
accompanied by data to support its assertions. If within thirty (30) days of
delivery of such notice to UUNET, Customer and UUNET cannot agree on the numbers
or the amounts reported, a second audit shall be conducted by an independent
certified public accountant mutually agreed to by the parties. The cost of such
second audit shall be borne equally by both parties and the conclusions shall be
binding upon both parties. Customer shall make prompt adjustments to compensate
for any errors or omissions disclosed by the audit. Any such audit shall be paid
for by UUNET unless material discrepancies are disclosed. "Material" shall mean
an error of five percent (5%) or more of the number or amount that was reported.
If material discrepancies are disclosed, Customer agrees to reimburse UUNET for
the reasonable costs (based on current market prices) associated with the audit
in addition to all sums due. In no event shall audits be made more frequently
than annually.
14. OPPORTUNITY TO BID.
In the event Customer requires additional telecommunications services (including
Internet-protocol-based services and traditional voice services), Customer shall
provide UUNET and its affiliates an opportunity to propose terms under which
they could provide such services to Customer.
15. CONFIDENTIALITY
The prices and terms of this Agreement shall be held confidential by each party,
as shall each party's confidential or proprietary information, including,
without limitation, any information obtained by UUNET, its agents or
representatives in the course of performing an audit pursuant to Section 13 of
this Agreement ("Confidential Information"). UUNET's performance under this
Agreement, the quality of UUNET network performance, the discounts and prices
set forth in
<PAGE> 4
Schedule 1 and any data provided by UUNET to Customer regarding performance of
the UUNET network shall be deemed UUNET Confidential Information. Neither party
shall disclose the other party's Confidential Information to third parties
without the other party's written consent, except as permitted pursuant to this
Section. Each party shall disseminate the other party's Confidential
Information among its employees only on a need-to-know basis and shall use such
Confidential Information only for the purpose of performing its obligations
hereunder. To the extent a party is required by applicable law, regulation, or
a government agency or court order, subpoena, or investigative demand, to
disclose the existence or terms of this Agreement, or the other party's
Confidential Information, such party shall use its reasonable efforts to
minimize such disclosure and obtain an assurance that the recipient shall
accord confidential treatment to such Confidential Information, and shall
notify the other party contemporaneously of such disclosure. Either party, in
its discretion, may terminate this Agreement for cause upon ten days' notice
and without penalty in the event of any breach of this Section. The obligations
in this Section shall survive any termination of this Agreement for a period of
two years.
16. GENERAL.
This Agreement may not be assigned by either party without the prior written
consent of the other, which consent shall not be unreasonably withheld,
conditioned or delayed, provided, however, that this Agreement shall be
binding upon and inure to the benefit of any successor in interest to Customer
resulting from, among other things, a merger, consolidation, sale of stock or
sale of substantially all of the assets of Customer. No failure on the part of
either party to exercise, and no delay in exercising, any right or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right or remedy granted hereby or
by law. This Agreement supersedes all prior or contemporaneous representations,
agreements or understandings concerning the subject matter hereof. If any term
of this Agreement, or the application of such term to any person or
circumstance, shall be held invalid, the remainder of this Agreement, or the
application of such term to persons or circumstances other than those to which
it is held invalid, shall not be affected thereby. The effective date of this
Agreement is the last date of the signatures of a duly authorized
representative of a party affixed below.
/s/ Stephen Maggs /s/ Mary Alexander
- ---------------------------------- ----------------------------------
Customer Authorized Signature UUNET Authorized Signature
Stephen Maggs Mary Alexander
- ---------------------------------- ----------------------------------
Printed Name Printed Name
2/17/99 2/17/99
- ---------------------------------- ----------------------------------
Date Date
<PAGE> 5
SCHEDULE 1
1. PRICES
The pricing set forth in Section 3 below shall be applied to the
then-current list price set forth in the applicable service agreement.
2. EXCLUSIONS
Pricing does not apply to Equipment charges (including routers, CSUs/DSUs
and firewall hardware), Telco line charges, or any charges for Services not
specified in this Schedule 1 unless such charges are included in the Monthly
Fee for a Service specified in this Schedule 1.
3. ELIGIBLE PARTICIPANT DISCOUNT
The Eligible Participant pricing will apply only to services specified in
this Schedule 1, which may be changed from time to time.
U.S. DISCOUNTS
(CONTINENTAL US ONLY)
Unless adjusted as set forth in Section 3 of this Agreement, Customer shall
pay ** per megabit of sustained use (using UUNET's standard 95th percentile
calculation as set forth in the applicable Service Agreement): provided that
Customer agrees to pay a minimum charge based upon the Minimum Mbps Commitment
even if billing based on sustained use would be less than that below. Pricing
does not include telco start-up or monthly line charges.
COMMITMENTS AND PRICING:
MINIMUM Mbps COMMITMENT START-UP CHARGE PRICE/Mbps COMMITMENT DATE
-100 Mbps ** ** **
-300 Mbps ** ** **
-600 Mbps ** ** **
ORDER TYPE MINIMUM BANDWIDTH PER ORDER
T1 **
T3 **
OC3 **
OC12 **
DISCOUNTS OUTSIDE CONTINENTAL U.S.
Same as above, provided that if more than ** of the total bandwidth purchased
from UUNET is outside the continental U.S., then Customer shall pay an
additional charge of ** per Mbps for any bandwidth above that ** level.
<PAGE> 6
SCHEDULE 2
TERMS AND CONDITIONS
1. UUNET Technologies, Inc. ("UUNET") exercises no control over, and accepts no
responsibility for, the content of the information passing through UUNET's
host computers, network hubs and points of presence (the "UUNET Network").
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 7 BELOW, UUNET (a) MAKES NO
WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, FOR THE SERVICES AND
EQUIPMENT IT IS PROVIDING, AND (b) DISCLAIMS ANY WARRANTY OF TITLE,
MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. Use of
any information obtained via the UUNET Network is at Customer's own risk.
UUNET specifically denies any responsibility for the accuracy or quality of
information obtained through its services. UUNET shall not be liable for any
delay or failure in performance due to Force Majeure, which shall include
without limitation acts of God, earthquake, labor disputes, changes in law,
regulation or government policy, riots, war, fire, epidemics, acts or
omissions of vendors or suppliers, equipment failures, transportation
difficulties, or other occurrences which are beyond UUNET's reasonable
control.
2. All use of the UUNET Network and the service must comply with the
then-current version of the UUNET Acceptable Use Policy ("Policy") which is
made a part of this Agreement and is available at the following URL:
www.uu.net/usepolicy.html. UUNET reserves the right to amend the Policy from
time to time, effective upon posting of the revised Policy at the URL or
other notice to Customer. UUNET reserves the right to suspend the service or
terminate this Agreement effective upon notice for a violation of the Policy.
Customer agrees to indemnify and hold harmless UUNET from any losses,
damages, costs or expenses resulting from any third party claim or allegation
("Claim") arising out of or relating to use of the service, including any
Claim which, if true, would constitute a violation of the Policy.
3. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE
OR CONSEQUENTIAL DAMAGES THAT RESULT FROM CUSTOMER'S OR CUSTOMER'S USERS' USE
OF THE UUNET NETWORK AND THE SERVICE INCLUDING, WITHOUT LIMITATION, ANY SUCH
DAMAGES FOR LOSS OF DATA RESULTING FROM DELAYS, NON-DELIVERIES, MISDELIVERIES
OR SERVICE INTERRUPTIONS. Notwithstanding anything to the contrary stated in
this Agreement, Customer's sole remedies for any claims relating to this
service or the UUNET Network are set forth in Section 7 below.
4. Networks assigned from a UUNET net-block are non-portable. Network space
allocated by UUNET must be returned to UUNET in the event Customer
discontinues service.
5. Payment is due 30 days after date of invoice. Accounts are in default if
payment is not received within 30 days after date of invoice. If payment is
returned to UUNET unpaid Customer is immediately in default and subject to a
returned check charge of $25 from UUNET. Accounts unpaid 60 days after date
of invoice may have service interrupted or terminated. Such interruption does
not relieve Customer of the obligation to pay the Monthly Fee. Only a written
request to terminate Customer's service relieves Customer of the obligation
to pay the Monthly Fee. Accounts in default are subject to an interest charge
on the outstanding balance of the lesser of 1.5% per month or the maximum
rate permitted by law. Customer agrees to pay UUNET its reasonable expenses,
including attorney and collection agency fees, incurred in enforcing its
rights under these Terms and Conditions. Prices are exclusive of any taxes
which may be levied or assessed upon the Equipment or services provided
hereunder. Any such taxes shall be paid by Customer. If Customer is exempt
from otherwise applicable taxes, Customer must submit its tax identification
number and exemption certificate at the same time it submits this Agreement.
6. Billing for UUNET service will commence when a UUNET hub and a functioning
telephone circuit are prepared to route IP packets to Customer's site. The
Start-up Charge is invoiced upon acceptance of this Agreement by UUNET.
Charges for Equipment shall be invoiced upon shipment. Service is invoiced
monthly in advance, and may be canceled only by 60 days' advance written
notice. In the event of early cancellation of a Term Commitment, Customer
will be required to
<PAGE> 7
pay 75% of UUNET's standard Monthly Fee for each month remaining in the Term
Commitment. UUNET reserves the right to change the rates by notifying
Customer 60 days in advance of the effective date of the change.
7. The Service Level Agreement ("SLA") for this service, which is made a part
of this Agreement, is set forth at www.uu.net/customers/sla/terms.html and
applies only to customers agreeing to a Term Commitment of at least one
year. UUNET reserves the right to amend the SLA from time to time effective
upon posting of the revised SLA to the URL or other notice to Customer;
provided, that in the event of any amendment resulting in a material
reduction of the SLA's service levels or credits, Customer may terminate
this Agreement without penalty by providing UUNET written notice of
termination during the 30 days following notice of such amendment. The SLA
sets forth Customer's sole remedies for any claim relating to this service
or the UUNET Network, including any failure to meet any guarantee set forth
in the SLA. UUNET's records and data shall be the basis for all SLA
calculations and determinations. Notwithstanding anything to the contrary,
the maximum amount of credit in any calendar month under the SLA shall not
exceed the Monthly Fee and/or Start-up Charge which, absent the credit,
would have been charged to UUNET service that month (collectively the "UUNET
Fees"); provided, that the maximum amount of credit for failure to meet the
Availability Guarantee shall not exceed the sum of (a) the UUNET Fees, plus
(b) the telephone company line charge which, absent the credit, would have
been charged for such month. If Customer receives credits under this Section
in three consecutive months, Customer may terminate without penalty
(including, without limitation, the early termination penalty described
above in paragraph 6) by providing UUNET written notice of termination in
the fourth month.
8. Neither party may use the other party's name, trademarks, tradenames or
other proprietary identifying symbols without the prior written approval of
the other party. Neither party may assign or transfer any of its rights or
obligations under this Agreement without the express, prior written consent
of the other party; provided, that either party may assign or transfer this
Agreement to any affiliate of such party upon advance written notice to the
other party. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by law.
9. These Terms and Conditions are applicable to Services purchased pursuant to
the Master Discounted Internet Services Agreement between UUNET
Technologies, Inc., and Customer dated February 17, 1999 and shall prevail
notwithstanding any variance with terms and conditions of any order
submitted. Activation of service shall indicate UUNET's acceptance of this
Agreement. Use of the UUNET Network constitutes acceptance of these Terms
and Conditions.
<PAGE> 1
Exhibit 10.7
SAGE NETWORKS, INC.
1998 STOCK OPTION PLAN
ARTICLE I
PURPOSE
This Sage Networks, Inc. 1998 Stock Option Plan is intended to
advance the interests of the Company and its stockholders and subsidiaries by
attracting, retaining and motivating the performance of selected officers,
employees and consultants of the Company of high caliber and potential upon
whose judgment, initiative and effort the Company is largely dependent for the
successful conduct of its business, and to encourage and enable such persons to
acquire and retain a proprietary interest in the Company by ownership of its
stock.
ARTICLE II
DEFINITIONS
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Company's Common Stock, par value
$.01 per share.
(d) "Committee" means the Compensation Committee of the Board
or any other committee of the Board appointed by the Board to administer the
Plan from time to time. The full Board shall also have the authority to exercise
the powers and duties of the Committee under the Plan.
(e) "Company" means Sage Networks, Inc., a Delaware
corporation.
(f) "Date of Grant" means the date on which an Option becomes
effective in accordance with Section 6.1 hereof.
(g) "Eligible Person" means any person who is an officer,
employee or consultant of the Company or any Subsidiary.
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
<PAGE> 2
(i) "Fair Market Value" of the Common Stock as of any date
means the average of the closing prices of the sales of Common Stock on all
securities exchanges on which the Common Stock is listed or, if on any day the
Common Stock is not so listed, the sales price of the Common Stock as reported
on the Nasdaq National Market as of 4:00 P.M. New York Time, on such day or, if
the Common Stock is not reported on the Nasdaq National Market, the average of
the representative bid and asked prices quoted over a period of 21 trading days
consisting of the day as of which Fair Market Value is being determined and the
20 consecutive trading days prior to such day. If at any time the Common Stock
is not listed on any securities exchange or quoted on the Nasdaq National
Market, Fair Market Value will be determined in good faith by the Committee in
whatever manner it considers appropriate. Fair Market Value will be determined
without regard to any restriction on transferability of the Common Stock other
than any such restriction which by its terms will never lapse.
(j) "Incentive Stock Option" means a stock option granted
under the Plan that is intended to meet the requirements of Section 422 of the
Code and the regulations promulgated thereunder.
(k) "Nonqualified Stock Option" means a stock option granted
under the Plan that is not an Incentive Stock Option.
(l) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option granted under the Plan.
(m) "Optionee" means an Eligible Person to whom an Option has
been granted, which Option has not expired, under the Plan.
(n) "Option Price" means the price at which each share of
Common Stock subject to an Option may be purchased, determined in accordance
with Section 6.2 hereof.
(o) "Plan" means this Sage Networks, Inc. 1998 Stock Option
Plan.
(p) "Stock Option Agreement" means an agreement between the
Company and an Optionee under which the Optionee may purchase Common Stock under
the Plan.
(q) "Subsidiary" means a subsidiary corporation of the
Company, within the meaning of Section 424(f) of the Code.
(r) "Ten-Percent Owner" means an Optionee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten percent
of the total combined voting power of all classes of stock of the Company, its
parent, if any, or any Subsidiary, within the meaning of Sections 422(b)(6) and
424(d) of the Code.
2
<PAGE> 3
ARTICLE III
ELIGIBILITY
All Eligible Persons are eligible to receive a grant of an
Option under the Plan. The Committee shall, in its sole discretion, determine
and designate from time to time those Eligible Persons who are to be granted an
Option.
ARTICLE IV
ADMINISTRATION
4.1 Committee Members. The Plan shall be administered by a
Committee comprised of no fewer than two persons selected by the Board, or by
the full Board. Solely to the extent deemed necessary or advisable by the Board,
each Committee member shall meet the definition of a "nonemployee director" for
purposes of such Rule 16b-3 under the Exchange Act and of an "outside director"
under Section 162(m) of the Code.
4.2 Committee Authority. Subject to the express provisions of
the Plan, the Committee shall have the authority, in its discretion, to
determine the Eligible Persons to whom an Option shall be granted, the time or
times at which an Option shall be granted, the number of shares of Common Stock
subject to each Option, the Option Price of the shares subject to each Option
and the time or times when each Option shall become exercisable and the duration
of the exercise period. Subject to the express provisions of the Plan, the
Committee shall also have discretionary authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, and to make all the
determinations necessary or advisable in the administration of the Plan. All
such actions and determinations by the Committee shall be conclusively binding
for all purposes and upon all persons. No Committee member shall be liable for
any action or determination made in good faith with respect to the Plan, any
Option or any Stock Option Agreement entered into hereunder.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Number of Shares. Subject to adjustment pursuant to the
provisions of Section 5.2 hereof, the maximum number of shares of Common Stock
which may be issued and sold hereunder shall be 1,500,000 shares. Shares of
Common Stock issued and sold under the Plan may be either authorized but
unissued shares or shares held in the Company's treasury. Shares of Common Stock
covered by an Option that shall have been exercised shall not again be
3
<PAGE> 4
available for an Option grant. If an Option shall terminate for any reason
(including, without limitation, the cancellation of an Option pursuant to
Section 6.6 hereof) without being wholly exercised, the number of shares to
which such Option termination relates shall again be available for grant
hereunder.
5.2 Antidilution. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger or
consolidation, or the sale, conveyance, or other transfer by the Company of all
or substantially all of its property, or any other change in the corporate
structure or shares of the Company, pursuant to any of which events the then
outstanding shares of Common Stock are split up or combined, or are changed
into, become exchangeable at the holder's election for, or entitle the holder
thereof to, cash, other shares of stock, or any of the consideration, or in the
case of any other transaction described in Section 424(a) of the Code, the
Committee may (i) change the number and kind of shares (including by
substitution of shares of another corporation) subject to the Options and/or the
Option Price of such shares in the manner that it shall deem to be equitable and
appropriate or (ii) provide for an appropriate and proportionate cash settlement
or distribution. In no event may any such change be made to an Incentive Stock
Option which would constitute a "modification" within the meaning of Section
424(h)(3) of the Code without the written consent of the Optionee adversely
affected thereby.
ARTICLE VI
OPTIONS
6.1 Grant of Option. An Option may be granted to any Eligible
Person selected by the Committee. The grant of an Option shall first be
effective upon the date it is approved by the Committee, except to the extent
the Committee shall specify a later date upon which the grant of an Option shall
first be effective. Each Option shall be designated, at the discretion of the
Committee, as an Incentive Stock Option or a Nonqualified Stock Option, provided
that Incentive Stock Options may only be granted to Eligible Persons who are
considered employees of the Company or any Subsidiary for purposes of Section
422 of the Code. The Company and the Optionee shall execute a Stock Option
Agreement which shall set forth such terms and conditions of the Option as may
be determined by the Committee to be consistent with the Plan, and which may
include additional provisions and restrictions that are not inconsistent with
the Plan.
6.2 Option Price. The Option Price shall be determined by the
Committee; provided, however, that the Option Price shall not be less than 100
percent of the Fair Market Value of a share of Common Stock on the trading date
immediately preceding the Date of Grant.
4
<PAGE> 5
6. 3 Vesting; Term of Option. Unless otherwise specified by
the Committee in the Stock Option Agreement for an Optionee, an Option shall
vest and become exercisable in cumulative annual installments, each of which
shall relate to one-fourth of the number of shares of Common Stock originally
covered thereby (as may be adjusted in accordance with Section 5.2 hereof), on
the first, second, third and fourth anniversaries of the Date of Grant,
respectively, provided that the Optionee remains an Eligible Person on each such
anniversary. Notwithstanding the foregoing, the Committee, in its sole
discretion, may accelerate the exercisability of any Option at any time, and an
Option may become vested and exercisable in accordance with the provisions of
Articles VIII and IX hereof. Subject to Article VIII hereof, the period during
which a vested Option may be exercised shall be ten years from the Date of
Grant, unless a shorter exercise period is specified by the Committee in the
Stock Option Agreement for an Optionee.
6. 4 Option Exercise; Withholding. An Option may be exercised
in whole or in part at any time, with respect to whole shares only, within the
period permitted for the exercise thereof, and shall be exercised by written
notice of intent to exercise the Option with respect to a specified number of
shares delivered to the Company at its principal office, and payment in full to
the Company at said office of the amount of the Option Price for the number of
shares of the Common Stock with respect to which the Option is then being
exercised. Payment of the Option Price shall be made (i) in cash or by cash
equivalent, (ii) at the discretion of the Committee, in Common Stock owned by
the Optionee for more than six months on the date of exercise, valued at the
Fair Market Value of such shares on the trading date immediately preceding the
date of exercise or (iii) at the discretion of the Committee, by a combination
of such cash and such Common Stock. In addition to and at the time of payment of
the Option Price, the Optionee shall pay to the Company in cash or, at the
discretion of the Committee, in Common Stock the full amount of all federal and
state withholding and other employment taxes applicable to the taxable income of
such Optionee resulting from such exercise.
6. 5 Limited Transferability of Option and Nontransferability
of Option. All Options shall be nontransferable except upon the Optionee's
death, by the Optionee's will or the laws of descent and distribution. No
transfer of an Option by the Optionee by will or by laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Committee may deem necessary to establish
the validity of the transfer. During the lifetime of an Optionee, the Option
shall be exercisable only by him, except that, in the case of an Optionee who is
legally incapacitated, the Option shall be exercisable by his guardian or legal
representative.
6. 6 Cancellation, Substitution and Amendment of Options. The
Committee shall have the authority to effect,
5
<PAGE> 6
at any time and from time to time, with the consent of the affected Optionees,
(i) the cancellation of any or all outstanding Options and the grant in
substitution therefor of new Options covering the same or different numbers of
shares of Common Stock and having an Option Price which may be the same as or
different than the Option Price of the cancelled Options or (ii) the amendment
of the terms of any and all outstanding Options.
ARTICLE VII
ADDITIONAL RULES FOR ISOS
7. 1 Ten-Percent Owners. Notwithstanding any other provisions
of this Plan to the contrary, in the case of an Incentive Stock Option granted
to a Ten-Percent Owner, (i) the period during which any such Incentive Stock
Option may be exercised shall not be greater than five years from the Date of
Grant and (ii) the Option Price of such Incentive Stock Option shall not be less
than 110 percent of the Fair Market Value of a share of Common Stock on the Date
of Grant.
7. 2 Annual Limits. No Incentive Stock Option shall be granted
to an Optionee as a result of which the aggregate fair market value (determined
as of the date of grant) of the stock with respect to which incentive stock
options are exercisable for the first time in any calendar year under the Plan,
and any other stock option plans of the Company, any Subsidiary or any parent
corporation, would exceed $100,000, determined in accordance with Section 422(d)
of the Code. This limitation shall be applied by taking options into account in
the order in which granted.
7. 3 Disqualifying Dispositions. If shares of Common Stock
acquired by exercise of an Incentive Stock Option are disposed of within two
years following the Date of Grant or within one year following the transfer of
such shares to the Optionee upon exercise, the Optionee shall, within 10 days
after such disposition, notify the Company in writing of the date and terms of
such disposition and provide such other information regarding the disposition as
the Committee may reasonably require.
7. 4 Other Terms and Conditions. Any Incentive Stock Option
granted hereunder shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as are deemed necessary or desirable
by the Committee, which terms, together with the terms of this Plan, shall be
intended and interpreted to cause such Incentive Stock Option to qualify as an
"incentive stock option" under Section 422 of the Code.
ARTICLE VIII
6
<PAGE> 7
TERMINATION OF SERVICE
8. 1 Death. If an Optionee shall die at any time after the
Date of Grant and while he is an Eligible Person, the executor or administrator
of the estate of the decedent, or the person or persons to whom an Option shall
have been validly transferred in accordance with Section 6.5 hereof pursuant to
will or the laws of descent and distribution, shall have the right, during the
period ending one year after the date of the Optionee's death (subject to
Sections 6.3 and 7.1 hereof concerning the maximum term of an Option), to
exercise the Optionee's Option to the extent that it was exercisable at the date
of the Optionee's death and shall not have been previously exercised. The
Committee may determine at or after grant to make any portion of his Option that
is not exercisable at the date of death immediately vested and exercisable.
8. 2 Disability. If an Optionee's employment or other service
with the Company or any Subsidiary shall be terminated as a result of his
permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) at any time after the Date of Grant and while he is an Eligible Person,
the Optionee (or in the case of an Optionee who is legally incapacitated, his
guardian or legal representative) shall have the right, during a period ending
one year after the date of his disability (subject to Sections 6.3 and 7.1
hereof concerning the maximum term of an Option), to exercise an Option to the
extent that it was exercisable at the date of such termination of employment or
other service and shall not have been exercised. The Committee may determine at
or after grant to make any portion of his Option that is not exercisable at the
date of termination of employment or other service due to disability immediately
vested and exercisable.
8. 3 Termination for Cause. If an Optionee's employment or
other service with the Company or any Subsidiary shall be terminated for cause,
the Optionee's right to exercise any unexercised portion of an Option shall
immediately terminate and all rights thereunder shall cease. For purposes of
this Section 8.3, termination for "cause" shall include, but not be limited to,
embezzlement or misappropriation of corporate funds, any acts of dishonesty
resulting in conviction for a felony, misconduct resulting in material injury to
the Company or any Subsidiary, significant activities harmful to the reputation
of the Company or any Subsidiary, a significant violation of Company or
Subsidiary policy, willful refusal to perform, or substantial disregard of, the
duties properly assigned to the Optionee, or a significant violation of any
contractual, statutory or common law duty of loyalty to the Company or any
Subsidiary. The Committee shall have the power to determine whether the Optionee
has been terminated for cause and the date upon which such termination for cause
occurs. Any such determination shall be final, conclusive and binding upon the
Optionee.
7
<PAGE> 8
8. 4 Other Termination of Service. If an Optionee's employment
or other service with the Company or any Subsidiary shall be terminated for any
reason other than death, permanent and total disability or termination for
cause, the Optionee shall have the right, during the period ending 90 days after
such termination (subject to Sections 6.3 and 7.1 hereof concerning the maximum
term of an Option), to exercise an Option to the extent that it was exercisable
at the date of such termination and shall not have been exercised. For purposes
of this Section 8.4, an Optionee shall not be considered to have terminated
employment or other service with the Company or any Subsidiary until the
expiration of the period of any military, sick leave or other bona fide leave of
absence, up to a maximum period of 90 days (or such greater period during which
the Optionee is guaranteed reemployment either by statute or contract).
8
<PAGE> 9
ARTICLE IX
CHANGE IN CONTROL
9. 1 Change in Control. Upon a "change in control" of the
Company (as defined below), each outstanding Option, to the extent that it shall
not otherwise have become vested and exercisable, shall automatically become
fully and immediately vested and exercisable, without regard to any otherwise
applicable vesting requirement under Section 6.3 hereof; provided, however, that
no such vesting shall occur if provision has been made in writing in connection
with such transaction for (a) the continuation of the Plan and/or the assumption
of such Options by a successor corporation (or a parent or subsidiary thereof)
or (b) the substitution for such Options of new options covering the stock of a
successor corporation (or a parent or subsidiary thereof), with appropriate
adjustments as to the number and kinds of shares and exercise prices. In the
event of any such continuation, assumption or substitution, the Plan and/or such
Options shall continue in the manner and under the terms so provided.
9. 2 Definition. For purposes of Section 9.1 hereof, a "change
in control" of the Company shall mean:
(i) an acquisition subsequent to the date hereof by any
person, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either (A) the then outstanding shares of Common Stock or (B)
the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless
the security being so converted was itself acquired directly from the
Company, (2) any acquisition by the Company and (3) any acquisition by
an employee benefit plan (or related trust) sponsored or maintained by
the Company;
(ii) a change in the composition of the Board such that during
any period of two consecutive years, individuals who at the beginning
of such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with
the Company to effect a transaction described in paragraphs (i), (iii)
or (iv) of this section) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the members thereof;
9
<PAGE> 10
(iii) the approval by the stockholders of the Company of a
merger, consolidation, reorganization or similar corporate transaction,
whether or not the Company is the surviving corporation in such
transaction, in which outstanding shares of Common Stock are converted
into (A) shares of stock of another company, other than a conversion
into shares of voting common stock of the successor corporation (or a
holding company thereof) representing 80% of the voting power of all
capital stock thereof outstanding immediately after the merger or
consolidation or (B) other securities (of either the Company or another
company) or cash or other property;
(iv) the approval by the stockholders of the Company of (A)
the sale or other disposition of all or substantially all of the assets
of the Company or (B) a complete liquidation or dissolution of the
Company; or
(v) the adoption by the Board of a resolution to the effect
that any person has acquired effective control of the business and
affairs of the Company.
ARTICLE X
STOCK CERTIFICATES
10. 1 Issuance of Certificates. Subject to Section 10.2
hereof, the Company shall issue a stock certificate in the name of the Optionee
(or other person exercising the Option in accordance with the provisions of the
Plan) for the shares of Common Stock purchased by exercise of an Option as soon
as practicable after due exercise and payment of the aggregate Option Price for
such shares. A separate stock certificate or separate stock certificates shall
be issued for any shares of Common Stock purchased pursuant to the exercise of
an Option that is an Incentive Stock Option, which certificate or certificates
shall not include any shares of Common Stock that were purchased pursuant to the
exercise of an Option that is a Nonqualified Stock Option.
10. 2 Conditions. The Company shall not be required to issue
or deliver any certificate for shares of Common Stock purchased upon the
exercise of any Option granted hereunder or any portion thereof prior to
fulfillment of all of the following conditions:
(i) the completion of any registration or other qualification
of such shares, under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, that the Committee shall in its sole
discretion deem necessary or advisable;
10
<PAGE> 11
(ii) the obtaining of any approval or other clearance from any
federal or state governmental agency which the Committee shall in its
sole discretion determine to be necessary or advisable;
(iii) the lapse of such reasonable period of time following
the exercise of the Option as the Committee from time to time may
establish for reasons of administrative convenience;
(iv) satisfaction by the Optionee of all applicable
withholding taxes or other withholding liabilities; and
(v) if required by the Committee, in its sole discretion, the
receipt by the Company from an Optionee of (i) a representation in
writing that the shares of Common Stock received upon exercise of an
Option are being acquired for investment and not with a view to
distribution and (ii) such other representations and warranties as are
deemed necessary by counsel to the Company.
10. 3 Legends. The Company reserves the right to legend any
certificate for shares of Common Stock, conditioning sales of such shares upon
compliance with applicable federal and state securities laws and regulations.
ARTICLE XI
EFFECTIVE DATE, TERMINATION AND AMENDMENT
11. 1 Effective Date. The Plan shall become effective upon its
adoption by the Board and its approval by the stockholders of the Company.
11.2 Termination. The Plan shall terminate on the date
immediately preceding the tenth anniversary of the date the Plan is adopted by
the Board. The Board may, in its sole discretion and at any earlier date,
terminate the Plan. Notwithstanding the foregoing, no termination of the Plan
shall in any manner affect any Option theretofore granted without the consent of
the Optionee or the permitted transferee of the Option.
11.3 Amendment. The Board may at any time and from time to
time and in any respect, amend or modify the Plan. Solely to the extent deemed
necessary or advisable by the Board, for purposes of complying with Sections 422
or 162(m) of the Code or rules of any securities exchange or for any other
reason, the Board may seek the approval of any such amendment by the Company's
stockholders. Any such approval shall be by the affirmative votes of the
stockholders of the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with applicable state law and the Certificate of
Incorporation and By-Laws of the Company. Notwithstanding the foregoing,
11
<PAGE> 12
no amendment or modification of the Plan shall in any manner affect any Option
theretofore granted without the consent of the Optionee or the permitted
transferee of the Option.
ARTICLE XII
MISCELLANEOUS
12. 1 Employment or other Service. Nothing in the Plan, in the
grant of any Option or in any Stock Option Agreement shall confer upon any
Eligible Person the right to continue in the capacity in which he is employed by
or otherwise provides services to the Company or any Subsidiary. Notwithstanding
anything contained in the Plan to the contrary, unless otherwise provided in a
Stock Option Agreement, no Option shall be affected by any change of duties or
position of the Optionee (including a transfer to or from the Company or any
Subsidiary), so long as such Optionee continues to be an Eligible Person.
12. 2 Rights as Shareholder. An Optionee or the permitted
transferee of an Option shall have no rights as a shareholder with respect to
any shares subject to such Option prior to the purchase of such shares by
exercise of such Option as provided herein. Nothing contained herein or in the
Stock Option Agreement relating to any Option shall create an obligation on the
part of the Company to repurchase any shares of Common Stock purchased
hereunder.
12. 3 Other Compensation and Benefit Plans. The adoption of
the Plan shall not affect any other stock option or incentive or other
compensation plans in effect for the Company or any Subsidiary, nor shall the
Plan preclude the Company from establishing any other forms of incentive or
other compensation for employees of the Company or any Subsidiary. The amount of
any compensation deemed to be received by an Optionee as a result of the
exercise of an Option or the sale of shares received upon such exercise shall
not constitute compensation with respect to which any other employee benefits of
such Optionee are determined, including, without limitation, benefits under any
bonus, pension, profit sharing, life insurance or salary continuation plan,
except as otherwise specifically determined by the Board or the Committee or
provided by the terms of such plan.
12. 4 Plan Binding on Successors. The Plan shall be binding
upon the Company, its successors and assigns, and the Optionee, his executor,
administrator and permitted transferees.
12. 5 Construction and Interpretation. Whenever used herein,
nouns in the singular shall include the plural, and the masculine pronoun shall
include the feminine
12
<PAGE> 13
gender. Headings of Articles and Sections hereof are inserted for convenience
and reference and constitute no part of the Plan.
12. 6 Severability. If any provision of the Plan or any Stock
Option Agreement shall be determined to be illegal or unenforceable by any court
of law in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
12. 7 Governing Law. The validity and construction of this
Plan and of the Stock Option Agreements shall be governed by the laws of the
State of Delaware.
SAGE NETWORKS, INC.
13
<PAGE> 1
Exhibit 10.9
SAGE NETWORKS, INC.
Incentive Stock Option Award Agreement
Award Agreement, dated as of March 10, 1999 (the "Date of Issuance"), between
Sage Networks, Inc., a Delaware corporation (the "Company"), and [MERGE FIELD 1]
(the "Optionee"), an employee of the Company. This Award Agreement is pursuant
to the terms of the Company's 1998 Stock Option Plan (the "Plan"). The
applicable terms of the Plan are incorporated herein by reference, including the
definition of terms contained in the Plan.
WHEREAS, pursuant to the terms of the Asset Purchase Agreement,
dated as of March 8, 1999, among the Company, Sage Networks Acquisition Corp.,
a Delaware corporation, and Interliant, Inc., a Texas corporation (the "Asset
Purchase Agreement"), the option to purchase shares of Interliant common stock
(the "Interliant Option") granted to the Optionee is to be converted at the
Closing Date (as defined in the Asset Purchase Agreement) into an option to
purchase under the Plan shares of the common stock, $.01 par value, of the
Company (the "Common Stock") on the terms and subject to the conditions set
forth in this Award Agreement.
Section 1. Stock Option Award. The Company grants to the Optionee,
on the terms and conditions hereinafter set forth, an Option with respect to
[MERGE FIELD 2] shares of the Common Stock (the "Option Shares"). The Option is
intended to qualify as an Incentive Stock Option under Section 422 of the Code.
Section 2. Exercise Price. The exercise price per share of the
Option Shares shall be $0.13 per share.
Section 3. Vesting of Stock Option [MERGE FIELD 3] of the Option
Shares shall be vested and exercisable on the Date of Issuance. [MERGE FIELD 4]
of the Option Shares shall become vested and exercisable upon the earlier of (i)
the first anniversary of the Closing Date provided that a Liquidity Event (as
defined in the Asset Purchase Agreement) has not taken place on or before such
date, or (ii) the date of a Liquidity Event provided the fair market value (as
defined in the Asset Purchase Agreement) of the aggregate issued and outstanding
shares of the Common Stock upon the occurrence of such Liquidity Event
(excluding the shares of Common Stock offered by the Company in connection with
the Liquidity Event) is less than $300,000,000. In the event such number of
Option Shares do not become vested on the earlier of such dates, the Option
shall lapse with respect to such number of Option Shares.
Section 4. Incentive Stock Option Limitation. Pursuant to Section
7.2 of the Plan and Section 422(d) of the Code, to the extent the aggregate fair
market value of stock with respect to which the Option (together with any other
incentive stock options of the Company and its subsidiaries) is exercisable for
the first time by the Optionee during any calendar year exceeds $100,000, the
portion of the Option representing such excess shall not be treated as an
Incentive Stock Option and shall instead be treated as a Nonqualified Option
under the Plan.
<PAGE> 2
Section 5. Option Term. Option Shares that become exercisable
pursuant to Section 3 hereof may be purchased at any time during the Option
Term. For purposes hereof, the "Option Term" shall commence on the Date of
Issuance and shall expire on the tenth anniversary of the Date of Grant, unless
earlier terminated upon the Optionee's termination from service as an employee
as provided in Section 6 hereof. For purposes hereof, the Date of Grant shall be
the date on which the Interliant Option was granted. Upon the expiration of the
Option Term, any unexercised Option Shares shall be cancelled and shall be of no
further force or effect.
Section 6. Termination of Service. If Optionee's service as an
employee of the Company is terminated, the Optionee shall retain the right to
exercise any Option Shares until (i) in the event of a termination for any
reason other than death, "disability" or "retirement", the earlier of the
expiration of the Option Term or thirty (30) days after the date of such
termination of employment, (ii) in the event of a termination on account of
death, "disability" or "retirement", the earlier of the expiration of the Option
Term or three (3) months after such termination of employment; provided,
however, that in the event the Optionee's employment is terminated by the
Company for "cause", such Optionee's right to exercise any Option Shares shall
terminate as of 12:01 a.m. on the date of such termination of employment.
For purposes of this Section 6: (i) "disability" shall mean the
Optionee being unable to engage in substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or that has lasted or can be expected to last for a continuous
period of not less that one hundred eighty (180) days as determined by the board
of directors of the Company (the "Board"), with such determination to be final
and conclusive on all parties; (ii) "retirement" shall mean the termination of
employment or affiliation from the Company constituting retirement on or after
attaining age 65, as determined by the Board; and (iii) "cause" shall mean (A)
in the event that the Optionee is subject to any employment agreement or written
affiliation agreement between the Optionee and the Company, termination of
employment on account of the Optionee's breach of any such agreement that has
not been cured following thirty (30) days written notice (or the cure has not
been commenced and continued with reasonable diligence with a view to effecting
the cure within sixty (60) days of written notice), or (B) the Board determines
that such Optionee is being terminated because such Optionee admits, or is shown
to have committed, any fraud, dishonesty or act of willful misconduct in the
performance of the Optionee's duties to the Company.
Section 7. Procedure for Exercise. The Option may be exercised, in
whole or part (for the purchase of whole shares only), by delivery of a written
notice (the "Notice") from the Optionee to the Secretary of the Company at the
Company's principal office, which Notice shall: (i) state the number of Option
Shares being exercised; (ii) include any representation of the Optionee required
pursuant to Section 9 hereof; (iii) in the event that the Option shall be
exercised by any person other than the Optionee pursuant to Section 12 hereof,
include appropriate proof of the right of such person to exercise the Option;
and (iv)
2
<PAGE> 3
comply with such further requirements consistent with the Plan as the Committee
may from time to time prescribe. In addition, as a condition to exercise all or
any part of the Option, the Optionee must execute and deliver to the Company a
Shareholders Agreement in the form attached hereto as Exhibit A.
Section 8. Payment of Exercise Price and Tax Withholding. Payment of
the exercise price for the Option Shares shall be made in cash or by cashier's
check, certified check or postal or express money order. In addition and at the
time of exercise, as a condition of delivery of the Option Shares, the Optionee
shall remit to the Company all required federal, state and local withholding tax
amounts in any manner permitted for the payment of the exercise price as
provided above.
Section 9. Investment Representation. Upon the exercise of the
Option at a time when there is not in effect a registration statement under the
Securities Act of 1933 relating to the Option Shares, the Optionee hereby
represents and warrants, and by virtue of such exercise shall be deemed to
represent and warrant, to the Company that the Option Shares shall be acquired
for investment and not with a view to the distribution thereof, and not with any
present intention of distributing the same, and the Optionee shall provide the
Company with such further representations and warranties as the Company may
require in order to ensure compliance with applicable federal and state
securities, blue sky and other laws. No Option Shares shall be purchased upon
the exercise of the Option unless and until the Company and/or the Optionee
shall have complied with all applicable federal or state registration, listing
and/or qualification requirements and all other requirements of law or of any
regulatory agencies having jurisdiction, unless the Committee has received
evidence satisfactory to it that a prospective Optionee may acquire such shares
pursuant to an exemption from registration under the applicable securities laws.
Any determination in this connection by the Committee shall be final, binding,
and conclusive. The Company reserves the right to legend any certificate for
shares of Common Stock, conditioning sales of such shares upon compliance with
applicable federal and state securities laws and regulations.
Section 10. No Rights as Stockholder or Employee.
(a) The Optionee shall not have any privileges of a stockholder of
the Company with respect to any Option Shares subject to (but not acquired upon
valid exercise of) the Option, nor shall the Company have any obligation to
issue any dividends or otherwise afford any rights to which shares of Common
Stock are entitled with respect to any such Option Shares, until the date of the
issuance to the Optionee of a stock certificate evidencing such shares.
(b) Nothing in this Award Agreement or the Option shall confer upon
the Optionee any right to continue as an employee of the Company or to interfere
in any way with the right of the Company to terminate the Optionee's employment
at any time.
3
<PAGE> 4
Section 11. Adjustments. If at any time while the Option is
outstanding, the number of outstanding shares of Common Stock is changed by
reason of a reorganization, recapitalization, stock split or any of the other
events described in Section 5.2 of the Plan, the number and kind of Option
Shares and/or the exercise price of such Option Shares shall be adjusted in
accordance with the provisions of Section 5.2 of the Plan.
Section 12. Restriction on Transfer of Option. The Option may not be
transferred, pledged, assigned, hypothecated or otherwise disposed of in any way
by the Optionee, except by will or by the laws of descent and distribution. In
the event an Optionee becomes legally incapacitated, his Option shall be
exercisable by his legal guardian, committee or legal representative. If the
Optionee dies, the Option shall thereafter be exercisable by the Optionee's
executors or administrators. The Option shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option, shall be null and void and without effect.
Section 13. Lock-Up Agreement. As a condition to the grant of the
Option, Optionee agrees to execute and deliver to the underwriters in connection
with the Company's initial public offering, a lock-up agreement in customary
form, restricting the transfer by the Optionee of shares of the Common Stock and
Options for a period of not more that 180 days following the closing of such
initial public offering.
Section 14. Notices. Any notice hereunder by the Optionee shall be
given to the Company in writing and such notice shall be deemed duly given only
upon receipt thereof at the Company's office at [11 Martine Avenue, White
Plains, NY 106063, Attention General Counsel], or at such other address as the
Company may designate by notice to the Optionee. Any notice hereunder by the
Company shall be given to the Optionee in writing and such notice shall be
deemed duly given only upon receipt thereof at such address as the Optionee may
have on file with the Company.
Section 15. Construction. The construction of this Award Agreement
is vested in the Committee, and the Committee's construction shall be final and
conclusive.
Section 16. Governing Law. This Award Agreement shall be construed
and enforced in accordance with the laws of the State of Delaware, without
giving effect to the choice of law principles thereof.
Section 17. Entire Agreement. This Award Agreement and the Plan
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all prior written or oral negotiations,
commitments, representations and agreements with respect thereto and the
Optionee agrees that, as of the Closing Date, the Interliant Option shall be
superceded and shall be of no further force or effect, and the Optionee shall
have no further rights in connection therewith.
4
<PAGE> 5
SAGE NETWORKS, INC.
By:
------------------------------------
Name:
Title:
OPTIONEE
----------------------------------------
Signature
----------------------------------------
Print Name:
5
<PAGE> 6
EXHIBIT A
FORM OF SHAREHOLDERS AGREEMENT
6
<PAGE> 1
Exhibit 10.10
SAGE NETWORKS, INC.
Nonqualified Stock Option Award Agreement
Award Agreement, dated as of March 10, 1999 (the "Date of Issuance"), between
Sage Networks, Inc., a Delaware corporation (the "Company"), and FIELD_1 (the
"Optionee"), an employee of the Company or a subsidiary of the Company. This
Award Agreement is pursuant to the terms of the Company's 1998 Stock Option Plan
(the "Plan"). The applicable terms of the Plan are incorporated herein by
reference, including the definition of terms contained in the Plan.
WHEREAS, pursuant to the terms of the Asset Purchase Agreement,
dated as of March 8, 1999, among the Company, Sage Networks Acquisition Corp., a
Delaware corporation, and Interliant, Inc., a Texas corporation (the "Asset
Purchase Agreement"), the option to purchase shares of Interliant common stock
(the "Interliant Option") granted to the Optionee is to be converted at the
Closing Date (as defined in the Asset Purchase Agreement) into an option to
purchase under the Plan shares of the common stock, $.01 par value, of the
Company (the "Common Stock") on the terms and subject to the conditions set
forth in this Award Agreement.
Section 1. Stock Option Award. The Company grants to the Optionee,
on the terms and conditions hereinafter set forth, an Option with respect to
FIELD_2 shares of the Common Stock (the "Option Shares"). The Option is not
intended to qualify as an Incentive Stock Option under Section 422 of the Code.
Section 2. Exercise Price. The exercise price per share of the
Option Shares shall be $0.13 per share.
Section 3. Vesting of Stock Option. FIELD_3 of the Option Shares
shall be vested and exercisable on the Date of Issuance. If the "Fair Market
Value" (as defined in the Asset Purchase Agreement) of the aggregate issued and
outstanding shares of the Common Stock of the Company determined on the date of
the occurrence of a Liquidity Event (as defined in the Asset Purchase Agreement)
(excluding the shares of Common Stock of the Company issued by the Company in
connection with the Liquidity Event, if any) is less than $300,000,000 and the
Company consummates the Liquidity Event, additional Option Shares shall become
vested and exercisable on the date of occurrence of the Liquidity Event such
that the aggregate of the Optionee's vested and exercisable Option Shares on
such date equals FIELD_4 of the vested and exercisable Total Option Shares with
such result rounded down to the nearest whole number of shares. For purposes
hereof, Total Option Shares shall mean such number of shares of Common Stock
subject to options delivered or deliverable to all Optionees who receive option
grants on the Date of Issuance such that the aggregate value of such shares is
equal to $13,023,778 (determined at the Fair Market Value (as defined in the
Asset Purchase Agreement) of such shares on the date of the Liquidity Event) but
in no event shall the Total Option Shares be more than 2,322,139. If a Liquidity
Event does not occur on or before the first anniversary of the Closing Date, all
of the Option Shares shall be vested and exercisable on such anniversary date.
The Option
<PAGE> 2
shall lapse with respect to such number of Option Shares that do not become
vested and exercisable in accordance with the provisions of this Section 3.
Section 4. Option Term. Option Shares that become exercisable
pursuant to Section 3 hereof may be purchased at any time during the Option
Term. For purposes hereof, the "Option Term" shall commence on the Date of
Issuance and shall expire on the tenth anniversary of the Date of Grant, unless
earlier terminated upon the Optionee's termination from service as an employee
as provided in Section 5 hereof. For purposes hereof, the Date of Grant shall be
the date on which the Interliant Option was granted. Upon the expiration of the
Option Term, any unexercised Option Shares shall be cancelled and shall be of no
further force or effect.
Section 5. Termination of Service. If Optionee's service as an
employee of the Company or a subsidiary of the Company is terminated, the
Optionee shall retain the right to exercise any Option Shares until (i) in the
event of a termination for any reason other than death, "disability" or
"retirement", the earlier of the expiration of the Option Term or thirty (30)
days after the date of such termination of employment, (ii) in the event of a
termination on account of death, "disability" or "retirement", the earlier of
the expiration of the Option Term or three (3) months after such termination of
employment; provided, however, that in the event the Optionee's employment is
terminated by the Company or a subsidiary of the Company, as applicable, for
"cause", such Optionee's right to exercise any Option Shares shall terminate as
of 12:01 a.m. on the date of such termination of employment.
For purposes of this Section 5: (i) "disability" shall mean the
Optionee being unable to engage in substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or that has lasted or can be expected to last for a continuous
period of not less that one hundred eighty (180) days as determined by the board
of directors of the Company (the "Board"), with such determination to be final
and conclusive on all parties; (ii) "retirement" shall mean the termination of
employment or affiliation from the Company or a subsidiary of the Company, as
applicable, constituting retirement on or after attaining age 65, as determined
by the Board; and (iii) "cause" shall mean (A) in the event that the Optionee is
subject to any employment agreement or written affiliation agreement between the
Optionee and the Company or a subsidiary of the Company, as applicable,
termination of employment on account of the Optionee's breach of any such
agreement that has not been cured following thirty (30) days written notice (or
the cure has not been commenced and continued with reasonable diligence with a
view to effecting the cure within sixty (60) days of written notice), or (B) the
Board determines that such Optionee is being terminated because such Optionee
admits, or is shown to have committed, any fraud, dishonesty or act of willful
misconduct in the performance of the Optionee's duties to the Company or a
subsidiary of the Company, as applicable.
Section 6. Procedure for Exercise. The Option may be exercised, in
whole or part (for the purchase of whole shares only), by delivery of a written
notice (the "Notice") from the Optionee to the Secretary of the Company at the
Company's principal office, which Notice shall: (i) state the number of Option
Shares being exercised; (ii) include any
2
<PAGE> 3
representation of the Optionee required pursuant to Section 8 hereof; (iii) in
the event that the Option shall be exercised by any person other than the
Optionee pursuant to Section 11 hereof, include appropriate proof of the right
of such person to exercise the Option; and (iv) comply with such further
requirements consistent with the Plan as the Committee may from time to time
prescribe. In addition, as a condition to exercise all or any part of the
Option, the Optionee must execute and deliver to the Company a Shareholders
Agreement in the form attached hereto as Exhibit A.
Section 7. Payment of Exercise Price and Tax Withholding. Payment of
the exercise price for the Option Shares shall be made in cash or by cashier's
check, certified check or postal or express money order. In addition and at the
time of exercise, as a condition of delivery of the Option Shares, the Optionee
shall remit to the Company all required federal, state and local withholding tax
amounts in any manner permitted for the payment of the exercise price as
provided above.
Section 8. Investment Representation. Upon the exercise of the
Option at a time when there is not in effect a registration statement under the
Securities Act of 1933 relating to the Option Shares, the Optionee hereby
represents and warrants, and by virtue of such exercise shall be deemed to
represent and warrant, to the Company that the Option Shares shall be acquired
for investment and not with a view to the distribution thereof, and not with any
present intention of distributing the same, and the Optionee shall provide the
Company with such further representations and warranties as the Company may
require in order to ensure compliance with applicable federal and state
securities, blue sky and other laws. No Option Shares shall be purchased upon
the exercise of the Option unless and until the Company and/or the Optionee
shall have complied with all applicable federal or state registration, listing
and/or qualification requirements and all other requirements of law or of any
regulatory agencies having jurisdiction, unless the Committee has received
evidence satisfactory to it that a prospective Optionee may acquire such shares
pursuant to an exemption from registration under the applicable securities laws.
Any determination in this connection by the Committee shall be final, binding,
and conclusive. The Company reserves the right to legend any certificate for
shares of Common Stock, conditioning sales of such shares upon compliance with
applicable federal and state securities laws and regulations.
Section 9. No Rights as Stockholder or Employee.
(a) The Optionee shall not have any privileges of a stockholder of
the Company with respect to any Option Shares subject to (but not acquired upon
valid exercise of) the Option, nor shall the Company have any obligation to
issue any dividends or otherwise afford any rights to which shares of Common
Stock are entitled with respect to any such Option Shares, until the date of the
issuance to the Optionee of a stock certificate evidencing such shares.
(b) Nothing in this Award Agreement or the Option shall confer upon
the Optionee any right to continue as an employee of the Company or a subsidiary
of the Company, as applicable, or to interfere in any way with the right of the
Company or its subsidiaries to terminate the Optionee's employment at any time.
3
<PAGE> 4
Section 10. Adjustments. If at any time while the Option is
outstanding, the number of outstanding shares of Common Stock is changed by
reason of a reorganization, recapitalization, stock split or any of the other
events described in Section 5.2 of the Plan, the number and kind of Option
Shares and/or the exercise price of such Option Shares shall be adjusted in
accordance with the provisions of Section 5.2 of the Plan.
Section 11. Restriction on Transfer of Option. The Option may not be
transferred, pledged, assigned, hypothecated or otherwise disposed of in any way
by the Optionee, except by will or by the laws of descent and distribution. In
the event an Optionee becomes legally incapacitated, his Option shall be
exercisable by his legal guardian, committee or legal representative. If the
Optionee dies, the Option shall thereafter be exercisable by the Optionee's
executors or administrators. The Option shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option, shall be null and void and without effect.
Section 12. Lock-Up Agreement. As a condition to the grant of the
Option, Optionee agrees to execute and deliver to the underwriters in connection
with the Company's initial public offering, a lock-up agreement in customary
form, restricting the transfer by the Optionee of shares of the Common Stock and
Options for a period of not more that 180 days following the closing of such
initial public offering.
Section 13. Notices. Any notice hereunder by the Optionee shall be
given to the Company in writing and such notice shall be deemed duly given only
upon receipt thereof at the Company's office at [11 Martine Avenue, White
Plains, NY 106063, Attention General Counsel], or at such other address as the
Company may designate by notice to the Optionee. Any notice hereunder by the
Company shall be given to the Optionee in writing and such notice shall be
deemed duly given only upon receipt thereof at such address as the Optionee may
have on file with the Company.
Section 14. Construction. The construction of this Award Agreement
is vested in the Committee, and the Committee's construction shall be final and
conclusive.
Section 15. Governing Law. This Award Agreement shall be construed
and enforced in accordance with the laws of the State of Delaware, without
giving effect to the choice of law principles thereof.
Section 16. Facsimile Signature. This Award Agreement may be
executed by the Company by facsimile signature and shall be valid and binding
upon the Company notwithstanding the use of a facsimile signature of the
signatory for the Company.
Section 17. Entire Agreement. This Award Agreement and the Plan
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all prior written or oral negotiations,
commitments,
4
<PAGE> 5
representations and agreements with respect thereto and the Optionee agrees
that, as of the Closing Date, the Interliant Option shall be superceded and
shall be of no further force or effect, and the Optionee shall have no further
rights in connection therewith.
SAGE NETWORKS, INC.
By:
------------------------------------
Leonard J. Fassler, Co-Chairman
OPTIONEE
----------------------------------------
Signature
----------------------------------------
Print Name:
5
<PAGE> 6
EXHIBIT A
FORM OF SHAREHOLDERS AGREEMENT
6
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Agreement made and entered into as of the 1st day of January,
1999, by and between SAGE NETWORKS, INC., a Delaware corporation, having a place
of business at 215 First Street, Cambridge, MA 02142 ("Employer"), and, Leonard
J. Fassler, having an address at 7 Old Woods Drive, Harrison, NY 10528
("Employee").
WITNESSETH:
WHEREAS, Employer is engaged in the Internet Web hosting and related
services business; and
WHEREAS, Employer desires to employ Employee as Co-Chairman of
Employer, and Employee desires to be so employed by Employer, all pursuant to
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES
(a) Employer hereby agrees to employ Employee, and Employee
hereby agrees to accept employment during the term hereof as Co-Chairman of
Employer, and shall perform such services as are customarily performed by
persons holding such offices and shall be subject at all times to the direction
of the Board of Directors of Employer. Nothing herein contained shall be
construed as, including, but not limited to (i) preventing Employee from
devoting a portion of his business time to other business ventures of Employee
or preventing Employee from investing his personal assets in any business,
provided such business venture or business does not compete with Employer or
conflict with Employee's duties and obligations as an officer and director of
the Employer, or (ii) preventing Employee from purchasing securities in any
corporation whose securities are regularly publicly traded, if such purchases
shall not result in his owning beneficially at any time 5% or more of the equity
securities of any corporation engaged in a business which is competitive to that
of Employer.
2. TERM
Employee's employment hereunder shall be for a term commencing
January 1, 1999 and ending on December 31, 1999. The Agreement shall be
automatically extended from year to year thereafter unless either party gives
not less than three (3) months prior written notice to the other that such party
elects to have the Agreement terminated effective at the end of the initial or
then current renewal term.
<PAGE> 2
3. COMPENSATION
(a) As compensation for the performance of his duties on behalf of
Employer, Employer shall pay Employee a salary at the rate of One Hundred Eighty
Thousand Dollars ($180,000.00) per annum, payable in installments in accordance
with the usual practice of the Employer.
(b) Employer shall reimburse Employee for the expenses incurred by
Employee in connection with his duties hereunder upon presentation by Employee
of the details of vouchers for such expenses in accordance with customary
Employer practice.
(c) Employee shall be entitled to participate in all retirement, life
insurance, medical insurance, disability insurance, vacation, savings and other
employee benefit plans generally available to the senior officers of the
Company, so long as such benefits comply with applicable law (including without
limitation the Internal Revenue Code of 1986, as amended, and ERISA).
4. NON-COMPETITION
(a) During the term of this Agreement and for a period of twenty-four
(24) months from the date of termination of his employment hereunder for
whatever reason, Employee agrees that he will not solicit any customers who are
presently or may hereafter become customers of Employer unless such solicitation
is entirely unrelated to Employer's business, or compete in any way with
Employer alone or together with others in which Employer is engaged in business
at the time of termination of employment.
(b) Subsequent to the expiration or termination of this Agreement,
Employee will not interfere with or disrupt or attempt to disrupt Employer's
business relationship with its customers or suppliers or solicit the employees
or Employer.
(c) During the term of this Agreement and for a period of twenty-four
(24) months from the date of termination of his employment hereunder for
whatever reason, Employee will not disclose or use or enable anyone else to use
any information or data which may be obtained by him or available to him during
the term of employment.
(d) In the event that Employee breaches any provisions of this
paragraph or there is a threatened breach, then, in addition to any other rights
which Employer may have, Employer shall be entitled to injunctive relief to
enforce the restrictions contained herein. In the event that an actual
proceeding is brought in equity
2
<PAGE> 3
to enforce the provisions of this paragraph, Employee shall not urge as a
defense that there is an adequate remedy at law nor shall Employer be prevented
from seeking any other remedies which may be available.
(e) The existence of any claim or cause of action by Employee against
Employer, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by Employer of the foregoing restrictive
covenants but shall be litigated separately.
5. TERMINATION
(a) Anything to the contrary notwithstanding, this Agreement shall
terminate 30 days after the Employee's (i) death or (ii) disability for a period
of not less than twenty-six consecutive weeks; provided, however, that the
provisions of Section 6 hereof shall remain in full force and effect through the
end of the term hereof.
(b) Employee's employment hereunder may also be terminated by the
Employer before the expiration of the term hereof only for cause as herein
defined. "Cause" shall mean only one or both of the following occurrences:
(i) The Employee's conviction of a felony by a court of
competent jurisdiction (which conviction, through lapse of time or
otherwise, is not subject to appeal); or
(ii) The Employee's commission of an act of fraud or
embezzlement upon the Employer.
6. SEVERANCE
In the event of termination of employment of Employee by
Employer before the expiration of the term hereof, except when such termination
is in accordance with the provisions of paragraph 5(a) or 5(b) hereof, Employer
will provide Employee with severance pay in an amount equal to Employee's base
annual salary through the end of the term hereof, which shall be payable in a
lump sum, discounted based on the prime rate of Chase Bank then in effect, which
lump sum shall be payable within 30 days of the date of termination. Employer
shall also continue to provide to Employee the retirement benefits, life
insurance, medical insurance and disability insurance pursuant to Section 3(d)
through the end of the term hereof.
In the event of termination of employment of Employee before
the expiration of the term hereof pursuant to the provisions of paragraph 5(a)
hereof, Employer will: (i) provide Employee (or Employee's estate) with
severance pay in an
3
<PAGE> 4
amount equal to one year's base annual salary, which shall be payable in a lump
sum, discounted based on the prime rate of Chase Bank then in effect, which lump
sum shall be payable within 30 days of the date of termination; (ii) continue to
provide to Employee the retirement benefits, life insurance, medical insurance
and disability insurance pursuant to Section 3(d) through the end of the term
hereof; and (iii) continue to provide Employee's spouse and minor children with
medical benefits pursuant to Section 3(d) through the end of the term hereof.
7. NOTICES
All notices hereunder shall be in writing and shall be
delivered in person or given by registered or certified mail, postage prepaid,
and sent to the parties at the respective addresses above set forth. Either
party may designate any other address to which notice shall be given, by giving
notice to the other of such change of address in the manner herein provided.
8. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced in whole or in part, the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
9. GOVERNING LAW
This Agreement shall be construed and governed by the laws of
the State of New York.
10. NON-WAIVER
The failure of either party to insist upon the strict
performance of any term or condition in this Agreement shall not be considered a
waiver or relinquishment of future compliance therewith.
11. ENTIRE AGREEMENT; MODIFICATION
4
<PAGE> 5
This Agreement contains the entire agreement between the
parties relating to the subject matter hereof. No modification of this Agreement
shall be valid unless it is made in writing and signed by the parties hereto.
12. NON-ASSIGNMENT; SUCCESSORS
Neither party hereto may assign his or its rights or delegate
his or its duties under this Agreement without the prior written consent of the
other party; provided, however, that (i) this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Employer upon
any sale of all or substantially all of the Employer's assets, or upon any
merger, consolidation or reorganization of the Employer with or into any other
corporation, all as though such successors and assigns of the Employer and their
respective successors and assigns were the Employer; and (ii) this Agreement
shall insure to the benefit of and be binding upon the heirs, assigns or
designees of the Employee to the extent of any payments due to them hereunder.
As used in this Agreement, the term "Employer" shall be deemed to refer to any
such successor or assign of the Employer referred to in the preceding sentence.
13. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
SAGE NETWORKS, INC.,
Employer
By:/s/ Bradley A. Feld
_____________________
Bradley A. Feld
Co-Chairman
/s/Leonard J. Fassler
________________________
Leonard J. Fassler
5
<PAGE> 1
Exhibit 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement made as of this 10th day of March, 1999, between
SAGE NETWORKS, INC., having an address at 215 First Street, Cambridge, MA 02142
("Employer"), and JAMES M. LIDESTRI, residing at 225 Crestwood Court, Fishkill,
New York 12524 ("Employee").
WHEREAS, an Asset Purchase Agreement (the "Purchase Agreement") dated as
of March 8, 1999 was entered into among the Employer, Interliant, Inc., a Texas
corporation (the "Company") and certain other parties;
WHEREAS, in connection with the transactions contemplated by the Purchase
Agreement, the parties desire the Employee to serve in certain capacities with
the Employer.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties agree as follows:
1. Definitions.
Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Purchase Agreement. As used herein, the
following terms have the following meanings:
"Agreement" shall mean this Agreement and any amendments hereto.
"Agreement Term" shall have the meaning ascribed to it in Section
2(a).
"Base Salary" shall mean the Employee's annual salary as determined
pursuant to Section 5(a) hereof.
"Board" shall mean the Board of Directors of the Employer.
"Cause" shall have the meaning ascribed to it in Section 9.
"Employment Year" shall mean each consecutive 12-month period during
the Agreement Term, the first of which shall commence on the date
hereof.
"Good Reason" shall have the meaning ascribed to it in Section 2(d).
"Intellectual Property" shall have the meaning ascribed to it in
Section 4(d).
"Objectives-Based Bonus" shall have the meaning ascribed to it in
Section 5(d).
"Restricted Period" shall mean (i) where the Employee is terminated
by the Employer for Cause or where the Employee terminates this Agreement or
ceases employment with Employer other than for Good Reason, a period commencing
on the date of such termination and ending on the later of (a) two years
following the date of this Agreement or (b) one year following the date of such
termination; (ii) where the Employee is either terminated by the Employer
without Cause or the Employee terminates his employment for Good Reason, a
period of one year following the date of such termination; or (iii) upon any
expiration of the Agreement Term, a period of one year following the date of
such expiration.
<PAGE> 2
"Signing Bonus" shall have the meaning ascribed to it in Section
5(c).
2. Agreement Term.
(a) The Employer will employ the Employee and the Employee will work
for the Employer, on the terms and conditions set forth herein, for a term
commencing on the date hereof and terminating on March 1, 2001 (the "Contract
Termination Date"), unless sooner terminated as provided in Section 2(b) or in
accordance with Section 9, or in the event of death or disability of the
Employee as provided in Section 2(c) (the "Agreement Term"); provided, however,
that the Agreement Term shall automatically continue and the Contract
Termination Date shall be automatically extended thereafter on a month to month
basis, unless either the Board or an officer of Employer at the direction of the
Board shall notify the Employee or the Employee shall notify the Employer, that
the Employer or the Employee (for any or no reason) desires to terminate this
Agreement, in which event this Agreement shall terminate, without any other
action by the parties, on the date which is ninety (90) days after the date such
notice is delivered.
(b) This Agreement may be terminated by the Employer for Cause (as
defined in Section 9) prior to the end of the Agreement Term on such date as
shall be specified in a notice given by the Employer to the Employee.
(c) In the event of the death or disability of the Employee during
the Agreement Term, this Agreement shall terminate as of the date of such death
or as of the date of determination that such disability has occurred and the
Employee's estate or the Employee, as the case may be, shall be entitled to
receive (i) any and all accrued and unpaid portions of the Base Salary to the
date of death or disability, (ii) all of the benefits to which the Employee
would be entitled pursuant to Sections 7 and 8 hereof to the date of death or
disability, and (iii) in the case of the death of the Employee, such other
payments and benefits as shall be provided to the estates and beneficiaries of
deceased Employees under the then existing policies of the Employer. As used
herein, a "disability" shall have occurred if, as a result of physical or mental
incapacity, the Employee shall have been incapable of performing Employee's
duties hereunder for a period in excess of 26 consecutive calendar weeks or an
aggregate of 30 weeks in any 12 month period, as determined by the Board (or a
committee or officer of the Employer designated by the Board) in its sole
discretion. If the Employee disagrees with such determination, the Board (or
such designated committee or officer) and the Employee shall select a mutually
satisfactory physician to resolve the disagreement and the resolution of such
physician shall be binding on both the Employer and the Employee.
(d) The Employee shall be entitled to terminate his employment hereunder
for Good Reason. Termination by the Employee of the Employee's employment for
"Good Reason" shall mean (i) any breach of this Agreement by the Employer,
including, without limitation, any attempted reduction during the Agreement Term
in the amount of the Employee's compensation or benefits in effect from time to
time; or (ii) without the Employee's written consent, the assignment to the
Employee of any duties which are materially inconsistent with the Employee's
positions, duties, responsibilities and status, a significant reduction in the
Employee's title, duties or responsibilities; and such event shall continue for
a period of thirty (30) days or more after written notice thereof is sent to the
Employer by the Employee.
2
<PAGE> 3
3. Duties.
The Employee shall exercise such powers and perform such duties and
services commensurate with his position for the Employer as the Chief Executive
Officer of Employer may, from time to time, reasonably require, and shall devote
his entire business time, energy and attention to the business of the Employer,
or its subsidiaries. The Employee shall be the Executive Vice President of the
Employer and President of Interliant of Texas, Inc., a Delaware corporation and
a wholly owned subsidiary of Employer. The Employee shall report to the Chief
Executive Officer of the Employer.
4. Non-Competition; Nonsolicitation; Confidentiality; Intellectual
Property Matters.
(a) During the Agreement Term and for the Restricted Period, the
Employee will not engage in any capacity in a business substantially similar to
or in competition with the business of the Employer or its subsidiaries during
the Agreement Term or as of the date of termination, as the case may be, that is
located or does business in any state in the United States or anywhere
throughout the world except as an officer, director, shareholder or employee of
the Employer or any affiliate thereof. However, nothing in this Section 4 shall
prohibit the Employee from acquiring or holding any issue of stock or securities
of any person that has any securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended, listed on a national securities
exchange or quoted on the automated quotation system of the National Association
of Securities Dealers, Inc. so long as (i) the Employee is not deemed to be an
"affiliate" of such person as such term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act of 1933, as amended, and (ii) the Employee
and/or members of his immediate family or persons under his control do not own
or hold more than 5% of any voting securities of any such person.
(b) During the Agreement Term and for the Restricted Period, the
Employee will not, unless acting with the express written consent of Employer,
directly or indirectly, solicit or interfere with, or endeavor to entice away:
(i) any person who has rendered services as an employee for
the Company with respect to the Business or the Employer or
any of their respective affiliates during the 12 month period
immediately preceding the date of termination or expiration of
this Agreement; or
(ii) with respect to any business substantially similar to the
business in which the Employer or any of its affiliates is or
has been engaged on or after the date of this Agreement, any
person or entity who was a customer or client of the Employer,
the Company or any of their respective affiliates at any point
during the 12 months preceding the termination or expiration
of this Agreement or any person or entity who requested or
received a proposal from the Employer, the Company or any of
their respective affiliates within the 12 months preceding the
termination or expiration of this Agreement.
3
<PAGE> 4
(c) During the Agreement Term and at all times thereafter the
Employee agrees to hold in confidence all matters and things related to the
business of the Employer and each of its direct and indirect subsidiaries or
affiliates of a confidential or secret nature (including, without limitation,
all private or proprietary information) which the Employee may acquire, learn,
develop or create during the Agreement Term and will not, without the written
consent of Employer, except in the performance of the Employee's duties as an
employee of the Employer, use, publish or disclose any such matter or thing
except to the extent that (i) such information is otherwise publicly available
or (ii) disclosure is required by applicable law, regulation, legal process or
court order or (iii) such information is otherwise lawfully obtained by the
Employee.
(d) The Employee hereby assigns, and agrees to assign, to the
Employer all of the Employee's right, title and interest in and to all
inventions, discoveries, improvements, ideas, computer or other apparatus
programs and related documentation, and other works of authorship, whether or
not patentable, copyrightable or subject to other forms of protection, that are
made, created, developed, written or conceived by the Employee during the
Agreement Term (and any written or oral extension thereof), whether during or
outside of regular work hours, either solely or jointly with another, in whole
or in part, either (i) in the course of the Employee's employment by the
Employer or its affiliates and on behalf of the Employer as part of the
Employee's duties or (ii) relating to the actual or anticipated business or
research or development of the Employer, or, (iii) in either of both instances
described in the foregoing clauses "(i)" or "(ii)," with the use of the
Employer's time, material, private or proprietary information, or facilities
(herein each designated "Intellectual Property"). Notwithstanding the foregoing,
it is understood and agreed between the Employer and the Employee that, from
time to time, the Employee has engaged in writing and speaking activities that
are not related to his duties to the Employer hereunder, and that the Employee
shall be permitted to continue to engage in such activities and shall be
permitted to do so during regular work hours and with the use of the Employer's
facilities (but no private or proprietary information of the Employer), so long
as these activities do not materially interfere with the performance by the
Employee of his duties hereunder. The Employee agrees to execute (without charge
to the Employer) a specific assignment of title to Employer and to do anything
else reasonably necessary to enable Employer to secure a patent, copyright or
other form of protection for said Intellectual Property anywhere in the world.
The Employee acknowledges and agrees that the copyrights in Intellectual
Property created within the scope of the Employee's employment belong to the
Employer by operation of law.
(e) The Employee agrees to execute upon request by the Employer from
time to time during the Agreement Term, any nondisclosure, intellectual property
or confidentiality agreements which the Employer may require its employees
generally to execute, consistent with the foregoing and paragraph (d) above, but
not inconsistent with other terms of this Agreement.
5. Salary; Bonuses.
(a) As compensation for the Employee's services to be rendered to
the Employer and in consideration for the covenants and agreements of the
Employee contained herein, the Employer shall pay to the Employee an annual Base
Salary of $180,000.
4
<PAGE> 5
(b) The Base Salary shall be payable in substantially equal
installments and in substantially the same manner that salaries are paid by the
Employer to other employees in comparable positions with the Employer. The Board
(or a committee of the Board) shall make an annual review of the Base Salary and
may, but shall not be obligated to, in its sole discretion, make increases
thereto.
(c) The Employer shall pay to the Employee a signing bonus (the
"Signing Bonus"). The Signing Bonus shall be equal to $150,000, two-thirds
(i.e., $100,000) of which shall be payable upon execution and delivery of this
Agreement by the parties hereto. The remaining one-third (i.e., $50,000) shall
be payable on the first anniversary of the date of this Agreement, provided that
this Agreement has not been terminated by the Employer for Cause or by the
Employee without Good Reason on or before the date that such installment is
payable.
(d) The Employer shall pay to the Employee an objectives-based bonus
(the "Objective-Based Bonus"). The Objective Based-Bonus shall be equal to
$70,000 per year and shall be paid to Employee upon Employee meeting or
exceeding certain objectives as determined in good faith by the Chief Executive
Officer of Employer in consultation with Employee.
6. Vacation.
The Employee shall be entitled to vacation periods annually during
the Employee's employment under this Agreement consistent with the Employer's
vacation policy for employees generally.
7. Reimbursement for Expenses.
The Employer shall reimburse the Employee for all reasonable and
necessary expenses and other disbursements actually incurred by the Employee for
and on behalf of the Employer in the performance of the Employee's duties upon
submission of adequate documentation of such expenses and in accordance with the
Company's reimbursement policy then in effect.
8. Benefits.
The Employee shall be entitled to participate in any health, medical
and dental, insurance or similar plan or program of the Employer established or
in effect for the benefit of its employees generally (collectively, "Insurance
Benefits").
9. Termination By Employer for Cause.
Termination of this Agreement for "Cause" by the Employer shall mean
termination due to the occurrence of any of the following events:
(a) if the Employee is convicted of any crime (whether or not involving
the Employer) which constitutes a felony or involves moral turpitude, fraud or
misrepresentation;
5
<PAGE> 6
(b) if the Employee engages in dishonest conduct in connection with the
Employee's employment, which is fraud, theft or misappropriation or embezzlement
of Employer's funds, which termination shall be effective on the tenth (10th)
day after written notice from Employer is delivered to the Employee and Employee
shall have had a reasonable opportunity to be heard by the Chairman or
Co-Chairman of the Employer;
(c) if the Employee shall have breached any of the Employee's material
obligations under this Agreement, (other than an inadvertent breach as to which
the Employee shall have discontinued the activity causing the breach within two
(2) business days following delivery of notice thereof to the Employee); or
(d) if the Employee has habitually failed to follow the reasonable
directives of the Employer for the performance of the Employee's duties or
responsibilities hereunder (other than any failure resulting from the Employee's
incapacity due to physical or mental illness), including, without limitation,
the Employee's duties and responsibilities under Section 3 hereof, after due
notice to the Employee, and a reasonable opportunity to be heard by the Chairman
or Co-Chairman of the Employer within one month after the giving of such notice
and to correct such failure.
10. Certain Remedies.
(a) In the event the Employer terminates this Agreement for Cause as
defined in Section 9 above, all of the Employee's rights under this Agreement
shall thereupon terminate and Employee shall be entitled only to all accrued and
unpaid portions of the Base Salary through the date of such termination, and to
all vested benefits under any employee benefit plans maintained by the Employer,
whether funded or unfunded, accrued through the date of such termination.
Notwithstanding the foregoing, such termination shall be without prejudice to
any right the Employee may have to continue to participate, on a post-employment
basis, in any retirement plan of the Employer now existing or established
hereafter for the benefit of its employees in general or any health plan of the
Employer, to the extent the Employee is eligible under the general provisions
thereof or as required by applicable law, including, without limitation, COBRA.
(b) In the event of termination by the Employer without Cause or in
the event the Contract Termination Date occurs on account of the Board or an
officer of Employer at the direction of the Board, giving the notice provided
for in Section 2(a) hereof or the Employee terminates this Agreement for Good
Reason, the Employer shall pay to the Employee (i) any remaining amount of the
Signing Bonus, plus (ii) the greater of (A) the amount of remaining Base Salary
and other compensation due to the Employee under the terms of this Agreement
(including, without limitation, a pro rata portion of the Objective-Based Bonus
earned during the year in which Employee's employment is terminated for the
portion of the year that the Employee was employed by the Employer), as in
effect at such time, and (B) an amount equal to six (6) months of his monthly
Base Salary in effect at the Date of Termination or the Contract Termination
Date, as the case may be, plus a pro rata portion of the Objective-Based Bonus
earned during the year in which Employee's employment is terminated for the
portion of the year that the Employee was employed by the Employer during the
year of such termination, and the Employee's participation in all customary
benefit programs established by the Employer shall
6
<PAGE> 7
continue as before termination during the longer of the remainder of the
Agreement Term and such six-month period, as if he continued to be employed by
the Employer during such period. In the event any such benefit program is by law
not available to non-employees, the Employer will provide a comparable benefit
to the Employee during such period. The date on which a termination pursuant to
this Section 10(b) becomes effective (the "Date of Termination") shall be the
date on which the party terminating this Agreement gives the other party written
notice of termination in accordance with the terms hereof.
11. No Mitigation
The provisions of this Agreement are not intended to, nor shall they
be construed to require that, the Employee mitigate the amount of any payment
provided for in this Agreement by seeking or accepting other employment. Without
limiting the foregoing, the Employer's obligations to make the payments to the
Employee under this Agreement and otherwise perform its obligations hereunder
shall not be affected by any right of set-off that the Employer may have against
the Employee.
12. Notice.
Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given if delivered or mailed by
registered mail, postage prepaid: if to the Employee at the Employee's address
set forth on the first page hereof, or at such other address as Employee shall
designate by notice to the Employer, and if to the Employer at 215 First Street,
Cambridge, MA 02142, with a copy to Bruce S. Klein, Senior Vice President and
General Counsel, Sage Networks, Inc., 11 Martine Avenue, 12th Floor, White
Plains, NY 10606, or at such other address as it shall designate by notice to
the Employee.
13. Successors and Assigns.
This Agreement is personal in its nature and neither of the parties
hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder, except that Employer may
assign this Agreement to any successor entity resulting from a merger,
consolidation, sale of stock of Employer or sale of substantially all of the
assets of Employer, provided that such successor entity expressly assumes all
the the obligations of the Employer under this Agreement. This Agreement shall
inure to the benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amount would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Employee's devisee, legatee or other designee or, if there
is no such designee, to the Employee's estate.
14. Governing Law; Jurisdiction.
7
<PAGE> 8
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without regard to its conflict
of law rules. The Employer and the Employee submit and consent to the exclusive
jurisdiction of the state and federal courts located in the State of New York,
Counties of New York or Westchester with respect to any legal actions between
them relating to this Agreement.
15. Only Contract Relating to Employment; Amendments.
This Agreement supersedes any prior contracts relating to employment
between the Employee and the Employer and constitutes the full and complete
agreement between the Employee and the Employer in such respect and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Agreement cannot
be changed, modified or amended and no provision or requirement hereof may be
waived without the consent in writing of the Employee and the Employer.
16. Headings.
The headings in this Agreement are for convenience of reference only
and shall not control or affect the meaning or construction of this Agreement.
17. Severability.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. If any provision
contained in this Agreement is found to be unenforceable by reason of the
extent, duration or scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, scope or
other provision so that in its reduced form any such restriction shall
thereafter be enforceable to the maximum extent permitted by law. It is the
intent of the parties hereto that the covenants contained in this Agreement
shall be enforced to the fullest extent permissible under the laws and public
policies of each jurisdiction in which enforcement is sought (the Employee
hereby acknowledging that said restrictions are reasonably necessary for the
protection of the Employer).
18. 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.
IN WITNESS WHEREOF, the Employer and the Employee have caused this
Agreement to be executed as of the date first above written.
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
-------------------------------------
Leonard J. Fassler, Chairman
EMPLOYEE:
8
<PAGE> 9
/s/ James M. Lidestri
--------------------------------
James M. Lidestri
9
<PAGE> 1
Exhibit 10.16
DEED OF LEASE
BY AND BETWEEN
WESTWOOD CENTER, L.L.C.
("LANDLORD")
AND
SAGE NETWORKS, INC.
A DELAWARE CORPORATION
("TENANT")
AT
8619 WESTWOOD CENTER DRIVE
TYSONS CORNER, VIRGINIA
<PAGE> 2
TABLE OF CONTENTS
1. TERMS. 1
2. PAYMENT OF BASE RENT & ADDITIONAL RENT 6
3. SECURITY DEPOSIT 6
4. USES; TENANT COVENANTS 7
5. ENVIRONMENTAL PROVISIONS; RECYCLING7
6. LATE CHARGES; INTEREST 11
7. REPAIRS AND MAINTENANCE 12
8. UTILITIES AND SERVICES 13
9. OPERATING COSTS 14
10. REAL ESTATE TAXES 18
11. ADDITIONAL PROVISIONS; OPERATING COSTS AND REAL ESTATE TAXES 19
12. TENANT'S INSURANCE 20
13. LANDLORD'S INSURANCE 22
14. DAMAGE OR DESTRUCTION 22
15. MACHINERY AND EQUIPMENT; ALTERATIONS AND ADDITIONS; REMOVAL OF
FIXTURES 24
16. ACCEPTANCE OF PREMISES 25
17. TENANT IMPROVEMENTS 25
18. ACCESS 26
19. MUTUAL WAIVER OF SUBROGATION 27
20. INDEMNIFICATION 27
<PAGE> 3
21. ASSIGNMENT AND SUBLETTING 28
22. ADVERTISING 30
23. LIENS 30
24. DEFAULT 30
25. SUBORDINATION 35
26. SURRENDER OF POSSESSION 36
27. NON-WAIVER 36
28. HOLDOVER 36
29. CONDEMNATION 37
30. NOTICES 37
31. MORTGAGEE PROTECTION 38
32. COSTS AND ATTORNEYS' FEES 38
33. BROKERS 38
34. LANDLORD'S LIABILITY 39
35. ESTOPPEL CERTIFICATES 39
36. FINANCIAL REPRESENTATIONS AND INFORMATION 40
37. TRANSFER OF LANDLORD'S INTEREST 40
38. RIGHT TO PERFORM 40
39. COMMON AREAS 41
40. SALES AND AUCTIONS 41
41. ACCESS TO ROOF 41
42. ACCESS 42
43. AUTHORITY OF LANDLORD AND TENANT 43
<PAGE> 4
44. NO ACCORD OR SATISFACTION 43
45. LEGAL REQUIREMENTS 43
46. PARKING 43
47. GENERAL PROVISIONS 43
48. RULES AND REGULATIONS 45
49. ARBITRATION 45
50. WAIVER OF JURY TRIAL 47
51. RENEWAL TERM 47
EXHIBIT A Location and Dimensions of Premises
EXHIBIT B Description of Land
EXHIBIT C Construction Provisions
EXHIBIT D Rules and Regulations
EXHIBIT E Declaration of Lease Commencement
EXHIBIT F Form of Estoppel Certificate
EXHIBIT G Tenant Financial Information
EXHIBIT H Existing Equipment/Fixtures
<PAGE> 5
DEED OF LEASE
THIS DEED OF LEASE ("Lease") is made as of the 11th day of
February, 1999, by and between WESTWOOD CENTER, L.L.C., a Delaware limited
liability company ("Landlord"), and SAGE NETWORKS, INC., a Delaware
corporation ("Tenant").
R E C I T A L S:
Landlord, for and in consideration of the rents and all other
charges and payments hereunder and of the covenants, agreements, terms,
provisions and conditions to be kept and performed hereunder by Tenant,
grants and conveys to Tenant, and Tenant hereby hires and takes from
Landlord, a leasehold interest in the premises described below
("Premises"), subject to all matters hereinafter set forth and upon and
subject to the covenants, agreements, terms, provisions and conditions of
this Lease for the term hereinafter stated.
NOW THEREFORE Landlord and Tenant hereby agree to the following:
I. TERMS.
A. Premises. (a) The premises demised by this Lease will consist of
approximately 13,171 rentable square feet of space (the "Premises") measured by
Landlord's architect in accordance with the 1989 Washington, D.C. Commercial
Association of Realtors ("WDCAR") Standard Method of Measurement, and shall be
comprised of suite _____ on the first floor in that building located at 8619
Westwood Center Drive, McLean, Fairfax County, Virginia (the "Building"),
together with the right to the use of not more than forty nine (49) parking
spaces located in the adjacent parking facility (including any parking structure
and/or surface lot as may exist for the Building from time to time), and the
non-exclusive use of various Common Areas (as defined in Section 39 hereof), as
more particularly set forth herein. The land upon which the Building is
situated, which is generally depicted on the diagram attached hereto as Exhibit
B (the "Site Plan") and incorporated herein by reference, shall be referred to
hereinafter as the "Land". The Land and the Building are collectively referred
to herein as the "Project". The location and dimensions of the Premises are
shown on the conceptual floor plans attached hereto as Exhibit A and
incorporated herein by reference. No easement for light or air is incorporated
in or intended to be conveyed with the Premises.
(b) Upon completion of the final plans and specifications for the
Premises, Landlord shall deliver to Tenant a certificate indicating the total
square footage of the Premises based upon an opinion of a registered architect.
Tenant, or its representatives, shall have the right to access, review and
remeasure the Premises; provided, however, Tenant shall give notice exercising
such right within fifteen (15) days after receipt of the Landlord's notice or
Tenant shall be deemed to have waived that right. If Tenant's remeasurement
discloses a
<PAGE> 6
discrepancy of more than one and one-half percent (1-1/2%), then the Lease shall
be adjusted in accordance with such remeasurement unless Landlord disputes the
results of Tenant's remeasurement, in which event, prior to the remeasurement
being considered effective, the question of such measurement shall be submitted
to Arbitration in accordance with Section 49 hereof, (provided that in such
event the initial two arbitrators shall be each of Landlord's and Tenants
architects, the third arbitrator must also be a licensed architect), and rather
than the determination of the third arbitrator being binding, the square footage
of the Premises shall be deemed to be the average of the determinations of those
two architects whose determinations are the closest, with the third to be
disregarded. If the remeasurement (or, if disputed, Arbitration) establishes
that there was a discrepancy adverse to Tenant of more than three percent (3%)
or more, then Landlord shall reimburse Tenant for the reasonable and actual cost
of remeasurement and of any Arbitration within thirty (30) days after invoice
therefor, and if the remeasurement establishes that there was a discrepancy of
less than three percent (3%), then Tenant shall reimburse Landlord for the
reasonable Arbitration expenses within thirty (30) days after invoice therefor.
The foregoing shall not affect the Commencement Date of this Lease, and pending
resolution pursuant hereto, Base Rent paid hereunder shall be based upon the
estimate set forth above. Further the foregoing measurement (i) shall only be
available as of substantial completion and not thereafter, and (ii) shall cause
adjustment in the amount of the Allowance (as defined in Exhibit C) and in
Tenant's Share.
B. Tenant's Share. "Tenant's Share" shall mean a fraction, the
numerator of which is the total rentable square footage of the Premises as
determined in accordance with Section 1.1 hereof, and the denominator of which
is 97,081, representing the total rentable square footage of the Building. No
adjustment shall be made for space within the Project occupied by any building
engineer(s) or similar on-site property management or operational personnel,
provided any such space will be located within a core area location to be
determined within the reasonable judgment of Landlord.
C. Lease Term. The term of this Lease (the "Term" or "Lease Term")
shall commence on the "Commencement Date" as defined in Section 1.4 below (and
as more fully set forth in Exhibit C hereto), and shall expire one hundred
twenty (120) months after the Commencement Date (the "Lease Expiration Date");
provided that if the Commencement Date is a date other than the first day of a
calendar month, the Lease Term shall run for the number of months set forth
above from the first day of the calendar month following the Commencement Date.
D. Commencement Date.
1. The "Commencement Date" shall be ninety (90) days after the
date upon which Landlord delivers the Notice of Possession (as defined in
Exhibit C attached hereto) to Tenant, and Tenant is able to enter the Premises
for the purposes of performing Tenant's Work therein as identified in Exhibit C
attached hereto. Notwithstanding the foregoing, for purposes of this Lease, the
term "Commencement Date" shall also mean any adjusted Commencement Date which
may be established pursuant to the provisions of this
<PAGE> 7
Lease. Landlord and Tenant hereby agree to execute a Declaration, in the form
attached hereto as Exhibit E, to confirm the Commencement Date. Tenant's failure
to execute said Declaration shall not affect the Commencement Date, or the Lease
Expiration Date, as the same may be determined by the terms of this Lease.
E. Base Rent. The base rent payable by Tenant hereunder ("Base Rent")
is set forth in this Section 1.5.1, below. The Base Rent payable to Landlord is
in addition to (and not to be reduced by) any payment of Additional Rent (as
hereinafter defined) hereunder. Base Rent is "net" of electrical service which
will be contracted for and paid directly by Tenant. Base Rent shall be payable
monthly, in equal monthly installments, in advance, on the first day of each
calendar month of the Term, without prior notice, demand, deduction or offset.
1.5.1 Subject to the provisions of Section 1.5.2 below, the annual Base
Rent for the Premises (monthly installments of which may be referred to herein
as "Monthly Base Rent") for the initial Lease Year of the Term shall be Twenty
Three Dollars and Fifty Cents ($23.50) per square foot of the Premises.
Thereafter, as of the first twelve (12) month anniversary of the Commencement
Date and each annual anniversary thereafter, the Base Rent shall be increased to
an amount equal to one hundred three percent (103%) of the Base Rent for the
immediately preceding Lease Year.
1.5.2 In the event Tenant exercises its Renewal Option in
accordance with Section 51 of this Lease, Base Rent and escalations for the
Renewal Term under this Lease shall be as set forth in Section 51 below.
F. Additional Rent. Tenant's Share of Real Estate Taxes (as defined in
Section 10), Operating Costs (as defined in Section 9) and any other sum owed or
reimbursable by Tenant to Landlord under this Lease (excluding Base Rent) shall
be considered additional rent hereunder (collectively "Additional Rent"), and,
except for items of Additional Rent for which demand is required pursuant to the
express terms of this Lease, shall be payable without demand, set-off or
deduction. Estimates of those items of Additional Rent described in Section 9
and Section 10 of this Lease shall be provided by Landlord to Tenant in
accordance with the terms of Sections 9 and 10 hereof, and shall be payable
monthly, in advance, on the first day of each calendar month of the Term,
together with Tenant's monthly payment of Base Rent, without demand, set-off or
deduction.
G. Notice and Payment Addresses. Any notices under this Lease shall be
governed by the terms of Section 30, below. The notice addresses of the parties
are as follows:
If to Landlord: c/o Faison & Associates, Inc.
1900 Interstate Tower
121 West Trade Street
Charlotte, North Carolina 28202
<PAGE> 8
And a copy to: J. Richard Saas, Esq.
Tenenbaum & Saas, P.C.
4330 East West Highway
Suite 1150
Bethesda, Maryland 20814
If to Tenant: Both prior to and after the Commencement Date at:
Sage Networks, Inc.
215 First Street
Cambridge, MA 02142
ATTN: Rajat Bhargava
Chief Operating Officer
And a copy to: Mr. David Link
Sage Networks, Inc.
at the Premises
And a copy to: Bruce S. Klein, General Counsel
Sage Networks, Inc.
11 Martine Avenue
White Plains, NY 10606
Either party may, by ten (10) days' prior written notice to the other, designate
a new address to which all notices hereunder shall be directed.
H. Rent Payment Address. Tenant shall send payments of Base Rent and
Additional Rent hereunder to Landlord at the following address, or to such other
address of which Landlord may advise Tenant in writing:
c/o Trammell Crow Real Estate Services, Inc.
8201 Greensboro Drive
Suite 600
McLean, Virginia 22102
I. Lease Year. Each twelve (12) month period within the Lease Term
shall be referred to herein as a "Lease Year." The first Lease Year shall
commence on the Commencement Date and terminate on the last day of the twelfth
full calendar month after the Commencement Date. Each subsequent Lease Year
shall commence on the date immediately following the last day of the preceding
Lease Year and shall continue for a period of twelve (12) full calendar months,
except that the last Lease Year of the Lease Term shall terminate on the date
this Lease expires or is otherwise terminated.
J. Deed of Lease. To the extent required under applicable law to make
this Lease legally effective, this Lease shall constitute a deed of lease.
<PAGE> 9
II. PAYMENT OF BASE RENT & ADDITIONAL RENT.
Tenant shall pay Landlord the Base Rent and Additional Rent due under this Lease
without prior notice, demand, deduction or offset, in lawful money of the United
States. Base Rent and Additional Rent shall be paid at the address noted in
Section 1.8, or to such other party or at such other place as Landlord may
hereafter from time to time designate in writing. Base Rent and Additional Rent
under this Lease for any partial month at the beginning or end of the Lease Term
shall be prorated. Except for monthly installments of estimated Additional Rent
as set forth in Sections 9 and 10 of this Lease, or as otherwise provided in
this Lease, all payments of Additional Rent shall be paid no later than ten (10)
business days after the date Landlord notifies Tenant in writing of the amount
thereof. In the event of any dispute concerning the computation of the amount of
any Additional Rent due, Tenant shall pay the amount specified by Landlord
pending the resolution of the dispute, and, subject to Section 9.4 hereof, such
payment shall be without prejudice to Tenant's right to continue to challenge
the disputed computation.
III. SECURITY AND ADVANCE DEPOSIT.
A. Security Deposit. Simultaneously with the execution of this Lease by
Tenant, Tenant shall provide Landlord with a security deposit in an amount equal
to One Hundred Fifty Thousand Dollars ($150,000.00) (the "Security Deposit").
The Security Deposit shall constitute security for payment of Base Rent and
Additional Rent and for any and all other obligations of Tenant under this
Lease. If Tenant defaults, beyond any applicable cure period, with respect to
any covenant or condition of this Lease, including but not limited to the
payment of Base Rent, Additional Rent or any other payment due under this Lease,
and the obligation of Tenant to maintain the Premises and deliver possession
thereof back to Landlord at the expiration or earlier termination of the Lease
Term in the condition required herein, then Landlord may (without any waiver of
Tenant's default being deemed to have occurred) apply all or any part of the
Security Deposit to the payment of any sum in default beyond any applicable cure
period, or any other reasonable sum which Landlord may be required or deem
necessary to spend or incur by reason of Tenant's default, or to satisfy in part
or in whole any damages suffered by Landlord as a result of Tenant's default
which continues to exist beyond any applicable cure period. In the event of such
application, Tenant shall promptly deposit with Landlord the amount necessary to
restore the Security Deposit to the full amount set forth above. The parties
expressly acknowledge and agree that the Security Deposit is not an advance
payment of Base Rent or Additional Rent, nor a measure of Landlord's damages in
the event of any default by Tenant. If Tenant shall have fully complied with all
of the covenants and conditions of this Lease, but not otherwise, the amount of
the Security Deposit then held by Landlord shall be repaid to Tenant within
thirty (30) days after the expiration or sooner termination of this Lease. In
the event of a sale or transfer of Landlord's estate or interest in the
Building, Landlord shall transfer the Security Deposit to the purchaser or
transferee, and upon such transfer Landlord shall be considered released by
Tenant from all liability for the return of the Security Deposit, provided such
assignee assumes all prospective liability of Landlord hereunder. The Security
Deposit shall
<PAGE> 10
be posted in cash or by letter of credit, and, if in the form of letter of
credit shall be a clean, irrevocable letter of credit from an institution and in
form and substance reasonably satisfactory to Landlord in all respects. If in
the form of letter of credit, the same shall be "evergreen" and shall be renewed
automatically on an annual basis throughout the Term (or, alternatively, a
replacement letter of credit shall be furnished to Landlord, which letter of
credit must satisfy all of the conditions set forth above and which replacement
letter of credit shall be delivered not later than thirty (30) days prior to the
then scheduled expiry date of the existing letter of credit); failing which
Landlord shall be entitled to draw thereon and hold the proceeds therefrom in
cash as the Security Deposit hereunder.
3.2 Advance Deposit. Simultaneously with the execution of this Lease by Tenant,
Tenant shall deposit with Landlord the sum of $27,439.00 as a deposit of the
first month's Rent (the "Advance Deposit"), which shall be applied by Landlord
on behalf of the Tenant to the payment of the first month's Rent when due and
payable. Any good faith deposit made at the time Tenant executed and delivered
to Landlord any letter of intent or proposal to lease shall be applied toward
the amount of the Advance Deposit. The Advance Deposit, prior to its being
applied to the payment of monthly Rent, shall constitute security for the
payment and performance by Tenant of all of Tenant's obligations, covenants,
conditions and agreements under this Lease, but shall not be deemed liquidated
damages, but shall be applied in reduction of Tenant's total obligation(s) to
Landlord.
3.3 No Separate Account. Landlord shall not be obligated to hold the Security
Deposit (if converted to cash) or the Advance Deposit in a separate account from
other Building or Project funds.
3.4 Reduction of Security Deposit. Provided that no Default or Event of Default
then exists by or on behalf of Tenant hereunder, and further provided that there
then exists no condition or situation which, with the giving of notice or the
passage of time could constitute a default or Event of Default by or on behalf
of Tenant hereunder, commencing as of the fourth annual anniversary of the
Commencement Date and continuing (subject to the foregoing condition) on each
annual anniversary thereafter, Tenant shall have the right to reduce the
Security Deposit by an amount equal to twenty-five percent (25%) of the amount
of the original Security Deposit such that, provided the foregoing condition is
met, as of the expiration of the seventh (7th) Lease Year, the Security Deposit
shall be extinguished. In the event the Security Deposit is in the form of a
letter of credit, such reduction shall take place by replacement letter of
credit in form and substance consistent with Section 3.1 above, and Tenant
acknowledges and agrees that Landlord shall have no obligation to release the
then existing letter of credit to Tenant until an original replacement letter of
credit consistent with this Article 3 has been delivered to Landlord.
IV. USES; TENANT COVENANTS.
A. Permitted Uses. The Premises are to be used for general office,
network operation center and administration purposes and such other uses
incidental to such uses and
<PAGE> 11
consistent with the operation of a first class office building as may be
permitted by applicable law, provided such uses shall not include any retail,
industrial or manufacturing use.
B. Other General Use Covenants. Tenant shall not commit or allow to be
committed any waste upon the Premises, or any public or private nuisance.
Tenant, at its expense, shall comply with all laws relating to its use and
occupancy of the Premises and shall observe the Rules and Regulations attached
hereto as Exhibit D. No act shall be done in or about the Premises that is
unlawful, or which will increase the existing rate of insurance on the Building.
To the best of Landlord's knowledge, the proposed use will not increase the
existing rate of insurance on the Building. In the event of a breach of the
covenant set forth in the immediately preceding sentence regarding insurance
rates, Tenant shall cease the activity giving rise to such increase and, to the
extent any increased insurance premiums were in fact paid by Landlord as a
result of such activity, Tenant shall pay to Landlord any and all such increases
in insurance premiums resulting from such breach, provided that so long as
Tenant continues to pay such increases in premiums, and provided that the
activity giving rise to such increased premiums is an activity permitted under
Section 4.1, above, the continuation of such activity by Tenant shall not be
prohibited or constitute a breach of this Lease.
V. ENVIRONMENTAL PROVISIONS; RECYCLING.
A. General. Tenant agrees to comply (and to cause its agents,
employees, contractors and, while within the Premises, invitees to comply) with
any and all applicable Environmental Laws (as defined below) in connection with
(1) Tenant's use and occupancy of the Premises, (2) any use and occupancy of the
Premises arising in connection with any assignment of this Lease, or sublease or
license of the Premises or any part thereof, and (3) any other fact or
circumstance the existence of which legally imposes on Tenant the obligation to
so comply therewith. Tenant shall provide all information within Tenant's
control requested by Landlord and/or governmental authorities in connection with
Environmental Laws or Hazardous Materials (defined below) relating to the
matters contemplated in the preceding sentence.
B. Tenant's Warranties and Covenants
During the Term and any Renewal Term (as hereafter defined) of the Lease,
Tenant warrants, represents and covenants to and with Landlord as follows:
1. Tenant will not introduce, or permit or suffer the
introduction, within the Premises or the Project of (A) asbestos in any form,
(B) urea formaldehyde foam insulation, (C) transformers or other equipment which
contain dielectric fluid containing polychlorinated biphenyls, or (D) except as
permitted below, any flammable explosives, radioactive materials or other
substance constituting "hazardous materials" or "hazardous wastes" pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Sections 9601 et seq.), the Hazardous Materials
<PAGE> 12
Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections 9601 et seq.) and
the regulations adopted and promulgated pursuant thereto, the Federal Water
Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), and in the regulations adopted and publications
promulgated pursuant thereto, or successor legislation thereto, or any other
Federal, state or local environmental law, ordinance, rule, regulation and/or
other statute of a governmental or quasi-governmental authority relating to
pollution or protection of the environment (collectively, "Environmental Laws").
The substances described in (A), (B), (C) or (D) above are hereinafter
collectively referred to herein as "Hazardous Materials".
2. Except as expressly permitted hereby, the Premises will
never be used by Tenant for any activities involving, directly or indirectly,
the use, generation, treatment, transportation, storage or disposal of any
Hazardous Materials, or to refine, produce, store, handle, transfer, process or
transport Hazardous Materials.
3. Tenant (A) shall comply with the Environmental Laws and all
other applicable laws, rules and regulations or orders pertaining to health, the
environment or Hazardous Materials, in so far as such laws pertain to Tenant's
use and occupancy of the Premises or the need for such compliance arises due to
the acts or omissions of Tenant, its agents, employees, contractors, invitees
(while within the Premises), subtenants or assignees, (B) shall not, except as
specifically permitted hereby, store, utilize, generate, treat, transport or
dispose of (or permit or acquiesce in the storage, utilization, generation,
transportation, treatment or disposal of) any Hazardous Materials on or from the
Premises, (C) shall cause its agents, employees, licensees, contractors,
invitees (while within the Premises), subtenants and assignees to comply with
the representations, warranties and covenants herein contained and be
responsible for any non-compliance by any such party(ies), (D) agrees that no
portion of the Premises will be used by Tenant or any assignee or subtenant of
Tenant as a landfill or a dump, and (E) will not install any underground tanks
of any type.
4. In the event of any future storage, presence, utilization,
generation, transportation, treatment or disposal of Hazardous Materials in, on
or about the Premises, or in the event of any Hazardous Materials Release (as
hereinafter defined) which in either case is attributable, in whole or in part,
to the presence of Hazardous Materials existing in, on or about on the Project
subsequent to the Commencement Date and is caused, directly or indirectly, by
Tenant or Tenant's agents, employees, contractors, licensees, invitees (while
within the Premises), sub-tenants or assignees, or is otherwise Tenant's
responsibility under the terms of this Lease, Tenant shall, at the direction of
Landlord or any federal, state, or local authority or other governmental
authority, remove or cause the removal of any such Hazardous Materials and
rectify any such Hazardous Materials Release, and otherwise comply or cause
compliance with the laws, rules, regulations or orders of such authority, all at
the expense of Tenant, including without limitation, the undertaking and
completion of all investigations, studies, sampling and testing and all
remedial, removal and other actions necessary to clean up and remove all
Hazardous Materials, on, from or affecting the Premises. If, under such
circumstances, Tenant shall fail to proceed with such removal or
<PAGE> 13
otherwise comply with such laws, rules, regulations or orders within the cure
period permitted under the applicable regulation or order, the same shall
constitute a default under this Lease and, upon forty eight (48) hours notice
given by Landlord to Tenant, Landlord may, but shall not be obligated to, take
such action as may be reasonably necessary under the circumstance to eliminate
such Hazardous Materials from the Premises or otherwise comply with the
applicable law, rule, regulation or order, acting either in its own name or in
the name of Tenant pursuant to this Section, and the cost thereof shall be borne
by Tenant and thereupon become due and payable as Additional Rent hereunder;
provided, however, that Landlord shall not exercise its self-help rights
hereunder, nor exercise any right otherwise provided herein to terminate this
Lease or Tenant's right of possession due to Tenant's failure or inability to
correct such problem within a time certain as long as Tenant is at all times
using its best efforts its efforts to correct the problem (provided however,
that if Landlord determines, in its reasonable discretion, that there exists a
substantial risk of governmental enforcement action against Landlord, or
governmental or third party civil liability to Landlord, if Landlord fails to
take independent action immediately to remediate an environmental problem which
is otherwise Tenant's responsibility under this Section 5, then Landlord shall,
notwithstanding Tenant's continuing best efforts to correct the problem, be
entitled to take such independent action, and to recover the reasonable and
actual costs associated therewith from Tenant). Tenant shall give to Landlord
and its authorized agents and employees access to the Premises for such purposes
and hereby specifically grants to Landlord a license to remove the Hazardous
Materials and otherwise comply with such applicable laws, rules, regulations or
orders, acting either in its own name or in the name of the Tenant pursuant to
this Section.
5. Landlord represents, warrants and covenants that to the
best of its current actual knowledge, as of the date of execution hereof, the
Land is free from any Hazardous Materials and is not in violation of any
Environmental Laws. Tenant shall not be liable for the performance of any
remedial action required, fines, penalties or any other charges which may be
assessed relating to any Hazardous Materials in existence at or on the Premises
as of the Commencement Date.
6. Each of Tenant and Landlord hereby indemnifies and holds
the other and their respective shareholders, constituents, subsidiaries,
affiliates, officers, directors, partners, employees, agents and trustees
harmless from, against, for and in respect of, any and all damages, losses,
settlement payments, obligations, liabilities, claims, actions or causes of
actions, encumbrances, fines, penalties, and costs and expenses suffered,
sustained, incurred or required to be paid by any such indemnified party
(including, without limitation, reasonable fees and disbursements or attorneys,
engineers, laboratories, contractors and consultants) because of, or arising out
of or relating to a violation of any of the indemnifying party's
representations, warranties and covenants under this Section, including any
Environmental Liabilities (as hereinbelow defined) arising therefrom. For
purposes of this indemnification clause, "Environmental Liabilities" shall
include all costs and liabilities with respect to the presence, removal,
utilization, generation, storage, transportation, disposal or treatment of any
Hazardous Materials or any release, spill, leak, pumping, pouring, emitting,
emptying, discharge, injection, escaping, leaching, dumping or
<PAGE> 14
disposing into the environment (air, land or water) of any Hazardous Materials
(each a "Hazardous Materials Release"), including without limitation, cleanups,
remedial and response actions, remedial investigations and feasibility studies,
permits and licenses required by, or undertaken in order to comply with the
requirements of, any federal, state or local law, regulation, or agency or
court, any damages for injury to person, property or natural resources, claims
of governmental agencies or third parties for cleanup costs and costs of
removal, discharge, and satisfaction of all liens, encumbrances and restrictions
on the Premises relating to the foregoing. The foregoing notwithstanding, the
foregoing indemnifications shall not encompass consequential damages or damages
related to loss of business or business interruption which may arise on account
of the presence of any Hazardous Materials on or about the Project. The
foregoing indemnification and the responsibilities of Tenant and Landlord under
this Section shall survive the termination or expiration of this Lease.
7. Tenant shall promptly notify Landlord in writing of the
occurrence of any Hazardous Materials Release or any pending or threatened
regulatory actions, or any claims made by any governmental authority or third
party, relating to any Hazardous Materials or Hazardous Materials Release on or
from the Premises, and shall promptly furnish Landlord with copies of any
correspondence or legal pleadings or documents in connection therewith. Landlord
shall have the right, but shall not be obligated, to notify any governmental
authority of any state of facts which may come to its attention with respect to
any Hazardous Materials or Hazardous Materials Release on or from the Premises
following consultation with Tenant.
8. Tenant agrees that Landlord shall have the right (but not
the obligation) to conduct, or to have conducted by its agents or contractors,
such periodic environmental inspections of the Project as Landlord shall
reasonably deem necessary or advisable from time to time. Landlord shall provide
Tenant with no less than seventy-two (72) hours prior notice of any such
inspection within the interior of the Premises, except in case of an emergency,
in which case only such notice as may be practicable under the circumstance
shall be required. The cost of any such inspection shall be borne by Tenant in
the event such inspection determines that Tenant has breached the covenants set
forth in Section 5.2.3 above.
C. Permitted Materials. Notwithstanding the foregoing, Tenant and its
assignees, subtenants and licensees shall be permitted to store reasonable
amounts of Hazardous Materials that are typically used in an ordinary general
office use environment such as ordinary cleaners, printer and duplication
supplies and similar materials (the "Permitted Materials") provided such
Permitted Materials are properly used, stored and disposed of in a manner and
location meeting all Environmental Laws. Any such use, storage and disposal
shall be subject to all of the terms of this Section (except for the terms
prohibiting same), and Tenant shall be responsible for obtaining any required
permits and paying any fees and providing any testing required by any
governmental agency with respect to the Permitted Materials. If Landlord in its
reasonable opinion determines that any Permitted Materials are being improperly
stored, used or disposed of, then Tenant shall immediately take such
<PAGE> 15
corrective action as requested by Landlord. Should Tenant fail to take such
corrective action within three (3) business days of receipt of such notice (or
such shorter time as may be set forth in such notice in the event Landlord
determines that the same presents a possible threat to person or property within
the Building), Landlord shall have the right to perform such work on Tenant's
behalf and at Tenant's sole expense, and Tenant shall promptly reimburse
Landlord for any and all costs associated with said work.
D. Recycling Regulations. Landlord shall, as an Operating Cost
hereunder, provide receptacles and containers as necessary for Tenant to comply
with all orders, requirements and conditions now or hereafter imposed by any
ordinances, laws, orders and/or regulations (hereinafter collectively called
"regulations") of any governmental body having jurisdiction over the Premises or
the Building regarding the collection, sorting, separation and recycling of
waste products, garbage, refuse and trash (hereinafter collectively called
"waste products").
VI. LATE CHARGES; INTEREST
<PAGE> 16
A. Tenant hereby acknowledges that late payment to Landlord of Base
Rent or Additional Rent will cause Landlord to incur administrative costs and
loss of investment income not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. If any Base Rent or Additional
Rent due from Tenant is not received by Landlord or Landlord's designated agent
by that date which is seven (7) days after the date the same is due (or, in the
event that Tenant is late in payment more than two [2] times in any twelve [12]
month period, then thereafter in the event any such payment is not received by
Landlord by the date the same is due), then Tenant shall pay to Landlord a late
charge equal to five percent (5%) of such overdue amount. The parties hereby
agree that such late charges represent a fair and reasonable estimate of the
administrative cost that Landlord will incur by reason of Tenant's late payment.
Landlord's acceptance of such late charges shall not constitute a waiver of
Tenant's Default with respect to such overdue amount or otherwise estop Landlord
from exercising any of the other rights and remedies granted hereunder.
B. In addition to the administrative late charge provided for under
Section 6.1, above, if any Base Rent or Additional Rent or any other sum due
hereunder from Tenant to Landlord is not paid by that date which is seven (7)
days after the date the same is due (or, in the event that Tenant is late in
payment more than two [2] times in any twelve [12] month period, then thereafter
in the event any such payment is not received by Landlord by the date the same
is due), then the entire unpaid amount shall bear interest from the date
originally due until the date paid at an annual rate of interest equal to the
"prime rate" of interest as published in the Wall Street Journal (or, if not
published, as established by the then largest national banking association in
the United States of America) from time to time (the "Prime Rate") plus three
percent (3%) (the "Default Rate").
VII. REPAIRS AND MAINTENANCE.
7.1 Landlord's Obligations. Landlord shall be responsible for and shall
maintain, repair, replace and keep in good operating condition, comparable to
similar properties in the McLean, Virginia area, the Common Areas (as defined in
Section 39 below) (including, without limitation, the lobbies, elevators,
stairs, grounds, loading areas and corridors), the roofs, foundations, floors,
ceilings, walls, windows, load-bearing elements, conduits and structural walls
and other structural elements of the Building, the underground utility and sewer
pipes of the Building, all base building mechanical, electrical, plumbing, HVAC
system and the sprinkler system and other fire and life-safety systems, and the
adjacent parking structure and surface parking facility, the cost of which shall
be included within Operating Costs except to the extent set forth in Section
9.6, hereof; provided that, to the extent the need for any such repairs or
replacements arise as a the result of the negligence or willful misconduct of
Tenant (or Tenant's agents, employees, contractors, invitees (while within the
Premises), assignees or sub-tenants) and the same is not covered under the
policies of casualty insurance which are required to be carried by the parties
pursuant to this Lease (in which case the proceeds of such insurance will be
utilized to satisfy the cost thereof), the cost
<PAGE> 17
of such repairs or replacements shall be reimbursable by Tenant to Landlord as
Additional Rent under this Lease, and such reimbursement shall be due not later
than ten (10) business days after Landlord's written demand therefore.
7.2. Repair Standards. All repairs and maintenance required of Landlord pursuant
to this Section or elsewhere in this Lease shall be performed in accordance with
standards applicable to comparable office buildings in McLean, Virginia, and
performed in a timely and diligent fashion. Landlord agrees to diligently attend
to any routine repairs or maintenance needs brought to its attention by Tenant
as soon as reasonably practicable and in a manner calculated to minimize to the
extent possible disruption of Tenant's business activities.
7.3 Tenant's Obligations. Subject to Landlord's obligations as set forth in
Section 7.1 above and its right of access pursuant to Section 18, and except for
janitorial and cleaning services (to the extent provided for under Section 8.1,
below), Tenant shall be exclusively responsible for all repairs and maintenance
to the interior non-structural portions of the Premises. Tenant shall promptly
report in writing to Landlord any defective condition in the Premises known to
Tenant which Landlord is required to repair, and failure to so report such
defects shall excuse any delay by Landlord in commencing and completing such
repair to the extent the same would otherwise be Landlord's responsibility under
this Lease, provided that (i) Landlord shall not be so excused if Landlord had
actual knowledge of the need for such repair independent of Tenant's
notification, and (ii) once Landlord is notified or has actual knowledge of the
need for such repair, Landlord's repair obligation under Section 7.1, above,
shall be fully effective as to such item (and, to the extent any delay in
reporting such defects results in the otherwise avoidable need to perform a
capital repair or replacement which under Section 9.5 is excluded from Operating
Costs, in lieu of an ordinary repair which under Section 9.5 would be included
within Operating Costs, Tenant shall be responsible for the reasonable and
actual cost of such capital repair or replacement unless Tenant can demonstrate
that a capital repair or replacement to such item would in any event have been
necessary within twelve (12) months thereafter, even if the defective condition
had been reported to Landlord or known by Landlord in a timely fashion).
Landlord's obligation to make repairs shall be limited to the express
obligations stated herein.
VIII. UTILITIES AND SERVICES.
A. Services. Landlord shall furnish Tenant with the following services
and facilities, the cost of all of which shall be deemed Operating Costs
hereunder: (i) at least one elevator in the Building subject to call at all
times, including Sundays and holidays; (ii) zoned heating, ventilation and air
conditioning within the Premises at all times, within the temperature and
humidity ranges usually furnished in comparable office buildings in the McLean,
Virginia area (provided that such services in the Common Areas of the Building
shall only be provided during business hours, excluding holidays); (iii)
balancing of the HVAC system when necessary in an effort to provide reasonably
uniform air temperatures throughout the zones within the Premises; (iv) hot and
cold running water sufficient for needs attributable to a general office use;
(v) public lavatory facilities and supplies and janitorial and char services,
including trash removal and recycling, Monday through Friday, except
<PAGE> 18
holidays; (v) replacement of light bulbs (in fixed lighting fixtures only)
throughout the Premises; and (vi) access to the Project 24 hours a day, 365 days
a year, including holidays. For purposes hereof, "holidays" shall be: New Year's
Day, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas, and
business hours shall be 7:30 a.m. to 6:00 p.m. Monday through Friday, excluding
holidays, and 9:00 a.m. to 2:00 p.m. on Saturdays, excluding holidays. Landlord
shall provide perimeter security for the Premises limited to a Data Watch or
similar key-card system, 24 hours a day, 365 days a year. All key-cards for such
system shall be obtained by Tenant in accordance with Section 42 hereof.
8.2 Additional Services. If Tenant requires cleaning services, light bulb or
fixture replacement or other services on weekends or holidays, Landlord shall
make reasonable efforts to provide such additional service after reasonable
prior written request therefor from Tenant, and Tenant shall reimburse Landlord
for such additional service within ten (10) days of request therefore, at the
actual direct cost to Landlord. Additionally, the Premises shall be separately
metered for electrical consumption and therefor Tenant shall pay the cost of all
HVAC services for the Premises. Landlord shall provide such additional services
provided that Tenant shall pay 100% of the cost thereof as Additional Rent
hereunder.
8.3 Additional Provisions. Except as specifically and expressly set forth
hereinbelow, in no event shall Landlord be liable to Tenant for (a) any damage
to the Premises, or (b) any loss, damage or injury to any property therein or
thereon, or (c) any claims for the interruption of or loss to Tenant's business
or for any damages or consequential losses occasioned by bursting, rupture,
leakage or overflow of any plumbing or other pipes or other similar cause in,
above, upon or about the Premises or the Building, unless such loss, damage or
injury is the result of the gross negligence or willful misconduct of Landlord,
and is not covered by the insurance required to be carried by Tenant hereunder.
If any public utility or governmental body shall require Landlord or Tenant to
restrict the consumption of any utility or reduce any service to the Premises or
the Building, Landlord and Tenant shall comply with such requirements, without
any abatement or reduction of the Base Rent, Additional Rent or other sums
payable by Tenant hereunder.
8.4 Electrical Service. The Premises will be separately metered for electrical
service in accordance with the provisions of EXHIBIT C attached hereto. Tenant
shall be solely responsible for obtaining electrical service for the Premises
from the appropriate utility, and for the payment of all costs of electrical
service provided to the Premises directly to the service provider. Landlord
shall have no liability or obligation in respect of or as a result of Tenant's
failure to obtain or maintain electrical service to the Premises.
IX. INCREASES IN OPERATING COSTS.
<PAGE> 19
9.1 Defined. For each calendar year or portion thereof during the Term, Tenant
shall pay as additional rent to Landlord, without diminution, set-off or
deduction, Tenant's Share of an amount (hereinafter referred to as "Expense
Increases") equal to the difference between:
(A) "Tenant's Share" of "Operating Costs" (defined in Section 9.5, below)
for such calendar year; and
(B) "Tenant's Share" of "Operating Costs" for the "Operating Costs Base
Year" (defined below).
9.2 Base Year. For all purposes hereof, the Operating Costs Base Year shall be
the 1999 calendar year.
9.3 Estimated Payments. Commencing with the first day of the second Lease Year
of the Lease Term, Tenant shall make monthly installment payments toward
Tenant's Share of Expense Increases on an estimated basis, based on Landlord's
reasonable estimate of Expense Increases for such calendar year. Landlord shall
provide its estimate of such costs with as much advance notice as is reasonably
possible. Tenant shall pay Landlord, as additional rent, commencing on the first
day of the month immediately following the last day of the Operating Costs Base
Year, and on the first day of each month thereafter during the Term, one-twelfth
(1/12th) of Landlord's estimate of Tenant's Share of Expense Increases for the
then-current calendar year. If at any time or times during such calendar year,
it appears to Landlord that Tenant's Share of Expense Increases for such
calendar year will vary from Landlord's estimate by more than five percent (5%)
on an annualized basis, Landlord may, by written notice to Tenant, revise its
estimate for such calendar year and Tenant's estimated payments hereunder for
the balance of such calendar year shall thereupon be based on such revised
estimate.
9.4 Annual Reconciliation. Within one hundred twenty (120) days after the end of
each calendar year after the Operating Costs Base Year, Landlord shall provide
to Tenant a statement (the "Expense Statement") setting forth the total
Operating Costs for such calendar year and Tenant's Share of Expense Increases
for such year, calculated in accordance with Section 9.1, above. Within fifteen
(15) days after the delivery of such Expense Statement, Tenant shall pay to
Landlord any deficiency between the amount shown as Tenant's Share of Operating
Costs for such calendar year and the estimated payments made by Tenant toward
such amount in accordance with Section 9.3, above. In the case of excess
estimated payments, the excess shall be applied against estimated payments of
Operating Costs for the subsequent calendar year, unless the Lease shall have
expired, in which event Landlord shall refund such excess, without interest,
with the delivery of the Expense Statement.
9.5 Operating Costs. The term "Operating Costs" shall mean any and all expenses
incurred by Landlord in connection with the operation, management, maintenance
and repair of the Building and the Land, and all easements, rights and
appurtenances thereto, including, but not limited to: (a) the cost of the
personal property used in conjunction therewith; (b) costs to repair and
maintain the Building and/or roof; (c) all expenses paid or incurred by Landlord
for electricity for the Common Areas of the Building, including any surcharges
imposed, and for water, gas, sewers, oil and utility services for the Building
(except as charged directly to tenants); (d) the costs and expenses incurred in
connection with the provision of the utilities
<PAGE> 20
and services set forth in Section 8, above, including without limitation the
maintenance, repair and replacement of the Building systems furnishing such
utilities and/or services; (e) Building supplies and materials; (f) cleaning and
janitorial services in or about the Premises, the Building (including without
limitation common areas) and the Land; (g) window glass replacement, repair and
cleaning; (h) repair and maintenance of the grounds, including costs of
landscaping, gardening and planting, including service or management contracts
with independent contractors, including but not limited to security and energy
management services and costs; (i) costs to achieve compliance with any
governmental laws, rules, orders or regulations enacted after the date hereof;
(j) utility taxes; (k) compensation (including employment taxes, salaries,
wages, medical, surgical, and general welfare benefits (including health,
accident and group life insurance), pension payments, payroll taxes, and
worker's compensation insurance) for all persons who perform duties in
connection with the operation, management, maintenance and repair of the
Building (equitably pro-rated to the extent any such personnel is not employed
at the Building on a full time basis); (l) any capital expenditures incurred
either to reduce Operating Costs, to comply with any governmental law, order,
regulation or other requirement (e.g., a code-mandated life safety system)
enacted after the date hereof, or to replace existing equipment and machinery
necessary to the day to day operation of the Building, or which are capital
replacements (i.e., replacements of common area or common usage Building
components and systems in lieu of capital repairs otherwise required to be made
thereto, but excluding replacement of the Building roof, parking lot and/or
garage), provided that any capital expenditure which does not result in a
quantifiable reduction of Operating Costs shall be amortized over the useful
life thereof, not to exceed ten (10) years, and only the amortized annual
portion, together with interest at a rate of twelve percent (12%) per annum,
shall be recoverable by Landlord under this Section 9.5(l) in any one year; (m)
cost of premiums for casualty, liability, elevator, workman's compensation,
boiler and machinery, sprinkler leakage, rent loss, use and occupancy and other
insurance; (n) license, permit and inspection fees, excluding Tenant
Improvements; (o) management fees; (p) consulting fees in connection with the
provision of common area maintenance services; (q) costs of continuing education
and professional trade and association dues for Building management staff; (r)
vault space rentals and public space rentals, if any; (s) personal property
taxes; (t) concierge service, or other amenity furnished generally to office
tenants; (u) trash removal, including all costs incurred in connection with
waste product recycling pursuant to Section 5.5 (except to the extent any such
costs are charged directly to the tenants); (v) any local and state surcharges
or special charges; (w) uniforms and dry cleaning; (x) snow and ice removal or
prevention; (y) telephone, telegraph, postage, stationery supplies and other
materials and expenses required for the routine operation of the Building; (z)
costs associated with recycling of waste products; (aa) association assessments
or other assessments for project-wide common area services; and (bb) any other
expense or charge whether or not hereinbefore described which, in accordance
with generally accepted accounting and management practices, would be considered
a reasonable and necessary expense of maintaining, managing, operating or
repairing the Building and/or the Land.
9.6 Exclusions. Notwithstanding the foregoing, Operating Costs shall not include
any of the following: (1) capital expenditures, except those set forth in item
9.5 (l), above; (2) costs of any special services rendered to individual tenants
(including Tenant), for which a special, separate charge shall be made (and
shall be payable within ten (10) days of written demand); (3) painting,
redecorating or other work which Landlord performs for specific tenants, the
expenses of which are paid by such tenants; (4) Real Estate Taxes (as defined in
Section 10);
<PAGE> 21
(5) depreciation or amortization of costs required to be capitalized in
accordance with generally accepted accounting practices (except as set forth in
Section 9.5, above); (6) ground rent, if Landlord's interest in the land upon
which the Building is located derives solely from a ground lease; (7) interest
and amortization of funds borrowed by Landlord (except as specifically provided
above); (8) leasing commissions, and advertising, legal, space planning and
construction expenses incurred in procuring tenants for the Building; (9)
salaries, wages, or other compensation paid to officers or executives of
Landlord in their capacities as officers and executives; (10) and any other
expenses for which Landlord actually receives direct reimbursement from
insurance, condemnation awards, other tenants or any other source but excluding
general payments of Expense Increases pursuant to this Section 9 by Tenant and
other tenants of the Building.
9.7 Further Adjustment. In the event Landlord shall furnish any utility or
service which is included in the definition of Operating Costs to less than one
hundred percent (100%) of the rentable area of the Building because (i) the
average occupancy level of the Building for the Base Services Year and/or any
subsequent calendar year was not one hundred percent (100%) or more of full
occupancy, (ii) any such utility or service is not required by or provided to
one or more of the tenants or occupants of the Building, or (iii) any tenant or
occupant is itself obtaining or providing any such utility or services, then the
Operating Costs for such year (including, as set forth above, the Base Services
Year) shall be adjusted to include all additional costs, expenses and
disbursements that Landlord reasonably determines would have been incurred if
Landlord had provided all such utilities and services to all tenants and
occupants in the Building, and shall be allocated among the tenants by the
Landlord to reflect those costs which would have occurred had the Building been
one hundred percent (100%) occupied during the year in question and such
utilities and services provided to all tenants. The intent of this Section 9.7
is to ensure that the reimbursement of all Operating Costs is fair and equitably
allocated among the tenants receiving the utilities and services in question. In
the calculation of Operating Costs hereunder, no expense shall be charged more
than once, and in no event shall any such calculation result in payment by
Tenant of an amount greater than Tenant's Share of actual Expense Increases for
the applicable time period.
9.8 Multi-Project Operating Costs. The Building is a part of a larger project or
development and as such, Landlord shall have the right (but not the obligation)
to allocate to the Building an appropriate portion of those Operating Costs
which are incurred with respect to the project as a whole. By way of example,
landscaping costs for a multi-building project shall be allocated on a
proportionate basis between all tenantable buildings in the project.
X. INCREASES IN REAL ESTATE TAXES
10.1 Defined. For each calendar year or portion thereof during the Term, Tenant
shall pay as additional rent to Landlord, without diminution, set-off or
deduction, Tenant's share of an amount (hereinafter referred to as "Tax
Increases") equal to the difference between:
(A) "Tenant's Share" of "Real Estate Taxes" (defined in Section 10.5,
below) paid in such calendar year; and
(B) "Tenant's Share" of "Real Estate Taxes" paid in the "Real Estate Tax
Base Year" (defined below.)
<PAGE> 22
10.2 Base Year. For all purposes hereof, the Real Estate Tax Base Year shall be
the 1999 calendar year.
10.3 Estimated Payments. Commencing with the first day of the second Lease Year
of the Lease Term, Tenant shall make monthly installment payments toward
Tenant's Share of Tax Increases on an estimated basis, based on Landlord's
reasonable estimate of Tax Increases for such calendar year. Tenant shall pay
Landlord, as additional rent, commencing on the first day of the month
immediately following the last day of the Real Estate Tax Base Year, and on the
first day of each month thereafter during the Term, one-twelfth (1/12th) of
Landlord's estimate of Tenant's Share of Tax Increases for the then-current
calendar year. If at any time or times during such calendar year, it appears to
Landlord that Tenant's Share of Tax Increases for such calendar year will vary
from Landlord's estimate by more than five percent (5%) on an annualized basis,
Landlord may, by written notice to Tenant, revise its estimate for such calendar
year and Tenant's estimated payments hereunder for such calendar year shall
thereupon be based on such revised estimate.
10.4 Annual Reconciliation. Within one hundred twenty (120) days after the end
of each calendar year after the Real Estate Tax Base Year, Landlord shall
provide to Tenant a statement (the "Expense Statement") setting forth the total
Real Estate Taxes for such calendar year and Tenant's Share of Tax Increases for
the applicable year. Within fifteen (15) days after the delivery of such Expense
Statement, Tenant shall pay to Landlord any deficiency between the amount shown
as Tenant's Share of Tax Increases for such calendar year and the estimated
payments made by Tenant toward such amount in accordance with Section 10.3,
above. In the case of excess estimated payments, the excess shall be applied
against estimated payments of Real Estate Taxes for the subsequent calendar
year, unless the Lease shall have expired, in which event Landlord shall refund
such excess, without interest, with the delivery of the Expense Statement.
10.5 Real Estate Taxes. For purposes of this Lease, "Real Estate Taxes" shall
mean all taxes and assessments, general or special, ordinary or extraordinary,
foreseen or unforeseen, assessed, levied or imposed upon the Building or the
Land, or assessed, levied or imposed upon the fixtures, machinery, equipment or
systems in, upon or used in connection with the operation of the Building or the
Land under the current or any future taxation or assessment system or
modification of, supplement to, or substitute for such system. Real Estate Taxes
shall include all reasonable expenses (including, but not limited to, attorneys'
fees, disbursements and actual costs) incurred by Landlord in obtaining or
attempting to obtain a reduction of such taxes, rates or assessments, including
any legal fees and costs incurred in connection with contesting or appealing the
amounts or the imposition of any Real Estate Taxes. Landlord shall have the
right to pay any special assessment by installments, and in such event Real
Estate Taxes shall include such installments and interest paid on the unpaid
balance of the assessment. Real Estate Taxes shall not include income,
franchise, estate or sales tax imposed on Landlord as opposed to the Building or
Land.
XI. ADDITIONAL PROVISIONS; OPERATING COSTS AND REAL ESTATE
TAXES.
<PAGE> 23
A. Partial Year; End of Term. To the extent that a more accurate method
of allocating same cannot be implemented by Landlord, Tenant's Share of
Operating Costs and Real Estate Taxes for any partial calendar year shall be
determined by multiplying the amount of Tenant's Share thereof for the full
calendar year by a fraction, the numerator of which is the number of days during
such partial year falling within the Term and the denominator of which is 365.
If this Lease terminates on a day other than the last day of a calendar year,
the amount of any adjustment to Tenant's Share of Real Estate Taxes with respect
to the year in which such termination occurs shall be prorated on the basis
which the number of days from January 1 of such year to and including such
termination date bears to 365; and any amount payable by Landlord to Tenant or
Tenant to Landlord with respect to such adjustment shall be payable within
thirty (30) days after delivery by Landlord to Tenant of the applicable Expense
Statement and Tax Statement with respect to such year.
B. Other Taxes. In addition to Tenant's Share of Operating Costs and
Real Estate Taxes, Tenant shall pay, prior to delinquency, all personal property
taxes payable with respect to all property of Tenant located in the Premises or
the Building, and shall provide promptly, upon request of Landlord, written
proof of such payment.
C. Covenant Regarding Timely Payment of Operating Costs and Real Estate
Taxes. Landlord covenants to pay all Operating Costs and Real Estate Taxes
before the same become delinquent, subject to Tenant's obligation to make the
payments contemplated by Article 9 and Article 10, above, in a timely fashion.
Tenant shall not be responsible for reimbursement to Landlord of any interest
charge or penalty for late payment by Landlord of Operating Costs and/or Real
Estate Taxes, provided that payment of Tenant's pro rata share of such expense
has been timely made by Tenant to Landlord pursuant to the terms of this Lease.
11.4 Contesting Real Estate Taxes. Landlord will have the right to employ a tax
consulting firm to attempt to assure a fair tax burden on the Project, provided
Landlord will use reasonable efforts to minimize the cost of such service. The
reasonable cost of such service shall be included in the Real Estate Taxes
hereunder in the year same were incurred or paid, at Landlord's election.
Additionally, during any such period, Landlord shall have the right, in its
reasonable judgment, to contest any tax assessment, valuation or levy against
the Project, and to retain legal counsel and expert witnesses to assist in such
contest and otherwise to incur expenses in such contest, and any reasonable
fees, expenses and costs incurred by Landlord in contesting any assessments,
levies or tax rate applicable to the Project, whether or not such contest is
successful, shall be included in Real Estate Taxes as set forth above. In the
event Landlord is successful in obtaining a reduction in any Real Estate Taxes
due for periods of time within the Term, provided any such reduction or credit
is obtained during the Term, Tenant shall share in the benefit of such reduction
(net of all costs, expenses and fees incurred by Landlord in pursuing and
obtaining such reduction) by applying Tenant's pro rata share of such reduction
or credit (to the extent the amount thereof was paid to Landlord in a timely
fashion pursuant to the terms of this Lease) to Tenant's Share of Tax Increases
next coming due.
11.5 Arbitration. Disputes regarding Operating Costs, Real Estate Taxes, and any
audit thereof, shall be subject to arbitration in accordance with the provisions
of Section 49 hereof.
<PAGE> 24
XII. TENANT'S INSURANCE.
A. Coverage Requirements. Tenant shall during the Term of this Lease,
pro cure at its expense and keep in force the following insurance:
..............Commercial general liability insurance naming the Landlord and
Landlord's managing agent as additional insureds against any and
all claims for bodily injury and property damage occurring in or
about the Premises or any appurtenances thereto covering the
operation of the Tenant (its employees, agents, and invitees) and
any subtenants, licensees and concessionaires of the Tenant. Such
insurance shall be written on an "Occurrence Form" and shall
include, without limitation, blanket contractual liability
recognizing provisions of this Lease, broad form property damage,
coverage for independent contractors, personal injury liability
and coverage for hired auto and non-ownership auto liability. Such
insurance shall be primary and not contributing to any insurance
available to Landlord and Landlord's insurance shall be in excess
thereto. Such insurance shall have a limit of not less than One
Million Dollars ($1,000,000.00) per occurrence with a Two Million
Dollars ($2,000,000.00) general aggregate with an excess
(umbrella) liability insurance in the amount of Two Million
Dollars ($2,000,000.00) per occurrence and Two Million Dollars
($2,000,000.00) annually in the aggregate; provided, however that
no such limits shall be deemed limitation of the liability of
Tenant hereunder. If Tenant has other locations that it owns or
leases, the policy shall include an aggregate limit per location
endorsement. Such liability insurance shall be primary and not
contributing to any insurance available to Landlord and Landlord's
insurance shall be in excess thereto. In no event shall the limits
of such insurance be considered as limiting the liability of
Tenant under this Lease;
..............Personal property insurance insuring all equipment, trade
fixtures, inventory, fixtures and personal property located within
the Premises (excluding leasehold improvements, which shall be
insured by and remain the property of Landlord). Such insurance
shall be written on a replacement cost basis in an amount equal to
one hundred percent (100%) of the full replacement value of the
aggregate of the foregoing;
Workers' compensation and occupational disease insurance, employee
benefit insurance and any other insurance in the statutory amounts
required by the laws of the State where the operations are to be
performed with broad-form all-states endorsement. Employer's
liability insurance with a limit of One Million Dollars
($1,000,000.00) for each accident.
Business income insurance and loss of rental insurance in an
amount equal to at least to eighteen (18) months Rent.
B. Rating; Certificates; Cancellation. The policies required to be
maintained by Tenant shall be with companies rated A-X or better in the most
current issue of Best's Insurance Reports. Insurers shall be licensed to do
business in the Commonwealth of
<PAGE> 25
Virginia and domiciled in the USA. Any deductible amounts under any insurance
policies required hereunder shall be commercially reasonable. Certificates of
insurance and certified copies of the policies shall be delivered to Landlord
prior to the Commencement Date and annually thereafter at least thirty (30) days
prior to the expiration date of the old policy. Tenant shall have the right to
provide insurance coverage which it is obligated to carry pursuant to the terms
hereof in a blanket policy, provided such blanket policy expressly affords
coverage to the Premises and to Landlord as required by this Lease. Each policy
of insurance shall provide notification to Landlord and any mortgagee(s) of
Landlord at least thirty (30) days prior to any cancellation or modification to
reduce the insurance coverage.
C. Other. In the event Tenant does not purchase the insurance
required by this Lease or keep the same in full force and effect, and the same
is not corrected within one (1) business day following written notice thereof
from Landlord to Tenant, then Landlord may, but shall not be obligated to,
purchase the necessary insurance and pay the premium therefore. Tenant shall
repay to Landlord, as Additional Rent, any and all reasonable expenses
(including attorneys' fees) and damages which Landlord may sustain by reason of
the failure of Tenant to obtain and maintain insurance.
XIII. LANDLORD'S INSURANCE.
A. Coverage. At all times during the Lease Term, Landlord will
maintain, the cost of which shall be reimbursable as an Operating Cost
hereunder, (a) fire and extended coverage insurance covering the Project,
including all of Tenant's Work, in an amount equal to one hundred percent (100%)
of the replacement value thereof, and (b) public liability and property damage
insurance in such amounts as Landlord deems reasonable from time to time.
Landlord shall also have the right to obtain such other types and amounts of
insurance coverage on the Building (including loss of rental insurance) and
Landlord's liability in connection with the Building as are customary or
advisable for a comparable office project in the McLean, Virginia area, as
determined by Landlord in Landlord's reasonable judgment. Any dispute regarding
the appropriateness of such additional insurance coverage shall be subject to
arbitration pursuant to Section 49 of this Lease.
B. Rating; Certificates; Cancellation. The policies required to be
maintained by Landlord shall be with companies rated A-X or better in the most
current issue of Best's Insurance Reports. Insurers shall be licensed to do
business in the Commonwealth of Virginia and domiciled in the USA. Any
deductible amounts under any insurance policies required hereunder shall be
commercially reasonable, in Landlord's reasonable judgement. Landlord shall have
the right to provide insurance coverage which it is obligated to carry pursuant
to the terms hereof in a blanket policy, provided such blanket policy expressly
affords coverage to the Project and to Tenant as required by this Lease.
XIV. DAMAGE OR DESTRUCTION.
A. Damage Repair.
14.1.1 If the Building or Premises shall be destroyed or rendered
untenantable, either wholly or in part, by fire or other casualty, then Landlord
shall, within thirty (30) days after
<PAGE> 26
the date of such casualty, provide Tenant with Landlord's good faith written
estimate (the "Estimate") of how long it will take to repair or restore the
Premises.
14.1.2 If neither party elects to terminate this Lease in accordance with
the terms hereof following any casualty, then Landlord shall commence promptly
and diligently prosecute to completion the restoration of the Premises to their
previous condition, subject to Force Majeure as defined herein and delays caused
by Tenant; and pending substantial completion of such restoration, the Base Rent
and Additional Rent shall be abated in the same proportion as the untenantable
portion of the Premises bears to the whole thereof, and this Lease shall
continue in full force and effect.
14.1.3 If Landlord estimates within the Estimate that it will require in
excess of one hundred eighty three (183) days after the date Tenant's right of
termination hereunder expires to fully repair or restore the Premises in
accordance herewith, then, within thirty (30) days after Landlord delivers
Tenant the Estimate, Tenant and Landlord shall each have the right to terminate
this Lease by written notice to the other, which termination shall be effective
as of the date of such notice of termination, and all liabilities and
obligations of Landlord and Tenant thereafter accruing shall terminate and be of
no legal force and effect except as otherwise specifically set forth herein.
Notwithstanding the foregoing, Tenant shall not have the right to terminate this
Lease if the fire or other casualty was the result of Tenant's negligence or
willful misconduct.
14.1.4 If neither party elects to terminate the Lease and Landlord fails or
declines to exercise any other termination right pursuant to this Section 14,
Landlord will use all reasonable efforts to commence and complete its
restoration of the affected portions of the Premises promptly, and in the event
Landlord is unable to complete such restoration within one hundred eighty three
(183) days after the date Tenant's right of termination hereunder expires (or
such longer period as was referenced in the Estimate, if applicable), as such
period may be extended due to Force Majeure or due to any Tenant Delays (as such
term is defined in Exhibit C hereof, and not limited as to the number of days)
then within thirty (30) days after the expiration of such period (but in all
events prior to the date Landlord completes its restoration of the Premises),
Tenant shall again have the right to terminate this Lease upon thirty (30) days
prior written notice to Landlord; provided, however, that if Landlord
substantially completes such restoration (such that Tenant may lawfully re-enter
and occupy the Premises in accordance with the terms of this Lease) prior to the
end of the thirty (30) day notice period, Tenant's notice of termination shall
be deemed rescinded and ineffective for all purposes, and this Lease shall
continue in full force and effect. The provisions of this Section are in lieu of
any statutory termination provisions allowable in the event of casualty damage.
14.1.5 If at any time in the course of its restoration of damaged portions
of the Premises, Landlord believes in good faith that its original Estimate is
no longer accurate for reasons other than Force Majeure (in which event the
provisions of Section 14.1.4 shall control), Landlord shall have the right to
deliver a revised Estimate to Tenant of the additional time period which
Landlord believes will be required to fully repair or restore the Premises in
accordance herewith, and, unless Tenant terminates this Lease by written notice
to Landlord within ten (10) business days after its receipt of such revised
Estimate from Landlord, Tenant shall be deemed to have agreed that, for all
purposes of this Section 14.1, the 183 day time limit otherwise imposed upon
completion of Landlord's restoration of the damaged portions of the Premises
shall be extended by the number of additional days needed to complete
<PAGE> 27
estimated by Landlord within such revised Estimate. If Tenant elects to
terminate this Lease as to the damaged Building after receiving such a revised
Estimate from Landlord, as aforesaid, such termination shall be effective as of
the date of such notice of termination, and all liabilities and obligations of
Landlord and Tenant thereafter accruing hereunder with respect to such Building
shall terminate and be of no legal force and effect except as otherwise
specifically set forth herein.
B. Reconstruction. If all or any portion of the Premises is damaged by
fire or other casualty and this Lease is not terminated in accordance with the
provisions hereof, then all insurance proceeds under the policy referred to in
Section 13.1 hereof that are recovered by Landlord on account of any such damage
by fire or casualty shall be made available for the payment of the cost of
repair, replacing and rebuilding.
C. Business Interruption. Other than rental abatement as and to the
extent provided in Section 14.1, no damages, compensation or claim shall be
payable by Landlord for inconvenience or loss of business arising from
interruption of business, repair or restoration of the Building or Premises.
14.4 Repairs. Landlord's repair obligations, should it elect to repair, shall be
limited to the base Building, Common Areas and all interior improvements to and
property within the Premises which are covered or required to be covered
hereunder by Landlord's insurance. Landlord shall use reasonable efforts to
commence such repairs and restorations within a reasonable period after Landlord
elects to restore the Premises, and to complete such repairs within the time
frames referenced in Section 14.1, above. Tenant acknowledges that any such
repairs or restorations shall be subject to applicable laws and governmental
requirements, any disbursement requirements imposed by Landlord's mortgagee (if
any), and to delay in the process of adjusting any insurance claim associated
therewith; and delays resulting from any of the foregoing shall constitute a
"Force Majeure" hereunder, shall not in any event constitute a breach of this
Lease by Landlord, and shall extend the time for completing such restoration as
long as Landlord uses reasonable efforts to commence and complete such repairs
and restorations in a timely fashion.
14.5 End of Term Casualty. Anything herein to the contrary notwithstanding, if
more than thirty (30%) of the Premises is destroyed or damaged during the last
eighteen (18) months of the Lease Term, then either Landlord or Tenant shall
have the right to terminate this Lease (in whole if the damage extends to all of
the Premises or otherwise as to the affected portion of the Premises within the
Building) upon thirty (30) days prior written notice to the other, which
termination shall be effective on the thirtieth (30th) day after the other
party's receipt of such notice. Such notice must be delivered within thirty (30)
days after such casualty, or shall be deemed waived; provided, however, that
Tenant may revoke such termination notice, and require Landlord to restore the
Premises, by exercising any renewal option provided herein, if any.
XV. MACHINERY AND EQUIPMENT; ALTERATIONS AND ADDITIONS; REMOVAL OF
FIXTURES.
<PAGE> 28
A. Tenant shall not place a load upon the floor of the
Premises which exceeds the maximum live load per square foot which Landlord (or
Landlord's architect or engineer) reasonably determines is appropriate for the
Building without Landlord's prior written consent. Tenant will not install or
operate in the Premises any electrical or other equipment requiring any changes,
replacements or additions to any base building system, without Landlord's prior
written consent, which shall not be unreasonably withheld, conditioned or
delayed (and if such consent is granted Tenant shall be responsible for the
costs of such changes, replacements or additions).
B. Tenant shall not make or allow to be made any alterations,
additions or improvements to or on the Premises which affect any structural or
building system components of the Premises or which, under applicable codes,
rules and/or regulations require any building electrical, plumbing or other
permit, without Landlord's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. Tenant shall have the right to
make any other alterations, repairs, additions or improvements in or to the
Premises without Landlord's prior written consent provided (i) the same do not
diminish the value of the Premises, and (ii) Tenant provides Landlord with prior
written notice thereof; provided, however that no exterior modification shall be
made in any event without Landlord's prior written consent in all cases. Any
such alterations, additions or improvements, including, but not limited to, wall
covering, paneling and built-in cabinet work, shall be made at Tenant's sole
expense (and, with respect to structural alterations, according to plans and
specifications approved in writing by Landlord), in compliance with all
applicable laws, by a licensed contractor, and in a good and workmanlike manner
conforming in quality and design with the Premises existing as of the
Commencement Date, shall not diminish the value of the Building or the Premises
and shall at once become a part of the realty and shall be surrendered with the
Premises (except as provided in Section 15.3, below). Tenant shall have the
right to use its own vendors to perform alterations to the Premises, subject to
Landlord's approval, which approval shall not be unreasonably withheld, in cases
where the underlying alteration requires Landlord's consent hereunder.
C. Upon the expiration or sooner termination of the Lease
Term, Tenant shall, at Tenant's sole expense, with due diligence, remove any
alterations, additions, or improvements made by Tenant which are designated by
Landlord to be removed at the time its consent to the installation thereof is
granted, and repair any damage to the Premises caused by such removal. Tenant
shall remove any of its movable property, trade fixtures and roof devices.
Tenant shall pay Landlord any damages for injury to the Premises or Building
resulting from such removal. All items of Tenant's personal property that are
not removed from the Premises or the Building by Tenant at the termination of
this Lease shall be deemed abandoned and become the exclusive property of
Landlord, without further notice to or demand upon Tenant. If the Premises are
not surrendered as and when aforesaid, Tenant shall indemnify Landlord against
all claims, losses, costs, expenses (including reasonable attorneys' fees) and
liabilities resulting from the delay by Tenant in so surrendering the same,
including without limitation any claims made by any succeeding occupant founded
on such delay. Tenant's obligations under these Sections 15.2 and 15.3 shall
survive the expiration or termination of this Lease.
<PAGE> 29
XVI. ACCEPTANCE OF PREMISES.
Landlord shall tender, and Tenant shall accept possession of, the Premises in
accordance with the terms of Exhibit C attached hereto. All provisions regarding
delivery of possession of the Premises, construction of leasehold improvements
to the Premises and any adjustments which may be made with respect to the
Commencement Date (as defined in Section 1.4) are set forth in Exhibit C.
XVII. TENANT IMPROVEMENTS.
The provisions governing initial improvements to be performed by Landlord or
Tenant to the Premises are set forth in Exhibit C hereto.
XVIII. ACCESS.
18.1 Subject to the restrictions set forth below, Tenant shall permit Landlord
and its agents to enter the Premises at all reasonable times to inspect the
same; to show the Premises to prospective tenants, or interested parties such as
prospective lenders and purchasers; to exercise its rights under Section 48; to
clean, repair, alter or improve the Premises or the Building; to discharge
Tenant's obligations when Tenant has failed to do so within a reasonable time
after written notice from Landlord, subject to the express terms of this Lease;
to post notices of non-responsibility and similar notices and "For Sale" signs
and to place "For Lease" signs upon or adjacent to the Building or the Premises.
Tenant shall permit Landlord and its agents to enter the Premises at any time in
the event of an emergency. When reasonably necessary, Landlord may temporarily
close entrances, doors, corridors, elevators or other facilities without
liability to Tenant by reason of such closure. In exercising the foregoing
rights, Landlord shall use reasonable efforts to minimize any disruption to
Tenant's business. Landlord shall coordinate any entry, pursuant to the
foregoing, into the Premises with Tenant's facilities supervisor at least 24
hours in advance (except in cases of emergency involving fire or other casualty,
or other risk of injury or death to persons), and Landlord acknowledges that
Tenant may require Landlord and its agents to be accompanied by a representative
of Tenant for security purposes upon Landlord's entry to certain limited
portions of the Premises (other than in cases of emergency involving fire or
other casualty, or other risk of injury or death to persons) for legitimate,
documented security purposes. Tenant shall supply Landlord with telephone
numbers for Tenant's facilities supervisor so that Landlord will be able to
comply with established security procedures to the extent feasible under the
circumstances in the event Landlord requires immediate access to the Premises to
cure any emergency situation.
18.2 Landlord shall be excused from such of its obligations under this Lease as
are directly and materially impacted by the inability of Landlord to access the
Premises or any applicable part thereof due to Tenant's security restrictions,
if and to the extent the performance of such obligations was in fact hindered,
frustrated, or rendered impossible or impracticable due to the effect of such
restrictions on access.
XIX. MUTUAL WAIVER OF SUBROGATION.
<PAGE> 30
19.1 Tenant. Notwithstanding anything to the contrary in this Lease, whether the
loss or damage is due to the negligence of Landlord or Landlord's agents or
employees, or any other cause, Tenant hereby releases Landlord and Landlord's
agents and employees from responsibility for and waives its entire claim of
recovery for (i) any and all loss or damage to the personal property of Tenant
located in the Project, arising out of any of the perils which are covered by
Tenant's property insurance policy, with extended coverage endorsements which
Tenant is required to obtain under the applicable provisions of this Lease,
whether or not actually obtained, or (ii) loss resulting from business
interruption at the Premises, arising out of any of the perils which are or are
required to be covered by the business interruption insurance policy required to
be carried by Tenant under this Lease.
19.2 Landlord. Notwithstanding anything to the contrary in this Lease, whether
the loss or damage is due to the negligence of Tenant or Tenant's agents or
employees, or any other cause, Landlord hereby releases Tenant and Tenant's
agents and employees from responsibility for and waives its entire claim of
recovery for any and all loss or damage to the Building or any personal property
of Landlord located about the Project and the Building generally and all
property attached thereto (excluding any such property required to be insured by
Tenant hereunder), arising out of any of the perils which are covered by
Landlord's property insurance policy which Landlord is required to obtain under
the applicable provisions of this Lease, whether or not actually obtained.
19.3 Carriers. Landlord and Tenant shall each cause its respective insurance
carrier(s) to consent to such waiver of all rights of subrogation against the
other, and to issue an endorsement to all policies of insurance obtained by such
party confirming that the foregoing release and waiver will not invalidate such
policies.
XX. INDEMNIFICATION.
20.1 Subject to the provisions of Section 19 hereof and other provisions of this
Lease, Tenant shall indemnify and hold harmless Landlord, its agents, employees,
officers, directors, partners and shareholders from and against any and all
third party claims, liabilities, judgments, demands, causes of action, claims,
losses, damages, costs and expenses, including reasonable attorneys' fees and
costs, arising out of such third party claims, to the extent arising out of (i)
the use and occupancy of the Premises by Tenant, its officers, contractors,
licensees, agents, servants, employees, guests, invitees, visitors, assignees or
subtenants; (ii) the negligence or willful misconduct of Tenant, its officers,
contractors, licensees, agents, servants, employees, guests, invitees, visitors,
assignees or subtenants, in or about the Project; and/or (iii) any breach or
Default by Tenant under this Lease; provided that this indemnity shall not apply
to any loss, damage, liability or expense resulting from injuries to third
parties caused by the negligence or willful misconduct of Landlord, or its
officers, contractors, licensees, agents, employees or invitees (while within
the Premises).
20.2 The indemnifications set forth in this Section 20 shall survive termination
of this Lease.
XXI. ASSIGNMENT AND SUBLETTING.
<PAGE> 31
A. Consent Required. Except as specifically set forth herein to the
contrary, Tenant shall not assign, encumber, mortgage, pledge, license,
hypothecate or otherwise transfer the Premises or this Lease, or sublease all or
any part of the Premises, or permit the use or occupancy of the Premises by any
party other than Tenant, without the prior written consent of Landlord, in its
sole and absolute discretion.
B. Procedure. Tenant must request Landlord's consent to such assignment
or sublease in writing at least fifteen (15) business days prior to the
commencement date of the proposed sublease or assignment, which written request
must include (a) the name and address of the proposed assignee or subtenant, (b)
the nature and character of the business of the proposed assignee or subtenant,
(c) financial information (including financial statements) of the proposed
assignee or subtenant, and (d) a copy of the proposed sublet or assignment
agreement. Tenant shall also provide any additional information Landlord
reasonably requests regarding such proposed assignment or subletting. Within ten
(10) days after Landlord receives Tenant's request (with all required
information included), Landlord shall, by written notice to Tenant, elect
either: (i) to grant its consent to such proposed assignment or subletting, or
(ii) to deny its consent to such proposed assignment or subletting, setting
forth with specificity the reason for such denial. If Landlord does not exercise
either of the above options within ten (10) business days after Landlord
receives Tenant's request, then Tenant may assign or sublease the Premises upon
the terms stated in Tenant's request.
C. Conditions. Any subleases and/or assignments hereunder are also
subject to all of the following terms and conditions:
1. If Landlord approves an assignment or sublease as herein
provided (other than an assignment or sublease pursuant to Section 21.4 hereof),
Tenant shall pay to Landlord, as Additional Rent due under this Lease (which
amounts shall be due immediately upon receipt by Tenant), fifty percent (50%) of
the "Net Profits" (as defined below) generated from such transaction during each
Lease Year. For purposes hereof, the term "Net Profits" means: (i) with respect
to assignment, the amount paid by the assignee to acquire Tenant's rights under
the Lease, less (1) the portion of such sum fairly attributable to the
acquisition of Tenant's leasehold improvements or personal property which were
funded solely by Tenant, and (2) all reasonable and actual out-of-pocket
expenses incurred and paid by Tenant in procuring such assignment, including,
without limitation, brokerage fees, advertising costs, legal fees, allowances,
the cost of leasehold improvements and other concessions; and (ii) with respect
to a sublease, the amount, if any, by which the rent, any additional rent and
any other sums payable by the subtenant to Tenant under such sublease exceeds
the sum of (x) that portion of the Base Rent plus Additional Rent payable by
Tenant hereunder which is allocable to the portion of the Premises which is the
subject of such sublease, (y) all reasonable and actual out-of-pocket expenses
incurred by Tenant in procuring such sublease, including, without limitation,
brokerage fees, advertising costs, legal fees, allowances, the cost of leasehold
improvements and other concessions, and (z) the amortized costs of any leasehold
improvements or personal property provided as a part of such transaction and
existing prior to the commencement of the sublease term to the extent funded
solely by Tenant. The foregoing payments shall be made to Landlord by Tenant
immediately upon receipt of such sums by Tenant.
<PAGE> 32
2. No consent to any assignment or sublease shall constitute a
further waiver of the provisions of this Section, and all subsequent assignments
or subleases may be made only with the prior written consent of Landlord. In no
event shall any consent by Landlord be construed to permit reassignment or
resubletting by a permitted assignee or sublessee.
3. Tenant shall remain liable for all Lease obligations, all
of which shall be unaffected by any such sublease or assignment, and which Lease
obligations shall remain in full force and effect for all purposes. An assignee
of Tenant, at the option of Landlord, shall become directly liable to Landlord
for all obligations of Tenant hereunder, but no sublease or assignment by Tenant
shall relieve Tenant of any liability hereunder.
4. Any assignment or sublease without Landlord's prior written
consent shall be void, and shall, at the option of the Landlord, constitute a
Default under this Lease.
5. The term of any such assignment or sublease shall not
extend beyond the Lease Term. In no event will any assignee or subtenant (other
than pursuant to a transfer of the Lease within the scope of Section 21.4,
below) have the right to renew or extend the term of this Lease pursuant to
Section 51, below, which right shall be deemed personal to Tenant.
21.3.6 Without limitation, it shall not be unreasonable for Landlord to
deny its consent to any proposed assignment or sublease if the proposed assignee
or subtenant fails to satisfy any one or more of the following criteria: (1) if
the proposed assignee or sublessee has a net worth such that Landlord determines
in its reasonable judgment that the proposed assignee or subtenant may be unable
to meet its financial and other obligations under this Lease after such
assignment or sublease; (2) if the proposed assignee or subtenant proposes to
use the Premises for a purpose which is not a permitted use hereunder; (3) if
the proposed assignee or subtenant has a history of landlord/tenant or
debtor/creditor problems (such as, but not limited to, defaults, evictions, or
other disputes) with Landlord, other landlords or other creditors; or (4)
Landlord determines, in its reasonable judgment, that the proposed
assignment/sublease documentation is not acceptable, and the proposed assignee
or subtenant has failed to cure same after reasonable notice by Landlord (not to
exceed ten [10] days in any event).
A. Affiliated Entity; Sale of Business; Co-Location Agreements.
Notwithstanding anything to the contrary in this Lease, so long as such transfer
is not effectuated as part of a transaction or series of transfers orchestrated
in order to effect a transfer of this Lease (or Tenant's interest herein) in
isolation to Tenant's other leasehold interests and assets, Landlord's written
consent shall not be required for any sublease, assignment or other transfer of
this Lease to any other entity which (i) controls or is controlled by Tenant, or
(ii) is controlled by Tenant's parent company, or (iii) which purchases all or
substantially all of the assets of Tenant, or (iv) which purchases all or
substantially all of the ownership interests or stock of Tenant, provided,
however, that in each such event Tenant shall continue to remain fully liable
under the Lease, on a joint and several basis with the assignee or acquiror of
such assets or stock. Tenant shall be required to give Landlord at least thirty
(30) days written notice in advance of any such sublease or
<PAGE> 33
assignment, except with respect to transfers by operation of law occasioned
through a sale of publicly traded shares in Tenant. Further and in addition to
the foregoing, notwithstanding anything to the contrary in this Lease, Tenant
shall not be prohibited by this Section 21 from entering into agreements with
Tenant's customers, in the ordinary course of Tenant's business, pursuant to
which Tenant permits such customers to locate equipment within the Premises;
provided however that in any such event no such customers shall be deemed to be
in privity with Landlord hereunder, nor shall any such parties be considered
third party beneficiaries of any of the rights of Tenant hereunder.
XXII. ADVERTISING.
Tenant shall not display any sign, graphics, notice, picture, or poster, or any
advertising matter whatsoever, anywhere in or about the Premises or the Building
at places visible from anywhere outside or at the entrance to the Premises
without first obtaining Landlord's written consent thereto, which Landlord may
grant or withhold in its sole discretion; provided, however that Landlord's
consent to a proposal by Tenant to install logo signage in the reception area of
the Premises shall not be unreasonably withheld, conditioned or delayed. Tenant
shall be responsible to maintain any permitted signs and remove the same at
Lease termination. If Tenant shall fail to do so, Landlord may do so at Tenant's
cost. Tenant shall be responsible to Landlord for any damage caused by the
installation, use, maintenance or removal of any such signs.
XXIII. LIENS.
Tenant shall keep the Premises and the Building free from any liens arising out
of any work performed, materials ordered or obligations incurred by or on behalf
of Tenant, and Tenant hereby agrees to indemnify and hold Landlord, its agents,
employees, independent contractors, officers, directors, partners, and
shareholders harmless from any liability, cost or expense (including attorneys'
fees and defense costs) for or arising from such liens. Tenant shall cause any
such lien imposed to be released of record by payment or posting of the proper
bond acceptable to Landlord within twenty (20) days after written request by
Landlord. Tenant shall give Landlord written notice of Tenant's intention to
perform work on the Premises which might result in any claim of lien at least
ten (10) days prior to the commencement of such work to enable Landlord to post
and record a Notice of Nonresponsibility or other notice deemed proper before
commencement of any such work. If Tenant fails to remove any lien within the
prescribed twenty (20) day period, then Landlord may do so at Tenant's expense
and Tenant's reimbursement to Landlord for such amount, including reasonable
attorneys' fees and costs, shall be deemed Additional Rent hereunder.
XXIV. DEFAULT.
A. Tenant's Default. A "Default" under this Lease by Tenant shall exist
if any of the following occurs (taking into account the expiration of the notice
and cure periods provided for below):
1. If Tenant fails to pay Base Rent, Additional Rent or any
other sum required to be paid hereunder within five (5) days after written
notice from Landlord that such payment was due, but was not paid as of the due
date (provided, however, if Landlord
<PAGE> 34
has delivered two (2) such notices to Tenant within the prior twelve (12) month
period, any subsequent failure to pay Base Rent, Additional Rent or any other
sum required to be paid to Landlord hereunder on or before the due date for such
payment occurring shall constitute a Default by Tenant without requirement of
such five (5) day notice and opportunity to cure; but in the event a full year
elapses between such failures then Tenant shall again have the right to such
cure period); or
2. If Tenant fails to perform any term, covenant or condition
of this Lease except those requiring the payment of money to Landlord as set
forth in Section 24.1.1 above, and Tenant fails to cure such breach within
thirty (30) days after written notice from Landlord where such breach could
reasonably be cured within such thirty (30) day period; provided, however, that
where such failure could not reasonably be cured within the thirty (30) day
period, that Tenant shall not be in Default if it commences such performance
promptly after its receipt of Landlord's written notice and diligently
thereafter prosecutes the same to completion; provided that no such grace period
to be permitted in the event of any one or more of the following: (i) the
Default relates to the maintenance of insurance obligations, (ii) the Default
relates to the assignment and subletting provisions, (iii) the Default relates
to a violation of Section 5.2 of this Lease, (iv) the Default is of a nature as
set forth in Section 24.1.3, in which event the periods set forth therein shall
control, or Section 24.1.4, in which event there shall be no applicable cure
period, or (v) there exists a reasonable possibility of danger to the health or
safety of the Landlord, the Tenant, Tenant's invitees, or any other occupants
of, or visitors to, the Building; or
3. If Tenant shall (i) make an assignment for the benefit of
creditors, (ii) acquiesce in a petition in any court in any bankruptcy,
reorganization, composition, extension or insolvency proceedings, (iii) seek,
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant and of all or substantially all of Tenant's property, (iv)
file a petition seeking an order for relief for the benefit of Tenant under the
Bankruptcy Code, as now or hereafter amended or supplemented, or by filing any
petition under any other present or future federal, state or other statute or
law for the same or similar relief, or (v) fail to win the dismissal,
discontinuation or vacating of any involuntary bankruptcy proceeding filed
against Tenant within sixty (60) days after such proceeding is initiated; or
24.1.4 If Tenant shall have abandoned or vacated the Premises or any
material (i.e., in excess of 30%) portion thereof.
A. Remedies. Upon a Default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
available in equity or otherwise provided in this Lease, any one or more of
which Landlord may resort to cumulatively, consecutively, or in the alternative:
1. Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect Base
Rent, Additional Rent and other charges when due.
<PAGE> 35
2. Landlord may terminate this Lease, or may terminate
Tenant's right to possession of the Premises, at any time by giving written
notice to that effect, in which event Landlord covenants to use commercially
reasonable efforts to relet the Premises or any part thereof and mitigate its
damages, as more fully set forth herein. Upon the giving of a notice of the
termination of this Lease, this Lease (and all of Tenant's rights hereunder)
shall immediately terminate, provided that, without limitation, Tenant's
obligation to pay Base Rent, Additional Rent, and any damages otherwise payable
under this Section 24, shall survive such termination and shall not be
extinguished thereby. Upon the giving of a notice of the termination of Tenant's
right of possession, all of Tenant's rights in and to possession of the Premises
shall terminate but this Lease shall continue subject to the effect of this
Section 24. Upon either such termination, Tenant shall surrender and vacate the
Premises in the condition required by Section 26, and Landlord may re-enter
(provided it can do so without breach of peace) and take possession of the
Premises and all the remaining improvements or property and eject Tenant or any
of the Tenant's subtenants, assignees or other person or persons claiming any
right under or through Tenant or eject some and not others or eject none. This
Lease may also be terminated by a judgment specifically providing for
termination. Any termination under this Section shall not release Tenant from
the payment of any sum then due Landlord or from any claim for damages or Base
Rent, Additional Rent or other sum previously accrued or thereafter accruing
against Tenant, all of which shall expressly survive such termination. Reletting
may be for a period shorter or longer than the remaining Lease Term. No act by
Landlord other than giving written notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a constructive or other termination of Tenant's right
to possession or of this Lease, either of which may be effected solely by an
express written notice from Landlord to Tenant. On termination, Landlord shall
have the right to remove all Tenant's personal property and store same at
Tenant's cost, and to recover from Tenant as damages:
a) The worth at the time of award of unpaid Base Rent,
Additional Rent and other sums due and payable which had been earned at the time
of termination; plus
b) The worth at the time of award of the amount by which the
unpaid Base Rent, Additional Rent and other sums due and payable which would
have been payable after termination for the balance of the Lease Term exceeds
the fair rental value of the Premises for the balance of the Term; plus
c) Any other amount necessary to compensate Landlord for all
of the out-of-pocket costs incurred on account of Tenant's failure to perform
Tenant's obligations under this Lease, including, without limitation, any costs
or expenses reasonably incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or a portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to relet the
Premises. To the extent any of such costs are incurred in connection with a
lease transaction having a term in excess of the remaining Term hereof, all of
the foregoing costs incurred in connection therewith shall be amortized on a
straight-line basis over the term of such new lease, assuming equal monthly
installments of principal and interest, at an interest rate of twelve
<PAGE> 36
percent (12%), and Tenant's liability shall be limited to the amortized portion
of the same (i.e., the monthly payments as so determined) falling within the
Term hereof.
d) The "worth at the time of award" of the amounts referred to
in Section 24.2.2.1 is computed by allowing interest at the Default Rate through
the date of payment. The "worth at the time of award" of the amounts referred to
in Section 24.2.2.2 shall be computed by discounting the same to present value
using the Discount Rate. In lieu of the amounts recoverable by Landlord pursuant
to Section 24.2.2.2, above, but in addition to the amounts specified in Section
24.2.2.1 and 24.2.2.3 (or any other portion of this Section 24), Landlord may,
at its sole election, recover "Indemnity Payments," as defined hereinbelow, from
Tenant. For purposes of this Lease "Indemnity Payments" means an amount equal to
the Base Rent, Additional Rent and other payments provided for in this Lease
which would have become due and owing hereunder from time to time during the
unexpired Lease Term after the effective date of the termination, but for such
termination, less the Base Rent, Additional Rent and other payments, if any,
actually collected from Tenant or others, by Landlord and allocable to the
Premises. If Landlord elects to pursue Indemnity Payments as set forth above,
Tenant shall, on demand, make Indemnity Payments monthly, and Landlord may sue
for all Indemnity Payments at any time after they accrue, either monthly, or at
less frequent intervals. Tenant further agrees that Landlord may bring suit for
Indemnity Payments and/or any other damages recoverable herein at or after the
end of the Lease Term as originally contemplated under this Lease, and Tenant
agrees that, in such event, Landlord's cause of action to recover the Indemnity
Payments shall be deemed to have accrued on the last day of the Lease Term as
originally contemplated. In seeking any new tenant for the Premises, Landlord
shall be entitled to grant any reasonable concessions. In no event shall Tenant
be entitled to any excess of any rental obtained by reletting over and above the
rental herein reserved. To the fullest extent permitted by law, Tenant waives
redemption or relief from forfeiture under any other present or future law, in
the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any Default of Tenant hereunder.
3. Landlord may, with or without terminating this Lease,
re-enter the Premises pursuant to judicial process (except in the event of
Tenant's abandonment of the Premises in which event no judicial process shall be
required) and remove all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant. No re-entry or taking possession of the Premises by
Landlord pursuant to this Section shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to Tenant, or
possession of the Premises is assumed by a new tenant, in which event Tenant's
liability is mitigated by the amount of rent actually received by Landlord from
such other tenant, less the actual costs incurred by Landlord in obtaining such
new tenant; including, but not limited to market based brokerage fees, legal
fees, tenant improvement costs, lease concessions and any other cost.
4. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does hereby
specifically waive and surrender any and all rights and privileges, so far as is
permitted by law, which Tenant and all such persons might otherwise have under
any present or future law (1) except as may be otherwise specifically required
herein, to the service of any notice to quit or of Landlord's intention to
<PAGE> 37
re-enter or to institute legal proceedings, which notice may otherwise be
required to be given, (2) to redeem the Premises, (3) to re-enter or repossess
the Premises, (4) to restore the operation of this Lease, with respect to any
dispossession of Tenant by judgment or warrant of any court or judge, or any
re-entry by Landlord, or any expiration or termination of this Lease, whether
such dispossession, re-entry, expiration or termination shall be by operation of
law or pursuant to the provisions of this Lease, (5) to the benefit of any law
which exempts property from liability for debt or for distress for rent or (6)
to a trial by jury in any claim, action proceeding or counter-claim arising out
of or in any way connected with this Lease.
24.2.5 In the event of termination of this Lease or repossession of the
Premises after a Default, Landlord agrees to use commercially reasonable efforts
to mitigate its damages and relet the Premises after any termination of this
Lease or Tenant's right to possession of the Premises hereunder, provided that
(i) (if applicable) Landlord shall not be obligated to show preference for
reletting the Premises over any other vacant space in the Project, (ii) Landlord
shall have the right (but not the obligation) to divide the Premises, or to
consolidate portions of the Premises with other spaces, in order to facilitate
such reletting, as Landlord deems appropriate, (iii) Landlord shall not have any
obligation to use efforts other than commercially reasonable efforts under the
circumstances to collect rental after any such reletting, and (iv) Landlord may
relet the whole or any portion of the Premises for any period, to any tenant,
and for any use and purpose, upon such terms as it deems appropriate, and may
grant any rental or other lease concessions as it deems advisable, including
free rent. In any dispute regarding whether Landlord has met its obligation to
use commercially reasonable efforts to mitigate its damages hereunder, Tenant
shall have the burden of proving, by clear and convincing evidence, that
Landlord has failed to do so. In no event shall Tenant be entitled to any excess
of any rental obtained under this Section 24.2.5 by reletting over and above the
Base Rent and Additional Rent herein reserved.
XXV. SUBORDINATION.
25.1 Subordination. This Lease shall at all times be and remain subject and
subordinate to the lien of any mortgage, deed of trust, ground lease or
underlying lease now or hereafter in force against the Premises, and to all
advances made or hereafter to be made upon the security thereof. Tenant shall
execute and return to Landlord any customary documentation requested by Landlord
in order to confirm the foregoing subordination within ten (10) days after
Landlord's written request. In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale under any
mortgage or deed of trust made by the Landlord covering the Premises, Tenant
shall attorn to the purchaser at any such foreclosure, or to the grantee of a
deed in lieu of foreclosure, and recognize such purchaser or grantee as the
Landlord under this Lease. Tenant agrees that no mortgagee or successor to such
mortgagee shall be (i) bound by any payment of Base Rent or Additional Rent for
more than one (1) month in advance, (ii) bound by any amendment or modification
of this Lease made without the consent of Landlord's mortgagee or such successor
in interest, (iii) liable for damages for any breach, act or omission of any
prior landlord, or (iv) subject to any claim of offset or defenses that Tenant
may have against any prior landlord; provided that such mortgagee or successor
shall not be relieved of the obligation to comply with all of the Landlord's
obligations under the Lease accruing from and after the date such mortgagee or
successor takes title to the Project, irrespective of whether the original
non-compliance with any such obligation arose prior to and is continuing as of
such date, or arose on or after
<PAGE> 38
such date (provided however that if such obligation arose prior to the date such
mortgagee or successor took title to the Project, such mortgagee or successor
shall not be deemed in default until after the provision of any notice of
default required by this Lease to such mortgagee or successor, and its failure
to cure same within the cure period provided for herein).
25.2 Non-Disturbance Agreement. Landlord agrees to use good faith efforts to
obtain a Subordination, Non-Disturbance and Attornment Agreement from any
present (if any) or future mortgagee for the Building in a form to be negotiated
between Landlord, Tenant and the applicable mortgagee or deed of trust holder,
using such mortgagee's standard form, and approval of which by Tenant and
Landlord shall not be unreasonably withheld, conditioned or delayed (as
reasonably approved by Landlord, Tenant and such Mortgagee, an "SNDA"),
providing, inter alia, (i) for the subordination of this Lease to such mortgage,
(ii) for the attornment of Tenant to Landlord's successor in title, and (iii)
that, as long as Tenant is not in default hereunder beyond any applicable notice
and cure period, Tenant's right of possession and other leasehold rights shall
not be disturbed in the event of a foreclosure of such mortgage. Upon obtaining
such SNDA from such mortgagee, Tenant agrees to promptly execute and deliver
such SNDA to Landlord. Notwithstanding the foregoing, Landlord's ability to
obtain an SNDA shall not be a condition hereof, and the failure of Landlord to
obtain an SNDA shall not be deemed a default by Landlord hereunder or entitle
Tenant to exercise any remedial action.
XXVI. SURRENDER OF POSSESSION.
Upon expiration of the Lease Term, Tenant shall promptly and peacefully
surrender the Premises to Landlord in as good condition as when received by
Tenant from Landlord or as thereafter improved, reasonable use and wear and tear
and damage by fire, casualty and condemnation excepted. If the Premises are not
surrendered in accordance with the terms of this Lease, Tenant shall indemnify
Landlord and its agents, employees, independent contractors, officers,
directors, partners, and shareholders against any loss or liability including
reasonable attorneys' fees and costs, and including liability to succeeding
tenants, resulting from delay by Tenant in so surrendering the Premises. This
indemnification shall survive termination of this Lease.
XXVII. NON-WAIVER.
Waiver by Landlord of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant, or
condition(s), or any subsequent breach of the same or any other term, covenant
or condition of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Base Rent.
XXVIII. HOLDOVER.
If Tenant shall, without the written consent of Landlord, hold over after the
expiration of the Lease Term, Tenant shall be deemed a tenant at sufferance,
which tenancy may be terminated as provided by applicable state law. During any
holdover tenancy (whether or not consented to by Landlord), unless Landlord has
otherwise agreed in writing, Tenant agrees to pay to Landlord, a per diem
occupancy charge equal to one hundred fifty percent (150%) of the per
<PAGE> 39
diem Base Rent and Additional Rent as was in effect under this Lease for the
last month of the Lease Term. Such payments shall be made within five (5) days
after Landlord's demand, and in no event less often than once per month (in
advance). In the case of a holdover which has been consented to by Landlord,
unless otherwise agreed to in writing by Landlord and Tenant, Tenant shall give
to Landlord thirty (30) days prior written notice of any intention to quit the
Premises, and Tenant shall be entitled to thirty (30) days prior written notice
to quit the Premises, except in the event of non-payment of Base Rent or
Additional Rent in advance or the breach of any other covenant or the existence
of a Default. Upon expiration of the Lease Term as provided herein, Tenant shall
not be entitled to any notice to quit, the usual notice to quit being hereby
expressly waived under such circumstances, and Tenant shall surrender the
Premises on the last day of the Lease Term as provided in Section 26, above.
XXIX. CONDEMNATION.
29.1 Definitions. The terms "eminent domain", "condemnation", and "taken", and
the like in this Section 29 include takings for public or quasi-public use, and
sales under threat of condemnation and private purchases in place of
condemnation by any authority authorized to exercise the power of eminent
domain.
29.2 Taking. If the whole of the Premises is taken, either permanently or
temporarily, by eminent domain or condemnation, this Lease shall automatically
terminate as of the date title vests in the condemning authority, and Tenant
shall pay all Base Rent, Additional Rent, and other payments up to that date. If
twenty percent (20%) or more of the Premises is permanently taken, or if access
to the Tenant is, by virtue of a taking, permanently denied or materially
adversely affected, by eminent domain or condemnation, then Landlord or Tenant
shall have the right (to be exercised by written notice to the other within
sixty (60) days after receipt of notice of said taking) to terminate this Lease
from the date when possession is taken thereunder pursuant to such proceeding or
purchase. If neither party elects to terminate this Lease, as aforesaid, then
Landlord shall within a reasonable time after title vests in the condemning
authority, repair and restore, at Landlord's expense, the portion not taken so
as to render same into an architectural whole to the fullest extent reasonably
possible, and, if any portion of the Premises is taken, thereafter the Base Rent
shall be reduced (on a per square foot basis) in proportion to the portion of
the Premises taken. If there is a temporary taking involving the Premises or
Building, if a taking of other portions of the Building or Common Areas does not
deny Tenant access to and continued use (in the same manner as prior to the
taking) of the Building and Premises, or if less than twenty percent (20%) of
the Premises is permanently taken by eminent domain or condemnation and does not
deny Tenant access to and continued use of the Building and Premises, then this
Lease shall not terminate, and Landlord shall repair and restore, at its own
expense, the portion not taken so as to render same into an architectural whole
to the fullest extent reasonably possible, and, if any portion of the Premises
was taken, thereafter the Base Rent shall be reduced (on a per square foot
basis) in proportion to the portion of the Premises taken.
29.3 Award. Except as set forth below, Landlord reserves all rights to damages
to the Premises or arising out of the loss of any leasehold interest in the
Premises created hereby, arising in connection with any partial or entire taking
by eminent domain or condemnation. Tenant hereby assigns to Landlord any right
Tenant may have to such damages or award, and Tenant shall make no claim against
Landlord or the condemning authority for damages for termination of Tenant's
leasehold interest or for interference with Tenant's business as a result
<PAGE> 40
of such taking. The foregoing notwithstanding, Tenant shall have the right to
claim and recover from the condemning authority compensation for any loss which
Tenant may incur for Tenant's moving expenses, business interruption or taking
of Tenant's personal property (but specifically excluding any leasehold interest
in the Building or Premises) under the then applicable law provided that Tenant
shall not make any claim that will detract from or diminish any award for which
Landlord may make a claim.
XXX. NOTICES.
All notices and demands which may be required or permitted to be given to either
party hereunder shall be in writing, and shall be delivered personally or sent
by United States certified mail, postage prepaid, return receipt requested, or
by Federal Express or other reputable overnight carrier, to the addresses set
out in Section 1.7, and to such other person or place as each party may from
time to time designate in a notice to the other. Notice shall be deemed given
upon the earlier of actual receipt or refusal of delivery.
XXXI. MORTGAGEE PROTECTION.
Tenant agrees to give any mortgagee(s) and/or trust deed holder(s), by
registered mail, a copy of any notice of default served upon the Landlord,
provided that prior to such notice Tenant has been notified in writing (by way
of notice of assignment of rents and leases, or otherwise) of the addresses of
such mortgagee(s) and/or trust deed holder(s). Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the mortgagee(s) and/or trust deed holder(s) shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
if within such thirty (30) days any mortgagee and/or trust deed holder(s) has
commenced and is diligently pursuing the remedies necessary to cure such
default, during which time Tenant shall not have the right to pursue any claim
against Landlord, such mortgagee and/or such trust deed holder(s), including but
not limited to any claim of actual or constructive eviction.
XXXII. COSTS AND ATTORNEYS' FEES.
In any litigation between the parties arising out of this Lease, and in
connection with any consultations with counsel and other actions taken or
notices delivered, in relation to a default by any party to this Lease, the
non-prevailing party shall pay to the prevailing party all reasonable expenses
and court costs including attorneys' fees incurred by the prevailing party, in
preparation for and (if applicable) at trial, and on appeal. Such attorney's
fees and costs shall be payable upon demand.
XXXIII. BROKERS.
Tenant represents and warrants to Landlord that neither it nor its officers or
agents nor anyone acting on its behalf has dealt with any real estate broker
other than Trammell Crow Real Estate Services, Inc. (on behalf of Landlord) and
Julien J. Studley, Inc. (on behalf of Tenant) in the negotiating or making of
this Lease, both of which shall be paid a fee by Landlord, pursuant to separate
written agreement, upon the consummation of this Lease. Tenant agrees to
indemnify and hold Landlord, its agents, employees, partners, directors,
<PAGE> 41
shareholders and independent contractors harmless from all liabilities, costs,
demands, judgments, settlements, claims and losses, including reasonable
attorney's fees and costs, incurred by Landlord in conjunction with any such
claim or claims of any other broker or brokers claiming to have interested
Tenant in the Building or Premises or claiming to have caused Tenant to enter
into this Lease. Landlord represents that it has not dealt with any brokers
other than the parties listed above in negotiating and entering into this Lease
and shall indemnify, defend and hold Tenant harmless from any breach of the
foregoing representation and warranty.
XXXIV. LANDLORD'S LIABILITY.
Anything in this Lease to the contrary notwithstanding, covenants,
undertakings and agreements herein made on the part of Landlord, are made and
intended not for the purpose of binding Landlord personally or the assets of
Landlord but are made and intended to bind only Landlord's interest in the
Premises and Building, as the same may, from time to time, be encumbered; no
personal liability shall at any time be assumed by or asserted or enforceable
against Landlord or any member, manager, officer, employee, agent, trustee,
beneficiary, or individual partner of Landlord or of any member, manager,
officer, employee, agent, trustee, beneficiary, or individual partner of
Landlord, or any of their respective heirs, legal representatives, successors
and assigns on account of this Lease or on account of any covenant, undertaking
or agreement of Landlord in this Lease or any claim made against Landlord under
this Lease; and Tenant agrees to look solely to the interests of Landlord in the
Premises and the Building for the enforcement of any claims against Landlord
arising hereunder. Any and all personal liability, if any, beyond that which may
be asserted under this Section 34 is hereby expressly waived and released by
Tenant and by all persons claiming by, through, or under Tenant. In addition, in
no event shall Landlord be in default of this Lease unless Tenant notifies
Landlord of the precise nature of the alleged breach by Landlord, and Landlord
fails to cure such breach within fifteen (15) days after the date of Landlord's
receipt of such notice or refusal of delivery (provided that if the alleged
breach is of such a nature that it cannot reasonably be cured within such
fifteen (15) day period, then Landlord shall not be in default if Landlord
commences a cure within such fifteen (15) day period and diligently thereafter
prosecutes such cure to completion). In no event shall Tenant have any right to
terminate this Lease by virtue of any uncured default by Landlord.
XXXV. ESTOPPEL CERTIFICATES.
Tenant shall, from time to time, within ten (10) business days of Landlord's
written request, execute, acknowledge and deliver to Landlord or its designee a
written statement stating: the date the Lease was executed and the date it
expires; the date the Tenant entered occupancy of the Premises; the amount of
Base Rent, Additional Rent and other charges due hereunder and the date to which
such amounts have been paid; that this Lease is in full force and effect and has
not been assigned, modified, supplemented or amended in any way (or specifying
the date and terms of any agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this leasing; that all
conditions under this Lease to be performed by the Landlord have been satisfied
(or specifying any such conditions that have not been satisfied); that all
required contributions by Landlord to Tenant on account of Tenant's improvements
have been received (or specifying any such contributions that have not been
received); that to Tenant's knowledge, following reasonable investigation and
<PAGE> 42
inquiry, there are no existing defenses or offsets which the Tenant has against
the enforcement of this Lease by the Landlord; that no Base Rent or Additional
Rent has been paid more than one (1) month in advance; that no security has been
deposited with Landlord (or, if so, the amount thereof) other than the Security
Deposit; or any other customary factual matters evidencing the status of the
Lease, as may be reasonably required either by a lender making a loan to
Landlord to be secured by a deed of trust or mortgage against the Building, or a
purchaser of the Building, which written statement shall, to the extent the
certifications required to be made therein are true and correct as of such time,
be in substantially the same form as Exhibit F attached hereto and made a part
hereof by this reference. It is intended that any such statement delivered
pursuant to this paragraph may be relied upon by a prospective purchaser of
Landlord's interest or a mortgagee of Landlord's interest or assignee of any
mortgage upon Landlord's interest in the Building. If Tenant fails to respond
within ten (10) business days after receipt by Tenant of a written request by
Landlord as herein provided, Tenant shall be deemed to have given such
certificate as above provided without modification and shall be deemed to have
admitted the accuracy of any information supplied by Landlord to a prospective
purchaser or mortgagee consistent with the terms of the estoppel so requested.
Landlord shall, from time to time, within ten (10) business days of Tenant's
written request, execute, acknowledge and deliver to Tenant or its designee a
written statement stating: the date the Lease was executed and the date it
expires; the date the Tenant entered occupancy of the Premises; the amount of
Base Rent, Additional Rent and other charges due hereunder and the date to which
such amounts have been paid; that this Lease is in full force and effect and has
not been assigned, modified, supplemented or amended in any way (or specifying
the date and terms of any agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this leasing; that all
conditions under this Lease to be performed by the Tenant have been satisfied
(or specifying any such conditions that have not been satisfied); that to
Landlord's knowledge, there are no defaults by Tenant under this Lease.
XXXVI. FINANCIAL REPRESENTATIONS AND INFORMATION.
Tenant has provided Landlord prior to the date hereof with the
information regarding Tenant's net asset value and financial condition that is
attached as Exhibit G hereto and made a part hereof. Tenant represents that the
information contained in Exhibit G is true, correct and complete, and
acknowledges that Landlord is relying thereupon (without additional
investigation) in entering into this Lease with Tenant. Tenant shall deliver to
Landlord updated information, using the same format (and containing not less
than the same level of detail) set forth in Exhibit G, certified by Tenant's
chief financial officer as true, correct and complete as of the date made,
within ten (10) business days after Landlord's written request (which shall be
limited to one (1) request per calendar quarter during the Lease Term). In the
event Tenant ever provides to any creditor of Tenant's (including but not
limited to lenders, other landlords and/or judgment creditors) formal financial
statements regarding Tenant (including but not limited a detailed balance sheet,
a profit and loss statement, and/or a cash flow statement), whether or not
audited by an independent certified public accountant, Tenant agrees to provide
the same information to Landlord, within ten (10) business days after
<PAGE> 43
Landlord's written request (which shall be limited to one (1) request per
calendar quarter during the Lease Term).
Within ten (10) days after Landlord's request, Tenant shall deliver to Landlord
a year-to-date financial statement of Tenant for Tenant's current fiscal year
and annual financial statements for the two (2) fiscal years prior to Tenant's
current fiscal year, which financial statements shall be prepared by a certified
public accountant in accordance with generally accepted accounting principles
consistently applied and include a balance sheet and profit and loss statement
and which annual financial statements shall be audited by a certified public
accountant. In the event that Tenant does not produce nor possess financial
statements, Tenant shall deliver to Landlord, in lieu of financial statements,
internal balance sheets, the accuracy of which shall have been certified to by
the president, a vice president, the treasurer or assistant treasurer of Tenant.
Such certifications shall specifically state that the balance sheets are
accurate and full representations of the financial condition of Tenant. To the
extent tenant is not a publicly traded company, Landlord agrees that it shall
use reasonable efforts to maintain the confidentiality of Tenant's financial
information; provided, however that Landlord shall be permitted to disclose same
to Landlord's lenders, prospective purchasers, and investors.
XXXVII. TRANSFER OF LANDLORD'S INTEREST.
In the event of any transfer(s) of Landlord's interest in the Premises or the
Building to a bona-fide third-party purchaser, other than a transfer for
security purposes only, upon the assumption of this Lease by the transferee, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer, and Tenant agrees to attorn to the transferee.
XXXVIII. RIGHT TO PERFORM.
If Tenant shall fail to pay any sum of money, other than Base Rent and
Additional Rent, required to be paid by it hereunder or shall fail to perform
any other act on its part to be performed hereunder, and (except in the event of
emergency in which case no grace or cure period shall be applicable or required)
such failure shall continue for ten (10) days after notice to Tenant (or such
other cure period as may be provided for herein), 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 provided in this Lease. Landlord shall have (in
addition to any other right or remedy of Landlord) the same rights and remedies
in the event of the nonpayment of sums due under this section as in the case of
Default by Tenant in the payment of Base Rent. All sums paid by Landlord and all
penalties, interest and costs in connection therewith, shall be due and payable
by Tenant upon written demand within ten (10) business days after such payment
by Landlord, together with interest thereon at the Default Rate from such date
to the date of payment.
XXXIX. COMMON AREAS
<PAGE> 44
For purposes hereof, the term "Common Areas" shall mean (i) all portions of the
Land other than portions upon which the Building is situated, including
landscaped areas and the like, as the same may be modified from time to time by
Landlord; (ii) all loading docks, corridors, lobbies, elevator cabs, stairs and
other portions of the Building that would customarily be made available to
tenants of the Building, as the same may be modified from time to time by
Landlord; (iii) any parking deck, parking structure, or surface parking
facility, and any connector from the Building thereto; and (iv) any areas which
are common areas for, on, or utilized in general by tenants, owners and/or
occupants of the complex.
XD. SALES AND AUCTIONS.
Tenant may not display or sell merchandise outside the exterior walls and
doorways of the Premises and may not use such areas for storage. Tenant shall
not conduct or permit to be conducted any sale by auction in, upon or from the
Premises whether said auction be voluntary, involuntary, pursuant to any
assignment for the payment of creditors or pursuant to any bankruptcy or other
insolvency proceedings.
XDI. ACCESS TO ROOF.
41.1 Subject to (i) compliance with all rules, regulations, proffers, statutes
and codes of any governmental authority having jurisdiction thereover, and (ii)
subject to Landlord's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed, Tenant shall have the right of
access to and non-exclusive use of the roof of the Building for the installation
of various communication equipment (Tenant's "Roof Use"); provided further that
such installation and the Roof Use shall not void any roof or other warranty
applicable to the Building and that all such installations shall be located and
screened in a manner mutually acceptable to both Landlord and Tenant.
41.2 If the rate of any insurance carried by Landlord is increased as a result
of Tenant's Roof Use, then Tenant will pay to Landlord within ten (10) days
before the date Landlord is obligated to pay a premium on the insurance (or
within ten (10) days after Landlord delivers to Tenant a certified statement
from Landlord's insurance carrier stating that the rate increase was caused by
Tenant's Roof Use, whichever date is later), a sum equal to the difference
between the original premium and the increased premium resulting from the Roof
Use.
41.3 Landlord has not made any representations or promises pertaining to the
suitability of the Building's rooftop for the Roof Use. Tenant, for the purpose
of this paragraph and its right to rooftop access hereunder, accepts the rooftop
in its "as is" condition.
41.4 Tenant will obtain prior to installation, any and all necessary licenses,
approvals, permits, etc., necessary for the installation, maintenance and use of
any equipment installed pursuant to this Section 41. Tenant's Roof Use shall not
in any way conflict with any applicable law, statute, proffer, ordinance or
governmental rules or regulation now in force or which may hereafter be enacted.
The Tenant will, at its sole cost and expense, promptly comply or ensure that
the Building complies with all laws, statutes, proffers, ordinances,
<PAGE> 45
governmental rules or regulations, or requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted
relating to or affecting Tenant's Roof Use. Tenant shall indemnify and hold
Landlord harmless from and against any and all loss, cost (including reasonable
attorney's fees incurred in defending Landlord), damage or liability arising out
of any violations of said laws, statutes, proffers, ordinances rule or
regulations.
41.5 Tenant's Roof Use shall be exercised: (1) in such manner as will not create
any hazardous condition or interfere with or impair the operation of the
heating, ventilation, air conditioning, plumbing, electrical, fire protection,
life safety, public utilities or other systems or facilities in the Building;
(2) in compliance with all applicable laws, codes, proffers, statutes and
regulations; (3) in such a manner as will not directly or indirectly interfere
with, delay, restrict or impose any expense, work or obligation upon Landlord in
the use or operation of the Building; (4) at Tenant's cost, including the cost
of repairing all damage to the Building and any personal injury and/or property
damage attributable to the installation, inspection, adjustment, maintenance,
removal or replacement of any equipment or apparatus on the roofs approved
hereunder; and (5) in a manner which will not void or invalidate any roof
warranty then in effect with respect to the roof of the Building. Tenant's Roof
Use shall be used solely in the ordinary course of Tenant's business operations
and specifically not for commercial resale or any similar purpose, and any use
of the roof outside of the ordinary course of Tenant's business operations (such
as, but not limited to, subleasing portions of the roof for profit to third
parties) shall be subject to Landlord's consent, which consent may be given or
withheld in Landlord's sole and absolute discretion.
XDII. ACCESS.
Landlord shall install access control systems to the Common Area entrances of
the Building and Landlord shall provide on or before the Commencement Date, 100
key cards therefore, the cost of which shall be paid by Landlord. Thereafter,
Tenant may obtain from the applicable security system vendor as many key cards
as Tenant requires, at Tenant's sole expense (which shall be Landlord's actual
cost from the security company providing such service). All monitoring costs
attributable to such system(s), if any, shall constitute Operating Costs for all
purposes hereof.
XDIII. AUTHORITY OF LANDLORD AND TENANT.
Each of Landlord and Tenant shall furnish the other with appropriate
partnership and/or corporate resolutions, as applicable, confirming that the
individual executing this Lease on behalf of each has been duly authorized to
execute and deliver this Lease on behalf of such party and that this Lease is
binding upon such party.
XDIV. NO ACCORD OR SATISFACTION.
No payment by Tenant or receipt by Landlord of a lesser amount than the Base
Rent, Additional Rent and other sums due hereunder shall be deemed to be other
than on account of the earliest Base Rent or other sums due, nor shall any
endorsement or statement on any check or accompanying any check or payment be
deemed an accord and satisfaction; and
<PAGE> 46
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Base Rent, Additional Rent or other sum and to
pursue any other remedy provided in this Lease.
XDV. LEGAL REQUIREMENTS.
Landlord shall cause the Building (but not the Premises, for which Tenant shall
be solely responsible) to comply as of the Commencement Date with all laws,
orders, ordinances and regulations of Federal and local authorities and with
directions of public rules, recommendations, requirements and regulations of the
Board of Fire Underwriters, Landlord's insurance companies and any other
organization establishing insurance rates in the geographical area where the
Project is located and all applicable building codes, to the extent the same are
applicable to the Building, respecting all matters of the Project other than the
use and occupancy of the Premises by Tenant, including, without limitation, the
accessibility requirements of the Americans with Disabilities Act ("ADA"), all
zoning and other land use laws, and all Environmental Laws. To landlord's
knowledge, having done no independent investigation or inquiry, the proposed use
of the Premises by Tenant will not violate currently applicable zoning
regulations as they pertain to the Building.
XDVI. PARKING.
Tenant shall have the right (together with Landlord and its agents, employees
and contractors, and together with the rights of other tenants in the Building
and the Project) to use, from the parking areas available to the Project in the
parking structure and surface parking on the Project and Common Areas an amount
of parking as set forth in Section 1.1 hereof (i.e., 49 aggregate spaces). Such
parking right shall be non-exclusive, and on an unreserved basis. Tenant agrees
not to overburden the Building's parking facilities.
XDVII. GENERAL PROVISIONS.
A. Acceptance. This Lease shall only become effective and binding upon
full execution hereof by Landlord and Tenant and delivery of a signed copy by
Landlord to Tenant.
B. Joint Obligation. If there be more than one Tenant, the obligations
hereunder imposed shall be joint and several.
C. Marginal Headings, Etc. The marginal headings, Table of Contents,
lease summary sheet and titles to the sections of this Lease are not a part of
the Lease and shall have no effect upon the construction or interpretation of
any part hereof.
D. Choice of Law. This Lease shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia (without regard to the
choice of law and/or conflict of law principles applicable in such State).
<PAGE> 47
E. Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, inure to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
F. Recordation. Except to the extent otherwise required by law, neither
Landlord nor Tenant shall record this Lease or a memorandum hereof.
G. Quiet Possession. Upon Tenant's paying the Base Rent and Additional
Rent reserved hereunder and observing and performing all of the covenants,
conditions and provisions on Tenant's part to be observed and performed
hereunder, Tenant shall have quiet possession and enjoyment of the Premises for
the Lease Term hereof, free from any disturbance or molestation by Landlord, or
anyone claiming by, through or under Landlord, but in all events subject to all
the provisions of this Lease.
H. Inability to Perform; Force Majeure. This Lease and the obligations
of the Tenant hereunder shall not be affected or impaired because either
Landlord or Tenant is unable to fulfill any of its obligations hereunder or is
delayed in doing so, to the extent such inability or delay is caused by reason
of war, civil unrest, strike, labor troubles, unusually inclement weather,
governmental delays, inability to procure services or materials despite
reasonable efforts, third party delays, acts of God, or any other cause(s)
beyond the reasonable control of the Landlord (which causes are referred to
collectively herein as "Force Majeure".) Any time specified obligation of
Landlord or Tenant in this Lease shall be extended one day for each day of delay
suffered by Landlord or Tenant as a result of the occurrence of any Force
Majeure. The foregoing notwithstanding in no event will an event of Force
Majeure extend the time within which Tenant or Landlord must perform any of its
monetary obligations under this Lease.
I. Partial Invalidity. Any provision of this Lease which shall prove to
be invalid, void, or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provision(s) shall remain in full force
and effect.
J. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.
K. Entire Agreement. This Lease contains the entire agreement of the
parties hereto and no representations, inducements, promises or agreements, oral
or otherwise, between the parties, not embodied herein, shall be of any force or
effect.
L. Survival. All indemnities set forth in this Lease shall survive the
expiration or earlier termination of this Lease.
M. Consents. If any provision of this Lease subjects any action,
inaction, activity or other right or obligation of any party to the prior
consent or approval of the other, such consent shall not be unreasonably
withheld, conditioned or delayed unless otherwise specifically provided herein.
<PAGE> 48
N. Saving Clause. In the event (but solely to the extent) the
limitations on Landlord's liability set forth in Section 8.3 of this Lease would
be held to be unenforceable or void in the absence of a modification holding the
Landlord liable to Tenant or to another person for injury, loss, damage or
liability arising from Landlord's omission, fault, negligence or other
misconduct on or about the Premises, or other areas of the Building appurtenant
thereto or used in connection therewith and not under Tenant's exclusive
control, then such provision shall be deemed modified as and to the extent (but
solely to the extent) necessary to render such provision enforceable under
applicable law. The foregoing shall not affect the application of Section 34 of
this Lease to limit the assets available for execution of any claim against
Landlord.
47.15 Rule Against Perpetuities. In order to ensure the compliance of this Lease
with any rule against perpetuities that may be in force in the state in which
the Premises are located, and without limiting or otherwise affecting either
Landlord's or Tenant's obligations under this Lease, as stated in the other
sections hereof, or modifying any other termination rights which may be set
forth herein, Landlord and Tenant agree that, irrespective of the reasons
therefor (other than a Default by Tenant), in the event Tenant fails to take
possession of the Premises and commence paying Base Rent and Additional Rent
hereunder within ten (10) years after the date of execution of this Lease, then
this Lease, and the obligations of the parties hereunder, shall be deemed to be
null and void and of no further force and effect. Without affecting the specific
timing requirements otherwise applicable thereto under this Lease, any and all
options granted to Tenant under this Lease (including, without limitation,
expansion, renewal, right of first refusal, right of first offer, and like
options) must be exercised by Tenant, if at all, during the term of this Lease.
XDVIII. RULES AND REGULATIONS.
Tenant agrees to comply with the Rules and Regulations attached hereto as
Exhibit D.
XDIX. ARBITRATION.
49.1 If arbitration is specifically agreed upon hereunder as a dispute
resolution procedure, the arbitration shall be conducted as provided in this
Section. All proceedings shall be conducted according to the Commercial
Arbitration Rules of the American Arbitration Association, except as hereinafter
provided. No action at law or in equity in connection with any such dispute
shall be brought until arbitration hereunder shall have been waived, either
expressly or pursuant to this Section. The judgment upon the award rendered in
any arbitration hereunder shall be final and binding on both parties hereto and
may be entered in any court having jurisdiction thereof. During any arbitration
proceeding pursuant to this Section, the parties shall continue to perform and
discharge all of their respective obligations under this Lease, except as
otherwise provided in this Lease.
49.2 All disputes that are required to be arbitrated in accordance with this
Lease shall be raised by notice to the other party, which notice shall state
with particularity the nature of the dispute and the demand for relief, making
specific reference by article number and title of the provisions of this Lease
alleged to have given rise to the dispute. The notice shall also refer to this
Section and shall state whether or not the party giving the notice demands
arbitration under this Section.
<PAGE> 49
49.3 Within thirty (30) days of any demand for arbitration, each of Tenant and
Landlord shall appoint one (1) arbitrator, and within ten (10) days of their
appointment, the two (2) arbitrators thus selected shall jointly select a third
(3rd) arbitrator. All arbitrators shall have at least ten (10) years' experience
in commercial real estate matters and, in particular, the subject matter of the
dispute, to act as arbitrator hereunder. If either party fails to select an
arbitrator within the initial thirty (30) day period, or if the two (2)
arbitrators are unable to agree upon a third (3rd) arbitrator, then, upon the
request of either party, the remaining arbitrator(s) shall be appointed by The
American Arbitration Association. The arbitration proceedings shall take place a
mutually acceptable location in the Washington, D.C./Baltimore metropolitan
areas.
49.4 The right of Landlord and Tenant to submit a dispute to arbitration is
limited to issues specifically agreed in this Lease to be submitted to
arbitration, and specifically does not apply to any remedial action undertaken
by Landlord pursuant to the provisions of Section 24 hereof. When resolving any
dispute, the arbitrator shall apply the pertinent provisions of this Lease
without departure therefrom in any respect. The arbitrator shall not have the
power to change any of the provisions of this Lease, but this Section shall not
prevent in any appropriate case the interpretation, construction and
determination by the arbitrator of the applicable provisions of this Lease to
the extent necessary in applying the same to the matters to be determined by
arbitration.
49.5 Without limitation, any dispute between Landlord and Tenant regarding the
application, interpretation or effect of the provisions of Exhibit C to
particular factual circumstances, including without limitation any dispute
regarding approval of plans and specifications for Tenant's Work, compliance of
construction with the approved plans and specifications therefor (or as
otherwise required by this Lease), Substantial Completion of all or any part of
Tenant's Work, completion of punch list items and Landlord's calculation of the
total Costs, shall be subject to arbitration pursuant to this Section 49 if
Landlord and Tenant cannot resolve such dispute voluntarily.
D. WAIVER OF JURY TRIAL.
LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ON ALL MATTERS ARISING
OUT OF THIS LEASE, OR THE USE AND OCCUPANCY OF THE PREMISES. IF LANDLORD
COMMENCES ANY SUMMARY PROCEEDING FOR NON-PAYMENT OF BASE RENT OR ADDITIONAL
RENT, TENANT WILL NOT INTERPOSE (AND WAIVES THE RIGHT TO INTERPOSE) ANY
NON-MANDATORY COUNTERCLAIM IN ANY SUCH PROCEEDING.
DI. RENEWAL TERM.
A. Provided Tenant is not in Default of this Lease at the time its
rights hereunder are to be exercised, Tenant shall have the option ("Renewal
Option") to extend the Lease Term for one (1) extension period of sixty (60)
months (the "Renewal Term") provided Tenant gives written notice to Landlord of
its election to exercise such Renewal Option (the "Renewal Notice") not more
than eighteen (18) nor less than twelve (12) months
<PAGE> 50
prior to the expiration of the last day of the initial Lease Term. Time is of
the essence in this Section 51.
B. All terms and conditions of this Lease, including without
limitation, all provisions governing the payment of Additional Rent, shall
remain in full force and effect during the Renewal Term, except the Base Rent
shall be as set forth in this Section 51.
C. The Base Rent payable upon the commencement of the Renewal Term
shall equal one hundred percent (100%) of the then prevailing market rental rate
(including base rental rate, annual escalation rate, and any applicable tenant
concessions) applicable to renewal terms with respect to comparable space in
comparable buildings in the Tysons Corner, Virginia area, (the "Fair Market
Rate" or "FMR") (but not less than the Rent for the prior Lease Year) at the
time of the commencement of the applicable Renewal Term, determined based upon
then existing renewal market conditions applicable to the leasing of comparable
space in comparable buildings in the vicinity of the Project (taking into
consideration use, location, quality, age and location of the applicable
building and the definition of net rentable area as well as then market lease
concessions, and improvement allowances). Further, the Fair Market Rate shall be
determined on a net basis, with Tenant remaining responsible for all Additional
Rent as set forth herein. Landlord and Tenant shall negotiate in good faith and
in accordance with the procedure set forth in Section 51.4, below, to determine
the Fair Market Rate which will be applicable during the Renewal Term, with the
goal of concluding such negotiation or triggering a determination of the FMR
using a three-broker method (as described in Section 51.5, below) within not
more than sixty (60) days after the date of Landlord's receipt of the Renewal
Notice.
D. Within ten (10) days after Landlord receives Tenant's Renewal Notice
exercising the Renewal Option referenced above, Landlord will provide Tenant
with a written notice (the "FMR Notice") indicating the base rental rate and
annual escalation rate which Landlord in good faith believes represents the then
current FMR for the Premises. If Tenant is in agreement with the base rental
rate and annual escalation rate stated in the FMR Notice, Tenant shall so notify
Landlord within twenty (20) days after its receipt thereof, in which case such
base rental rate and annual escalation rate shall constitute the FMR for such
Renewal Term within the meaning of this Section 51. If Tenant believes in good
faith that the base rental rate and annual escalation rate stated by Landlord in
the FMR Notice are in excess of actual FMR for the Premises, Tenant shall so
notify Landlord in writing prior to the end of the twenty (20) day period after
Tenant received Landlord's FMR Notice, stating in its response (hereinafter
referred to as "Tenant's Counterproposal") the base rental rate and annual
escalation rate which Tenant in good faith believes represents the then current
FMR for the Premises. If Tenant fails to respond to the Landlord's FMR Notice
within such twenty (20) day period, Tenant shall be deemed to have accepted the
base rental rate and annual escalation rate stated in Landlord's FMR Notice. If
Tenant does provide Tenant's Counterproposal to Landlord in a timely fashion,
and Landlord agrees that the base rental rate and annual escalation rate stated
in Tenant's Counterproposal represent the then current FMR, Landlord shall so
notify Tenant within twenty (20) days after its receipt thereof, in which case
such base rental rate and annual escalation rate shall constitute the FMR for
such Renewal Term within the meaning of this Section 51. If Landlord fails to
respond to the Tenant's Counterproposal within twenty (20) days after Landlord's
receipt of the Tenant's Counterproposal, or rejects the rental rate and
escalation rate stated therein, then the parties
<PAGE> 51
agree to submit the issue of what constitutes the appropriate FMR for the
Premises for the Renewal Term to determination using a "three broker method" as
described in Section 51.5, below.
E. If the parties submit the issue of what constitutes the appropriate
FMR for the Premises for the Renewal Term to determination using a "three broker
method", then the Base Rent and annual escalations applicable during the Renewal
Term shall be equal to the FMR and annual escalation rates determined by a board
of three (3) licensed real estate brokers, one of whom shall be named by
Landlord, one by Tenant, and the two so appointed shall select the third. Each
member of the board of brokers shall be licensed in the Commonwealth of Virginia
as a real estate broker, with a substantial familiarity in the field of
commercial office leasing in McLean, Virginia having no less than ten (10) years
experience in such field, and recognized as ethical and reputable within the
field. Landlord and Tenant agree to make their appointments within five (5)
business days after the earlier to occur of (i) the expiration of the ten (10)
day period after Landlord's receipt of Tenant's Counterproposal, or (ii) the
date Landlord notifies Tenant of its rejection of Tenant's Counterproposal. The
two (2) brokers selected by Landlord and Tenant shall promptly select a third
broker within ten (10) days after they both have been appointed, and each
broker, within ten (10) days after the third broker is selected, shall submit
his or her determination of the said FMR and escalations (taking into account
the provisions of Section 51.3 hereof). If either of the parties fail to select
a broker within the aforesaid time periods, the broker selected by the other
party shall select the other two (2) brokers to participate in the
determination, each of which shall meet the selection criteria set forth above,
and be affiliated with a different company from the first broker and from each
other; and if the brokers selected by Landlord and Tenant are unable to reach
agreement on the identity of the third broker within the applicable ten (10) day
period, then the third broker shall be designated (in compliance with the
applicable criteria set forth above) by an agent of the Virginia Board of
Realtors in office at such time. The FMR shall be the average of amount
determined by the two brokers whose determinations are closest in amount to each
other (or [a] if two brokers reach an identical determination, the determination
of such two brokers, or, as applicable [b] if two brokers' estimates are the
same monetary difference from the third, but in opposite directions, the average
of the three brokers shall prevail), provided that if the two (2) most proximate
determinations of FMR differ by more than five percent (5%), then the
determination of FMR by such board of three brokers shall be null and void, and
Landlord and Tenant shall, within five (5) business days thereafter, appoint a
new board of three different real estate brokers meeting the above-stated
criteria, who shall convene in accordance with the procedures and time frames
set forth above in order to render a new determination, as if the first
determination had never taken place. After the Fair Market Rent has been
established, the brokers shall immediately notify the parties in writing, and
such determination shall be conclusive and binding upon the parties. Landlord
and Tenant shall each pay the fee of the broker selected by it, and they shall
equally share the payment of the fee of the third broker.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Deed of Lease, or
have caused this Deed of Lease to be executed on their respective behalves by
their duly authorized officers, as of the day and year first above written.
LANDLORD:
<PAGE> 52
WESTWOOD CENTER, L.L.C.
By: /s/ Allen S. Jackson, Jr.
------------------------------------
Name: Allen S. Jackson, Jr.
Title: Vice President
TENANT:
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
-----------------------------------
Name: Leonard J. Fassler
----------------------------------
Title: Co-Chairman
---------------------------------
<PAGE> 53
EXHIBIT A
Location and Dimensions of Premises
<PAGE> 54
EXHIBIT B
Description of Land
<PAGE> 55
EXHIBIT C
Construction/Build-Out Provisions
Landlord's Work and Tenant's Work
1. Preparation of Plans and Specifications. Landlord and Tenant on a
preliminary space plan for the construction of initial leasehold improvements to
the Premises (the "Space Plan"), a copy of which is attached as Schedule C-1
hereto and made a part hereof. (The Space Plan includes related specifications
for interior tenant finishes, to the extent same deviate from Building
standard.) With respect to such initial leasehold improvements, within ten (10)
days after the execution of this Lease, Tenant shall submit to Landlord all
information (the "Plans Information") needed in order for Landlord's architects,
engineers and/or other construction personnel ("Landlord's Architect") to
prepare architectural plans, construction drawings and finishes for the
Premises, consistent with the Space Plan. Landlord shall provide all Building
systems information necessary for Landlord's Architect to prepare mechanical,
electrical and plumbing ("MEP") drawings. Within thirty (30) days of receipt of
all information required from Tenant, Landlord's Architect shall prepare the
architectural plans, construction drawings and finishes, and the MEP's, for the
Premises, as required for the permitting and construction of the Premises
("Plans and Specifications"). Landlord shall deliver the completed Plans and
Specifications to Tenant promptly after completion. If Tenant fails to provide
all necessary Plans Information, Landlord or Landlord's Architect shall notify
Tenant of any such missing information, and Tenant shall deliver same to
Landlord within five (5) days after such notification. Any period of delay
caused by Tenant's failure to provide all the Plans Information when required
above shall toll the aforementioned thirty (30) day period until Tenant delivers
such information, and shall constitute a "Tenant Delay" (as defined in paragraph
9 of this Exhibit C, below) hereunder.
2. Approval of Plans and Specifications. As soon as practicable after
receipt of such Plans and Specifications, but in no event more than five (5)
days after receipt thereof, Tenant shall return to Landlord such Plans and
Specifications with Tenant's suggested modifications and/or approval. If, upon
receipt of Tenant's modified Plans and Specifications, Landlord wishes to take
exception to Tenant's modifications, Landlord may do so within five (5) business
days after the date upon which Landlord receives Tenant's modified Plans and
Specifications. If Landlord takes exception, then Landlord and Tenant shall
negotiate in good faith to promptly resolve any disagreements and make
modifications to the Plans and Specifications which are acceptable to Landlord
and Tenant. The parties shall attempt to reach agreement as soon as possible,
and in all events within five (5) business days after the date upon which
Landlord receives Tenant's proposed modifications to the Plans and
Specifications.
3. Revisions to Plans and Specifications. If Tenant's modifications are
acceptable to Landlord, said Plans and Specifications shall thereafter be
revised by Landlord to reflect the applicable changes, and the same shall be
resubmitted to Tenant for approval within five (5) business days after their
receipt by Landlord. If Landlord takes exception to Tenant's modifications, said
Plans and Specifications shall be revised by Landlord to reflect any changes
agreed upon in the above referenced good faith negotiations within three (3)
business days after the expiration of the five (5) business day negotiating
period set forth in paragraph 2, above. Landlord shall deliver the revised Plans
and Specifications to Tenant prior to the expiration of such three (3) business
day period, and Tenant shall grant its approval or disapproval thereto, and/or
state any further objections or proposed modifications, within three (3)
business days after receipt thereof. After the first submission and
resubmission, Landlord and Tenant agree to restrict further objections or
disputes to matters which have not previously been agreed upon or accepted by
the other party. The parties shall, in all events, act in good faith and use all
reasonable efforts to reach agreement as soon as possible, and in all events
within fifteen (15)
<PAGE> 56
business days after the date upon which Landlord first received Tenant's
modified Plans and Specifications. The process of submissions and resubmissions
shall continue thereafter until final agreement is reached, and in such process,
the parties shall thereafter adhere to the three (3) business day response time
required after the second resubmission. Each party agrees that its failure to
respond to a submission or resubmission within the above-referenced time frames
shall constitute such party's acceptance of the submission or resubmission in
question.
4. Landlord's Work.
(A) Upon Landlord and Tenant's final approval of the Plans and
Specifications, the same shall constitute the "Approved Plans", and the work
shown on the Approved Plans shall be deemed "Landlord's Work" unless otherwise
noted thereon. Following final approval of the Approved Plans, Landlord agrees
to apply for a building permit and upon the later of the date of issuance
thereof, or that date which is fifteen (15) days after the existing tenant
occupying the Premises vacates therefrom, to cause Landlord's Work to be
completed, installed or performed, as the case may be, in accordance therewith,
subject only to minor variations and/or variations necessitated by the
unavailability of specified materials and equipment. The costs associated with
Landlord's Work shall be paid as provided in Paragraphs 6 and 7, below.
(B) Except as above provided, no deviation from the Approved
Plans shall be made by either party except by written change order approved by
the other party, which approval shall not be unreasonably withheld or delayed.
In the event Tenant requests or causes the need for any change orders with
respect to Landlord's Work, the net cost of such change orders shall be at
Tenant's sole cost and any delays resulting therefrom shall constitute "Tenant
Delays" hereunder. In the event any change orders increase the cost of
Landlord's Work, Tenant shall pay Landlord the incremental additional cost
associated with any such change orders within fifteen (15) days after Landlord's
demand therefor.
5. Tenant's Work.
(A) Notwithstanding anything to the contrary in this Exhibit
C, Tenant shall be responsible for all work, construction, installations or
improvements in or to the Premises which are not designated as Landlord's Work
(including but not limited to all fixtures, furniture, equipment and other
office installations.) Such work shall hereinafter be referred to as "Tenant's
Work," and shall be at Tenant's sole cost and expense. Prior to commencing
Tenant's Work, Tenant shall submit to Landlord, for Landlord's review and
approval, which shall not be unreasonably withheld, drawings and specifications
for Tenant's Work, showing all aspects of such work. Tenant's Work shall be
deemed to constitute an "alteration" within the meaning of Section 15 of the
Lease, and shall be subject to the terms of (and approval procedures described
in) Section 15 of the Lease even if Tenant's Work takes place prior to the
Commencement Date of this Lease.
(B) Tenant shall be responsible for and shall pay when due all
costs associated with the preparation of plans and the performance of Tenant's
Work incurred in accordance with this Exhibit C. Failure by Tenant to pay the
costs associated with Tenant's Work on a timely basis so as to avoid the
assertion of any statutory and/or common law lien against the Premises or the
Building shall constitute a default by Tenant for all purposes of the Lease.
6. Improvement Allowance Defined. In consideration of Tenant's
fulfillment of all of its obligations under this Exhibit C and the performance
of all of its financial and other obligations under the Lease, Landlord shall
make a one-time contribution of up to $131,710.00 (which is calculated as
<PAGE> 57
$10.00 per rentable square foot of the Premises), to be applied solely toward
actual hard and soft costs paid by Landlord in the design, purchase,
construction and installation of Landlord's Work and for no other purpose, in
accordance with the terms of this Exhibit C. Landlord's total financial
obligation with respect to the purchase, construction, and installation of
Landlord's Work or any other improvements to the Premises shall be limited
solely to the Improvement Allowance, and Tenant shall be solely responsible for
any and all such costs in excess of the Improvement Allowance. Costs to be
applied against the Improvement Allowance shall include, without limitation,
architectural and engineering fees and expenses associated with the preparation
and review of the Plans and Specifications and the Approved Plans (both prior to
and after the date of the Lease); permit and inspection fees; cost of labor,
materials, general conditions and contractor profits arising under the
construction contract(s) pursuant to which Landlord's Work is performed; a
construction management fee payable to Landlord's construction manager in the
amount of four percent of managed costs; and any other hard and soft costs
associated with the performance of the Landlord's Work.
7. Improvement Allowance Payment Schedule.
(A) Landlord shall apply the Improvement Allowance toward the
cost of Landlord's Work, as defined by and in accordance with the terms of this
Exhibit C. Landlord agrees that the Improvement Allowance shall be applied
solely to pay costs of design and construction of Landlord's Work in the
Premises.
(B) If, during the course of performing Landlord's Work,
Landlord in good faith believes that the cost of Landlord's Work will exceed the
Improvement Allowance, Landlord shall notify Tenant in writing, which notice
shall include Landlord's good faith estimate of the additional cost to complete
Landlord's Work (the "Completion Deposit"). Within fifteen (15) days after
receipt of such notice, Tenant shall pay Landlord (or, if Landlord elects,
Tenant shall pay Landlord's contractor) the Completion Deposit. If Tenant fails
to pay the Completion Deposit as and when due hereunder, (i) such failure shall
constitute a Tenant Delay and a default under the Lease, and (ii) Landlord shall
have the right to halt Landlord's Work.
(C) The following provisions shall apply with respect to any
underpayment or overpayment by Tenant in the event Tenant pays the Completion
Deposit hereunder. If the Final Statement states that the Actual Cost exceeds
the sum of the Improvement Allowance and (if any) the Completion Deposit (the
"Total Tenant Payment"), then Tenant shall pay Landlord an amount equal to the
difference between the Actual Cost and the Total Tenant Payment within fifteen
(15) days after receipt of Landlord's statement. If the Final Statement states
that the Actual Cost is less than the Total Tenant Payment, then Landlord shall
credit the unused portion of the Total Tenant Payment (but not more than the
unused portion of the Completion Deposit) toward Tenant's next due payment(s) of
Rent and additional rent.
8. Permits.
(A) Except as provided below, Landlord shall obtain all
necessary permits in connection with Landlord's Work. Landlord's Work shall not
be deemed Substantially Complete until Landlord obtains all final inspection
approvals which are required for Landlord to deliver the Premises to Tenant with
Landlord's Work completed, and that can be obtained by Landlord prior to Tenant
performing Tenant's Work and prior to Tenant installing its fixtures, furniture
and equipment (including, if the same may be issued prior to Tenant's
performance of Tenant's Work, if any, and installation of its fixtures,
furniture and equipment , a non residential use permit for the Premises).
<PAGE> 58
(B) Tenant shall be responsible for applying for and obtaining
all permits required for Tenant to perform Tenant's Work, or to operate within
the Premises, including without limitation (and except as provided in Paragraph
8(A), above) the final non residential use permit or its equivalent, and for
obtaining any final fire inspection approval required after installation of its
fixtures, furniture and equipment.
9. Tenant Delays. Tenant acknowledges that delays in preparation of
Approved Plans and/or in the construction of Landlord's Work caused by Tenant
may otherwise result in deferral of the Possession Date (defined below), and
consequently the Commencement Date (as such term is defined in Section 1.4 of
the Lease), and thus Tenant's obligation to pay Rent, additional rent and other
charges due under this Lease to Landlord. Accordingly, Tenant agrees that the
Commencement Date shall be deemed to have been moved up one (1) day for each day
of delay in the commencement or completion of Landlord's Work occasioned by any
"Tenant Delay", which term shall include, without limitation, any delay in the
commencement or completion of Landlord's Work caused by the acts or omissions of
Tenant, its agents, architects, employees, contractors and invitees. (For
purposes of illustration only, if the Commencement Date is April 15, 1999, and
there were ten (10) days of Tenant Delays, the Commencement Date shall be deemed
to have occurred on April 5, 1999.)
10. Delivery & Acceptance of Possession. When Landlord's Work is
substantially complete, Landlord shall deliver to Tenant a written notice (the
"Completion Notice") certifying that Landlord's Work is "Substantially Complete"
(as defined in the Lease). Within five (5) days after Landlord delivers the
Completion Notice, Tenant and a representative of Landlord shall jointly inspect
the Premises, as Tenant deems appropriate and Tenant shall be deemed to have
accepted the Premises (in their condition as of the date of the Completion
Notice but without waiving Landlord's ability, if any, to correct punch list
items pursuant to Paragraph 11 below) on the earlier of (i) the date of such
joint inspection, or (ii) the fifth (5th) day after Landlord delivers the
Completion Notice; which date may be referred to hereinafter as the "Possession
Date."
11. Punch List. If, as a result of the aforementioned joint inspection,
Tenant discovers minor deviations or variations from the Approved Plans of a
nature commonly found on a "punch list" (as that term is used in the
construction industry), Tenant shall promptly notify Landlord of such
deviations; provided, however, that in the event of a dispute, Landlord (or
Landlord's Architect) and Tenant (or Tenant's architect) shall negotiate in good
faith, using their reasonable discretion, to determine which items constitute
punch list items. The existence of such punch list items shall not postpone the
Commencement Date of this Lease nor the obligation of Tenant to pay Rent,
additional rent or any other charges due under this Lease.
12. Provisions Regarding Tenant's Work. The following shall apply with
respect to Tenant's Work, and any subsequent alterations to the Premises
(hereafter, "alterations") by Tenant made pursuant to section 15 of the Lease.
(A) First-Class Lien-Free Completion. Tenant shall only use
new, first-class materials in connection with Tenant's Work and alterations, and
same shall be paid for in full and in a timely fashion by Tenant, and shall be
performed in a lien-free, first-class, and good and workmanlike manner, and in
accordance with applicable codes and requirements. Tenant's Work and alterations
shall comply with the requirements of the Americans with Disabilities Act
("ADA").
(B) Bonding. All contractors and subcontractors performing any
work on behalf of Tenant within the Premises shall be subject to Landlord's
approval, and shall be bonded (or, at Landlord's
<PAGE> 59
option, bondable) and licensed to do business in jurisdiction within which the
Premises is located.
(C) Insurance Requirements During Construction.
(1) Tenant shall secure, pay for, and maintain, or
cause its contractors and subcontractors to secure, pay for, and maintain,
during the continuance of construction and fixturing work within the Premises,
all of the insurance policies required in the amounts as set forth herein,
together with such insurance as may from time to time be required by city,
county, state or federal laws, codes, regulations or authorities.
(2) Tenant's Work and alterations may not commence,
nor may either party permit its contractors and subcontractors to commence any
work, until all required insurance has been obtained, and, if Landlord requests,
until Tenant's certificates of such insurance have been delivered to Landlord.
Tenant's insurance policies shall name the Landlord, Landlord's mortgagee(s) and
Landlord's Architect and general contractor for the Premises as additional
insureds. Tenant's certificates of insurance shall provide that no change or
cancellation of such insurance coverage shall be undertaken without thirty (30)
days' prior written notice to Landlord.
(3) Landlord shall have the right to require Tenant,
and Tenant shall have the duty, to stop work in the Premises immediately if any
of the coverage Tenant is required to carry herein lapses during the course of
the work, in which event Tenant's Work (or alterations) may not be resumed until
the required insurance is obtained and satisfactory evidence of same is provided
to Landlord.
(4) In the event Tenant employs a contractor or
subcontractor to perform all or part of Tenant's Work and/or alterations, Tenant
shall purchase, or cause its contractor to carry, General Contractor's and
Subcontractor's Required Minimum Coverages and Limits of Liability as follows
(the insurance required under this Exhibit C shall be in addition to any and all
insurance required to be procured by Tenant pursuant to the terms of the Lease):
(i) Worker's Compensation, as required by
state law, and Employer's Liability Insurance with a
limit of not less than $2,000,000 (or more if
required by the law of the State) and any insurance
required by any Employee Benefit Act or similar
statute applicable where the work is to be performed,
as will protect the contractor and subcontractors
from any and all liability under the aforementioned
act(s) or similar statute.
(ii) Comprehensive General Liability
Insurance (including Contractor's Protective
Liability) in an amount not less than $5,000,000 per
occurrence whether involving personal injury
liability (or death resulting therefrom) or property
damage liability or a combination thereof (combined
single limit coverage) with a minimum aggregate limit
of $5,000,000. Such insurance shall insure Tenant's
general contractor against any and all claims for
personal injury, death, and damage to the property of
others arising from its operations under its
contract, whether such operations are performed by
Tenant's contractors, subcontractors, or
sub-subcontractors, or by anyone directly or
indirectly employed by any of them.
(iii) Comprehensive Automotive Liability
Insurance, for the ownership, maintenance, or
operation of any automotive equipment, whether
<PAGE> 60
owned, leased, or otherwise held, including
employer's non-ownership and hired car liability
endorsements, in an amount not less than $2,000,000
per occurrence and $2,000,000 aggregate, combined
single limit bodily injury and property damage
liability.
(D) Tenant agrees that Landlord will have the right to inspect the
performance of Tenant's Work or alterations by Tenant's contractor(s) and
subcontractor(s), through Landlord's construction manager, and Tenant agrees to
cooperate with Landlord to facilitate such inspection, including without
limitation: (a) notifying Landlord and such construction manager prior to any
and all government inspections of Tenant's Work so that Landlord's construction
manager can be present therefor; (b) permitting Landlord's construction manager
free and clear access to the Premises during the construction period, as
necessary to perform such inspections, and (c) complying (or causing its
contractor to comply) with the reasonable directions of such construction
manager in connection with Tenant's Work or alterations, as long as such
directions are not inconsistent with the Approved Plans. Landlord shall use
reasonable efforts not to interfere unreasonably with the performance of
Tenant's Work during the course of any inspections by Landlord or Landlord's
construction manager pursuant to this Paragraph 12(D)
(E) In the performance of Tenant's Work or alterations in accordance
with this Lease, Tenant shall cause its contractor to use reasonable and
diligent efforts not to interfere with ongoing operations in the Building.
Without limiting the foregoing, Tenant agrees to cause its contractor to use
reasonable and diligent efforts to minimize excess noise, and to limit its
construction activities to the portion of the Premises being constructed and
those portions of the common area (if any) in which Tenant is permitted to
perform alterations or Tenant's Work in accordance with the Approved Plans.
(F) Tenant's contractor shall be responsible for all utility costs
associated with the performance of Tenant's Work or alterations and shall either
supply its own electricity and other utilities, or shall reimburse Landlord for
all utility consumption associated with such work. Tenant's contractor shall
keep all construction areas reasonably clean and free of trash and debris, and
shall police the activities of its contractors, subcontractors and their
respective employees with regard to keeping the Building and land clean, and not
disturbing the other tenants and occupants of the Building in the course of such
construction activities. Tenant agrees to follow (or to cause its contractors
and subcontractors to follow) all reasonable directions given to Tenant or its
contractor and subcontractors by Landlord's construction manager. Tenant's
construction contract shall indemnify Tenant and Landlord from damages, losses
and expenses associated with the acts and omissions of Tenant's contractor, its
agents, employees and subcontractors, and shall otherwise be subject to
Landlord's prior reasonable approval.
(G) Tenant shall provide to Landlord copies of all applications for
permits, copies of all governmental inspection reports and/or certificates, and
any and all notices or violations communicated to Tenant or its contractors by
applicable governmental authorities, promptly upon receipt and/or submission
thereof, as the case may be. Tenant agrees to comply (or to cause its
contractors to comply) with all applicable federal, state and local laws,
regulations and ordinances in the performance of Tenant's Work or alterations,
and to promptly rectify any violations of such laws caused by the acts or
omission of Tenant, its employees, agents and/or contractors, and Tenant shall
be responsible for any non-compliance by Tenant or its agents, employees and
contractors. In the event (i) of any violation of this Exhibit C, or (ii) the
construction of any improvements in the Premises which are not within the scope
of the Approved Plans (or other Landlord-approved plans), Landlord shall have
the right to cause Tenant and Tenant's contractor to stop Tenant's Work or
alterations and to remove any such improvements which have been constructed in
violation of the Approved Plans (or other Landlord-approved plans) or this
Exhibit C at Tenant's expense, and to seek any and all appropriate legal and
<PAGE> 61
equitable relief in order to enforce the provisions of this Exhibit C.
<PAGE> 62
EXHIBIT D
Rules and Regulations
1. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the Building shall not be obstructed by Tenant, its agents or
employees or used by any of them for any purpose other than for ingress to and
egress from the Premises. The halls, passages, exits, entrances, elevators, and
stairways are not for the general public, and Landlord shall in all cases retain
the right to control and prevent access thereto of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
any tenant normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities. Neither Tenant nor its agents,
employees or invitees shall go upon the roof of the Building without the prior
written consent of Landlord.
2. No sign, placard, picture, name, advertisement or notice, visible
from the exterior of the Premises shall be inscribed, painted, affixed or
otherwise displayed by Tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to Tenant general
guidelines relating to signs inside the Building on the office floors. Tenant
agrees to conform to such guidelines, but may request approval of Landlord for
modifications, which approval will not be unreasonably withheld. All approved
signs or lettering on doors shall be printed, painted, affixed or inscribed at
the expense of Tenant by a person approved by Landlord, which approval will not
be unreasonably withheld. Material visible from outside the Building will not be
permitted.
3. Tenant shall not allow a fire or bankruptcy sale or any auction to
be held on the Premises or allow the Premises to be used for the storage of
merchandise held for sale to the general public.
4. Tenant shall not use or permit the use of the Premises for lodging.
No cooking shall be done or permitted by Tenant on the Premises, except the use
of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages, and a microwave oven, shall be permitted,
provided that such use is in accordance with all applicable federal, state and
city laws, codes ordinances, rules and regulations.
5. Tenant shall not employ any person or persons other than the janitor
of Landlord for the purpose of cleaning the Premises, unless otherwise agreed to
by Landlord in writing. Except with the written consent of Landlord, no person
or persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the Premises. Tenant shall not cause or
permit any unnecessary labor by reason of carelessness or indifference in the
preservation of good order and cleanliness, on the part of Tenant, its agents,
employees or contractors. Janitor services will not be furnished on nights when
rooms are occupied after 9:30 p.m. unless, by agreement in writing, such service
is extended to a later hour for specifically designated rooms.
6. Unless specified otherwise in the Lease, Landlord will furnish
Tenant free of charge with two keys to each door lock in the Premises. Landlord
may make a reasonable charge for additional keys. Tenant shall not have any
additional keys to the Premises made. Tenant shall not alter any lock or install
a new or additional lock or any bolt on any door of the Premises without the
prior written consent of Landlord, and Tenant shall in each such case shall
furnish Landlord with a key for any such lock. Tenant, upon the expiration or
termination of its tenancy, shall deliver to Landlord all keys to doors in the
Building which shall have been furnished to the Tenant.
<PAGE> 63
7. Landlord shall designate how all office equipment, furniture,
appliances and other large objects or property ("Equipment") shall be moved in
and/or out of the Building. The persons employed to move any Equipment in or out
of the Building must be acceptable to Landlord. Landlord shall have the right to
prescribe the weight, size and position of all Equipment brought into the
Building. Heavy objects shall, if considered necessary by Landlord, stand on
wood strips of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss or damage to any such Equipment from
any cause, and all damage done to the Building by moving or maintaining such
Equipment shall be prepaid at the expense of Tenant.
8. Tenant shall not permit, use or keep in the Premises or the Building
any kerosene, gasoline or inflammable or combustible fluid or material other
than limited quantities thereof reasonably necessary for the operation and
maintenance of office equipment, or, without Landlord's prior written approval,
use any method of heating or air conditioning other than that supplied by
Landlord. Tenant shall not use or keep or permit to be used or kept any foul
obnoxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to Landlord or to
other occupants of the Building by reason of noise, odors, or vibrations, or
interfere in any way with other Building tenants or those having business
therein.
9. Landlord shall have the right, exercisable without notice and
without liability to Tenant, to change the name and street address of the
Building.
10. Landlord reserves the right to exclude from the Building between
the hours of 6:00 p.m. and 7:00 a.m. and at all hours on Sundays, legal holidays
and on Saturdays any person who, in Landlord's sole opinion, has no legitimate
business in the Building. Landlord shall in no case be liable for damages for
any error with regard to the admission to or exclusion from the Building of any
person. In the case of invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building during the continuance of
the same by such action as Landlord may deem appropriate, including closing
and/or locking of doors.
11. The directory of the Building will be provided for the display of
the name and location of Tenants. Any additional name which Tenant shall desire
to place upon said directory must first be approved by Landlord in writing and,
if so approved, a charge will be made therefore.
12. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window of the Building without the prior written
consent of Landlord, and such items shall be installed as instructed by
Landlord.
13. Tenant shall not permit or obtain for use in the Premises, ice,
water, food, beverage, towel or other similar services, except in accordance
with any reasonable regulations therefor as may be established by Landlord.
14. Tenant shall ensure that the doors of the Premises are closed and
locked, and that all water faucets, water apparatus and utilities are shut off
before Tenant or Tenant's employees leave the Premises, so as to prevent waste
or damage, and for any default or carelessness in this regard Tenant shall be
responsible for any and all injuries sustained by other tenants or occupants of
the Building and/or Landlord. All tenants shall keep the doors to the Building
corridors closed at all times except for ingress and egress.
<PAGE> 64
15. All Building toilet rooms, toilets, urinals, wash basins and other
apparatus shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by that Building tenant who, or whose
agents, employees or invitees, shall have caused it.
16. Except with the prior written consent of Landlord, Tenant shall not
sell, nor shall Tenant permit the sale at retail, of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise to the general
public in or on the Premises, nor shall Tenant carry on, or permit or allow any
employee or other person to carry on, the business of stenography, typewriting
or any similar business in or from the Premises for the service or accommodation
of occupants of any other portion of the Building, nor shall the Premises be
used for manufacturing of any kind, or any business or activity other than that
specifically provided for in Tenant's Lease.
17. Tenant shall not install any radio or television antenna,
loudspeaker, or other device on the roof or exterior walls of the Building
without Landlord's prior written consent.
18. Hand trucks shall not be used in any space or public halls of the
Building, either by Tenant or others, except those equipped with rubber tires
and side guards or such other material-handling equipment as Landlord may
approve. No other vehicles of any kind shall be brought by Tenant into the
Building or kept in or about the Premises.
19. Tenant agrees to coordinate all moving activity of office equipment
and furniture in and out of the Building with Landlord or Landlord's agent, and
to use the services of an insured professional moving company. Tenant
acknowledges that any attempt to bring in or take out any office equipment or
furniture from the Building without prior written approval of Landlord or
Landlord's agent will be prevented by the on-site security guard.
20. Tenant shall store all its trash and garbage within the Premises.
No material shall be placed in the trash boxes, receptacles or common areas if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage as is
required by Landlord for the Building, without being in violation of any law or
ordinance governing such disposal. All garbage and refuse disposal shall be made
only through entryways and elevators provided for such purposes and at such
times as Landlord shall designate.
21. Canvassing, soliciting, distribution of handbills, or any other
written material peddling in the Building are prohibited, and Tenant shall
cooperate to prevent the same.
22. Tenant agrees to abide by all governmental rules and regulations
pertaining to thermostatic control of the temperature of the Premises.
23. Tenant agrees not to allow or keep any animals or pets of any kind
on the Premises, except those seeing-eye dogs which are for the direct purpose
of aiding and assisting the visually impaired.
24. Any request Tenant makes to Landlord will be attended to only upon
application by telephone or in person at the office of Landlord. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
<PAGE> 65
25. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular Building tenant or tenants, but no such waiver
by Landlord shall be construed as a waiver of such Rules and Regulations in
favor of any other Building tenant or tenants, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all of the
tenants of the Building.
26. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Building, including Tenant's Lease.
27. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care, and cleanliness of the Building, and for the preservation of good order
therein.
<PAGE> 66
EXHIBIT E
Declaration of Lease Commencement
THIS DECLARATION is attached to and made a part of that certain Deed of
Lease dated the day of ______________, 1999, (the "Lease") entered into by and
between WESTWOOD CENTER, L.L.C., a Delaware limited liability company
("Landlord") and SAGE NETWORKS, INC., a Delaware corporation ("Tenant").
Landlord and Tenant are parties to the Lease. All capitalized terms
used herein shall have the same meaning as was ascribed to such terms in the
Lease, unless otherwise indicated.
Landlord and Tenant do hereby declare that (a) the "Commencement Date"
is hereby established to be ________________ and (b) the Term of the Lease shall
expire on __________________________. The Lease is in full force and effect as
of the date hereof, Landlord has fulfilled all of its obligations under the
Lease required to be fulfilled by Landlord on or prior to such date with the
exception of punch list items, and Tenant has no right of setoff against any
rentals.
IN WITNESS WHEREOF Landlord and Tenant have executed this Declaration
as of the ___ day of ________________, 1999.
WITNESS/ATTEST: LANDLORD:
WESTWOOD CENTER, L.L.C.
By:___________________________(SEAL)
Name:
Title:
TENANT:
SAGE NETWORKS, INC.
By:___________________________(SEAL)
Name: ____________________________
Title: ___________________________
E-1
<PAGE> 67
EXHIBIT F
FORM OF ESTOPPEL CERTIFICATE
Date: _________________
_______________________
_______________________
_______________________
_______________________
Re: Lease of 13,171 rentable square feet of space on the 1st floor
(the "Premises") of the building located at 8619 Westwood
Center Drive, McLean, Virginia
Dear Sirs:
This estoppel certificate is given to you such that you, your lenders
and partners, and their respective successors and assigns, may rely on the
contents hereof in connection with your acquisition/financing of the project
described herein. The undersigned, Sage Networks, inc., a Delaware corporation
("Tenant"), having an address of 8619 Westwood Center Drive, McLean, Virginia is
the tenant under that certain Deed of Lease for the above Premises dated
_____________ ___, ____, the term of which expires on __________________, 20__,
which Premises is owned by Westwood Center, L.L.C., a Delaware limited liability
company ("Landlord/Assignor"). A copy of the Deed of Lease and any amendments,
exhibits and addenda thereto is attached hereto as Exhibit A (the "Lease").
Tenant hereby represents to Landlord and to ____________________________
("Assignee" or "lender"), its lender's partners and assignees as follows:
(a) Tenant has accepted and is occupying the Premises;
(b) the Lease has not been modified or amended except as stated in
the documents attached hereto as Exhibit A, and constitutes
the entire agreement between Landlord and Tenant;
(c) the Lease is in full force and effect;
(d) all construction, build-out, improvements, alterations, or
additions to the Premises required to be made by Landlord
under the Lease have been fully completed in accordance with
the terms of the Lease, and have been accepted by Tenant;
(e) to the best of Tenant's knowledge, having undertaken
reasonable investigation and inquiry, and as of the date of
execution hereof, Tenant is not in default under the Lease and
no circumstance exists which, with the giving of notice or the
passage of time would create such a default. To the best of
Tenant's knowledge, having undertaken reasonable investigation
and inquiry, and as of the date of execution hereof, Landlord
is not in default under the Lease and no circumstances exist
under which with the giving of notice or the passage of time
would create such a default.
(f) Tenant has not received any free rent, partial rent, rebates,
rent abatements, rent concessions, or any other economic
concession (rental or otherwise) or similar compensation not
expressed in the Lease;
(g) there are no offsets or credits against rentals nor have
rentals been prepaid, except as expressly provided by the
terms of the Lease, and there are no known defenses or
counterclaims to Tenant's future obligation to pay the
specified rentals at the times
E-2
<PAGE> 68
required in accordance with the terms of the Lease.
(h) The Lease Expiration Date is ___________________;
(i) Tenant has not exercised any options or rights to renew,
extend, amend, modify or change the term of the Lease. Tenant
has no right to extend the Term of the Lease except as set
forth in Section 51 of the Lease.
(j) Tenant acknowledges that the Lease and the rents payable
thereunder are to be assigned to Assignee, and upon notice of
the assignment Tenant shall thereafter make all rental
payments required under the Lease to the Assignee.
(k) the current Monthly Base Rent is $___________. Monthly Base
Rent has been paid through ______________. No rent has been
prepaid for more than one month. Tenant is obligated to pay
Tenant's Share of Increases in Operating Costs and Real Estate
Taxes in the amounts as set forth in the Lease. Tenant's
estimated share of Operating Costs and Real Estate Taxes have
been paid through __________________. Tenant has no claim of
overpayment of additional rent for calendar years prior to
(the immediately preceding calendar year);
(l) Tenant has posted a security deposit of $____________ to be
held by Landlord pursuant to the terms of the Lease, of which
$_____________ remains held by Landlord.
(m) all insurance required by Tenant under the Lease has been
obtained and maintained by Tenant and all premiums therefor
have been paid;
(n) the address for notices to Tenant under the Lease is correctly
set forth above;
(o) the person signing this letter on behalf of Tenant is a duly
authorized agent of the Tenant;
(p) having undertaken no independent investigation or inquiry,
Tenant has no actual knowledge of the presence of any
"hazardous materials", "toxic substances" or "hazardous
substances" as defined and regulated by any federal or state
governmental agency or instrumentality on or about the
Premises;
(q) Tenant has not:
(i) made a general assignment for the benefit of
creditors;
(ii) commenced any case, proceeding or other action
seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors;
(iii) had any involuntary case, proceeding or other action
commenced against it which seeks to have an order for
relief entered against it, as debtor, or seeks
reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency,
reorganization or relief of debtors;
(iv) subleased all or any part of the Premises or assigned
the Lease, or otherwise transferred its interest in
the Lease or the Premises except as
E-3
<PAGE> 69
follows___________________________________;
(vi) had a trustee, receiver, custodian or other similar
official appointed for or take possession of all or
any material part of its property or had any court
take jurisdiction of any other material part of its
property; or
(vii) filed and is not subject of any filing for bankruptcy
or reorganization under the federal bankruptcy code
or any state statutes of similar import.
TENANT:
SAGE NETWORKS, INC.
By: ____________________________________
Name:___________________________________
Title:__________________________________
E-4
<PAGE> 70
EXHIBIT "A" TO ESTOPPEL CERTIFICATE
[Attach copy of Lease and any amendments]
E-5
<PAGE> 71
EXHIBIT G
Tenant's Financial Information
E-6
<PAGE> 72
EXHIBIT H
Existing Fixtures
E-7
<PAGE> 1
EXHIBIT 10.17
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "Sublease"), made as of this 29th day of
May, 1998, by and between SOUTHERN COMPANY SERVICES, INC. having an office at 64
Perimeter Center East, Atlanta, Georgia 30346 ("Sublessor"); and SAGE NETWORKS,
INC., having an office at 64 Perimeter Center East, Suite G-100, Atlanta, GA
30346 ("Sublessee").
W I T N E S S E T H:
WHEREAS, Sublessor, as "Tenant", entered into a lease with Metropolitan
Life Insurance Company and Centennial Equities Corporation, as joint venturers
doing business as "Perimeter Center Properties" (the "Prime Landlord"), as
"Landlord", originally dated September 8, 1983, as amended from time to time
(collectively the "Prime Lease"), pursuant to which Sublessor leased all of that
certain building known as "Building 64A" at Perimeter Center (the "Building").
Said Prime Lease to which reference is made above is incorporated herein by this
reference. The Building and the land upon which said Building is located (which
includes certain parking facilities serving the Building), more particularly
described on Exhibit "A", attached hereto and by this reference incorporated
herein, is herein referred to as the "Property".
WHEREAS, Sublessor and Sublessee have agreed that Sublessor shall
sublet approximately 7,240 rentable square feet of such space as rented under
the Prime Lease to Sublessee, as such space is shown on Exhibit "B", upon the
terms and conditions as herein described.
NOW THEREFORE, for Ten and No/100 Dollars ($10.00) and other good and
valuable consideration, paid by the parties hereto to one another, the receipt
and sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereto hereby covenant and agree as follows:
1. Premises and Rent
(a) Sublessor hereby subleases and rents to Sublessee, and Sublessee
hereby subleases and rents from Sublessor, under the sublease arrangement set
forth herein, 7,240 rentable square feet of space ( the "Sublease Premises") as
shown on Exhibit "B", being a portion of the rentable space on floor G1. Such
space is immediately available for Sublessee to perform tenant fit-up and finish
work therein, subject to the terms of Paragraph 2 herein. "Base Rent" (as
described herein) will commence upon the occupancy of the Sublease Premises by
Sublessee for the purpose of conducting business, but no later than July 1, 1998
(the "Commencement Date").
(b) The Base Rent for the Sublease Premises due from Sublessee to
Sublessor shall be at an annual rate of $25.59 per rentable square foot per
annum, exclusive of the cost of electricity, which will be metered and paid
separately by Sublessee in accordance with Paragraph 1(e) herein. The Base Rent
will escalate by three percent (3%) per annum, on each anniversary date of the
Commencement Date. Exhibit "C", by this reference incorporated herein, is a
schedule of the Base Rent due from Tenant hereunder.
(c) Sublessee shall pay the Base Rent provided for hereunder in
advance, on the first day of every month during the Term. Payment should made
to:
<PAGE> 2
Southern Company Services, Inc.
Southern Company Center
270 Peachtree Street
Atlanta, Georgia 30303
Attention: Joyce Baker
(d) The Sublease Premises shall include Sublessee's right to use, in
common with others, public lobbies, entrances, stairs, corridors, elevators,
cafeterias (if any), and other public portions of the Building. All the windows
and outside walls of the Sublease Premises, and any space in the Sublease
Premises used for shafts, pipes, conduits, ducts, telephone ducts and equipment,
electric or other utilities, sinks or other Building facilities, and the use
thereof and access thereto through the Sublease Premises for the purposes of
operation, maintenance, inspection, display and repairs are hereby reserved to
Sublessor. No easement for light, air or view is granted or implied hereunder,
and the reduction or elimination of Sublessee's light, air or view will not
affect this Sublease.
(e) Sublessee shall install, at Sublessee's sole cost, meters to
separately meter the electricity distributed to and consumed in the Sublease
Premises.
2. Term. The term of the Sublease shall begin upon the Commencement Date,
and end on June 30, 2003. However, Sublessee shall have the right to access to
the Sublease Premises upon the due execution of this Sublease by all parties
hereto, to perform work therein under the terms of this Sublease, but without
the obligation to pay Base Rent until the Commencement Date.
3. No Assignment.
(a) Except as set forth below Sublessee shall not assign this Sublease
nor sublet the Sublease in whole or in part and shall not permit Sublessee's
interest in this Sublease to be vested in any third party by operation of law or
otherwise, without obtaining Sublessor's prior written consent, such consent not
to be unreasonably withheld, conditioned or delayed. Sublessor shall give notice
to Sublessee with Sublessor's response to any proposed assignment or sublease
within twenty (20) days after Sublessor receives all of the "Required Sublease
Information" (as that term is herein defined).
(b) Sublessee shall, however, have the right to assign the Sublease or
sub-sublet the Sublease Premises, or any part thereof, without Sublessor's
consent, and without submitting to Sublessor the Required Sublease Information,
but subject to Sublessor's rights to notice and prohibition contained in this
subparagraph (b), to (i) any entity which controls, is controlled by, or is
under common control with, Sublessee, (ii) any entity resulting from a merger or
consolidation with Sublessee, (iii) any entity which acquires all or
substantially all the assets of Sublessee or of an entity described in this
subparagraph (b) (iv) any entity which acquires all or substantially all of the
assets of a division, affiliate or subsidiary of Sublessee or a division of an
entity described in this subparagraph (b), but only if such organization is
occupying the Sublease Premises, or (v) any entity which acquires a line of
business from Sublessee, and such line of business was conducted in the Sublease
Premises. Sublessee shall have the obligation to notify Sublessor of its intent
to enter into any such arrangement, and if Sublessor reasonably determines that
the proposed assignee
-2-
<PAGE> 3
would cause a violation by Sublessor of its obligations under the Prime Lease,
Sublessor shall have the right to prohibit such arrangement based upon the issue
of violation by Sublessor of its obligations under the Prime Lease, by giving
written notice thereof, acknowledged by Prime Landlord, within ten (10) days of
receipt of Sublessee's notice.
(c) No assignment or subletting shall affect the continuing primary
liability of Sublessee (which, following assignment, shall be joint and several
with the assignee), and Sublessee shall not be released from performing any of
the terms, covenants and conditions of this Lease, unless Sublessor, after
giving due consideration to the issue, believes in its sole and absolute
discretion that the credit history, net assets, cash on hand and other relevant
financial strengths of the assignee or sublessee are such that its interests are
sufficiently protected after releasing Sublessee from liability.
(d) For the purposes of this Paragraph the Required Sublease
Information shall include the following: (i)the identity and business of the
proposed sublessee or assignee; (ii) financial information from the previous
three (3) years and a credit history of the proposed sublessee or assignee;
(iii) a copy of the proposed sublease or assignment of lease to which Sublessee
intends to be a party; (iv) the proposed use of the space by the proposed
sublessee or assignee.
(e) Notwithstanding any provision in this Sublease to the contrary, it
shall not be unreasonable for Sublessor to withhold its consent to any proposed
transfer, assignment, or subletting of the Sublease Premises if (i) the proposed
transferee's anticipated use of the Sublease Premises involves the generation,
storage, use, treatment, or disposal of Hazardous Material, other than any
"Permitted Hazardous Material" (as that term is herein defined); or (ii) the
proposed transferee has been required by any prior landlord, lender, or
governmental authority to take remedial action in connection with Hazardous
Material contaminating a property if the contamination resulted from such
transferee's actions or use of the property in question.
(f) Except in the case of Sublessee's assignment or sub-sublease under
subparagraph (b) above, Sublessee shall reimburse Sublessor on demand for any
reasonable costs that Sublessor may incur in connection with said assignment or
sublease, including the reasonable costs actually paid, if any, of investigating
the acceptability of the proposed assignee or subtenant, and reasonable legal
costs incurred in connection with the granting or withholding of any requested
consent, up to, but not in excess of, Five Hundred and No/100 Dollars ($500.00)
per request.
4. Tenant Improvement Allowance. Sublessor shall provide to Sublessee a tenant
improvement allowance of up to $21,720, which is equal to $3.00 per rentable
square foot of the Sublease Premises. Such amount will be payable by Sublessor
to Sublessee in one lump sum cash payment within 30 days of the due execution of
this Sublease by all parties thereto.
5. Renewal Right. For so long as no Event of Default has occurred and is
continuing, and Sublessee (and not a sub-sublessee or an assignee of Sublessee)
is in occupancy of the Sublease Premises, Sublessee shall have the one time
right to renew this Lease for the period from July 1, 2003, through February 28,
2006, at the then escalated Base Rent rate, with such Base Rent rate continuing
to escalate at a rate of three percent (3%) per annum, on each anniversary of
the Commencement Date. Such right must be exercised no later than October 31,
2002 by a notice to Sublessor.
6. Omitted.
-3-
<PAGE> 4
7. Letter of Credit. (a) Sublessee shall deliver to Sublessor an irrevocable,
unconditional letter of credit in favor of Sublessor in an initial amount (as
may be reduced as set forth below) of $99,999.00, in a form acceptable to
Sublessor and issued by a bank, acceptable to Sublessor, in or having a
correspondent bank in the Atlanta, Georgia metropolitan area. If Sublessee
defaults or otherwise fails to comply with the terms of the Sublease for any
reason, Sublessor may immediately draw upon and receive payment under said
letter of credit, it being the express intent of Sublessor and Sublessee that
the letter of credit be used as a security deposit, securing the full and
complete performance by Sublessee of Sublessee obligations under the Sublease.
Any such draw by Sublessor shall include a statement that an Event of Default on
the part of Sublessee has occurred and is continuing. Such letter of credit
shall permit transfers of the payee thereunder if Sublessor transfers its
interest in the Sublease Premises or the Building. The letter of credit shall be
open and may be drawn upon for a period which expires one (1) month after the
scheduled expiration of the Term; provided however, that such letter of credit
may be a duration shorter than said period so long as Sublessee replaces said
letter of credit with a new letter of credit, on the same terms and conditions,
and in the same amount, as the prior letter of credit, at least one (1) month
prior to the expiration of the prior letter of credit. If Sublessee fails to
replace a prior letter of credit within the period required herein, then
Sublessor shall be immediately authorized and entitled to demand and receive
payment under said letter of credit, and to apply and hold the proceeds
therefrom as a security deposit. If such a security deposit is created as a
result of this paragraph and there is an Event of Default on the part of
Sublessee under the Sublease for any reason, Sublessor may, after giving five
(5) days advance notice to Sublessee, without prejudice to Sublessor's other
remedies, apply part or all of the Security Deposit to cure Sublessee's default.
If Sublessor so uses part or all of the Security Deposit, then Sublessee shall
with ten (10) days after written demand, pay Sublessor the amount used to
restore the Security Deposit to its original amount.
(b) If no Event of Default on the part of Sublessee has occurred and is
continuing, and Sublessor has not previously drawn upon the letter of credit,
then on or after the 1st anniversary of the Commencement Date, the amount of
letter of credit may be reduced (by a replacement letter of credit, in
accordance with the terms of Paragraph 7(a) above), by Tenant to a letter of
credit in the face amount of $84,560.00.
(c) If no Event of Default on the part of Sublessee has occurred and is
continuing, and Sublessor has not previously drawn upon the letter of credit,
then on or after the 2nd anniversary of the Commencement Date, the amount of
letter of credit may be reduced (by a replacement letter of credit, in
accordance with the terms of Paragraph 7(a) above), by Tenant to a letter of
credit in the face amount of $70,121.00.
8. Other Charges; Operating Costs. Normal operating costs for a data center
operation are included in the Base Rent. These include 24 hours per day, 7 days
per week, HVAC support, secured access, raised computer flooring, and special
fire protection systems. Also included in the Base Rent will be Uninterruptable
Power Service ("UPS"), through the Building's UPS system. In addition to the
Base Rent, Sublessee will reimburse Sublessor for any special operating costs as
reasonably determined by Sublessor, if such costs are incurred due to or as a
result of additional services requested by Sublessee.
9. Subordinate to Prime Lease. This Sublease is subject and subordinate in all
instances and under all circumstances to the Prime Lease. Except as may be
inconsistent with the terms hereof,
-4-
<PAGE> 5
all the terms, covenants and conditions in the Prime Lease contained shall be
applicable to this Sublease with the same force and affect as if Sublessor were
the "Landlord" under the Prime Lease and Sublessee were the "Tenant" thereunder;
and in case of any breach hereof by Sublessee, Sublessor shall have all the
rights against Sublessee as would be available to Prime Landlord against
Sublessor as "Tenant" under the Prime Lease.
10. Omitted
11. Omitted.
12. Use. Sublessee shall use the Sublease Premises in accordance with and
subject to the Prime Lease, and in a manner which does not interfere with
Sublessor or create any disturbance or nuisance to any other party, including
any other subtenants or users of the Building. The Sublease Premises may be used
as a data center, plus general office purposes incidental thereto and, in
connection therewith, Sublessee may permit servers or other such equipment of
third-parties to be placed or located within the Sublease Premises, and such use
by third-parties shall not be deemed a sublease or assignment for the purposes
of this Sublease. The use by Sublessee as contemplated above does not, to
Sublessor's knowledge, violate the terms of any certificate of occupancy issued
for the Sublease Premises.
13. Condition of Sublease Premises; Review by Sublease.
(a) Sublessee shall take the Sublease Premises "as is, where is",
except that Sublessor has agreed to and shall provide, at no additional cost or
expense to Sublessee, a demising wall separating the Sublease Premises from
other space in the Building, in accordance with all applicable codes, but
otherwise as Sublessor deems appropriate. Sublessee has had the opportunity to
and has inspected the Sublease Premises, and Sublessor makes and has made no
representations or warranties whatsoever with respect to the Sublease Premises
or the fitness thereof for Sublessee's intended purpose.
(b) Sublessee hereby acknowledges and agrees that Sublessee has had the
opportunity of and has reviewed the Prime Lease. Sublessor makes no
representations or warranties about said Prime Lease or its current status,
except as provided herein.
14. Brokerage. CB COMMERCIAL REAL ESTATE GROUP, INC. ("CB") HAS ACTED AS AGENT
FOR SUBLESSOR IN THIS TRANSACTION. THE WESLEY COMPANY HAS ACTED AS AGENT FOR
SUBLESSEE IN THIS TRANSACTION. CB AND THE WESLEY COMPANY SHALL EACH BE PAID A
COMMISSION BY SUBLESSOR AS INDICATED IN EXHIBIT "D". Sublessor and Sublessee
hereby covenant and agree to one another that no brokerage fees or commissions
are due with respect to or in conjunction with this Sublease as a result of such
party having dealt with any broker other than CB or THE WESLEY COMPANY.
Sublessor and Sublessee hereby indemnify one another, and hold one another
harmless, from and against all loss, cost, damage or expense, including, but not
limited to, attorney's fees and court costs, incurred by a party hereto as a
result of any claims for brokerage fees or commissions due which are made by
reason of such party having dealt with any broker (other than CB or THE WESLEY
COMPANY). Sublessee shall cause any agent or broker representing Sublessee to
execute a lien waiver to and for the benefit of Sublessor and Prime Landlord,
upon receipt by such agent or broker of any commission due hereunder, waiving
any and all lien rights with respect to the Building or Property such agent or
broker has or might have under Georgia law.
-5-
<PAGE> 6
15. Insurance.
(a) Sublessee shall carry (at its sole expense during the Term): (i)
fire and extended coverage insurance insuring Sublessee's improvements to the
Sublease Premises and any and all furniture, equipment, supplies, contents and
other property owned, leased, held or possessed by Sublessee and contained
therein, such insurance coverage to be equal to the full replacement value of
such improvements and property, as such may increase from time to time; (ii)
worker's compensation insurance required by the State of Georgia; and (iii)
commercial general liability coverage on an occurrence basis for injury to or
death of a person or persons and for damage to property occasioned by or arising
out of the condition, use, or occupancy of the Sublease Premises, or other
portions of the Building, including contractual liability and such other
coverages and endorsements as are reasonably required by Sublessor, such policy
to have a combined single limit of not less than Three Million and No/100
Dollars ($3,000,000) for any bodily injury or property damage occurring as a
result of or in connection with the above. Prime Landlord, Sublessor and
Sublessor's property manager shall be named additional insureds on the policies
required hereunder and such policies shall provide that the coverage thereunder
is primary to, and not contributing with, any policy carried by any such
additional insured.
(b) Sublessee shall have included in all policies of insurance
respectively obtained by it with respect to the Building or Sublease Premises a
waiver by the insurer of all right of subrogation against the Sublessor in
connection with any loss or damage thereby insured against, and Sublessor shall
have included in all property insurance policies required to be maintained by
Sublessor under this Sublease a waiver by the insurer of all right of
subrogation against the Sublessee in connection with any loss or damage thereby
insured against. To the full extent permitted by law, Sublessor as to its
property insurance policies and Sublessee as to all its policies, each waives
all right of recovery against the other for, and agrees to release the other
from liability for, loss or damage to the extent such loss or damage results
from a cause covered by valid and collectible insurance in effect at the time of
such loss or damage; provided however, that the foregoing release by each party
is conditioned upon the other party's carrying insurance with the above
described waiver of subrogation to the extent required above, and if such
coverage is not obtained or maintained by either party, then the other party's
foregoing release shall be deemed to be rescinded until such waiver is either
obtained or reinstated.
(c) All said insurance policies shall be carried with companies
licensed to do business in the State of Georgia reasonably satisfactory to
Sublessor having a Best's Rating of A XII or better and shall be noncancellable
and nonamendable except after thirty (30) days' written notice to Sublessor. At
Sublessor's request, duly executed certificates of such insurance shall be
delivered to Sublessor prior to the Commencement Date and at least thirty (30)
days prior to the expiration of each respective policy term. Sublessor shall
have the right to periodically review the coverages required hereunder and if
Sublessor deems it reasonably necessary to require additional coverage resulting
from inflation or from increases in jury verdicts or other economic conditions
in the jurisdiction where the Property is located, Sublessee shall obtain the
coverage requested by Sublessor.
16. Sublessee's Care Of The Sublease Premises.
(a) Sublessee will maintain the Sublease Premises and the fixtures and
appurtenances therein in at least the same condition that existed on the
Commencement Date, and will not commit
-6-
<PAGE> 7
or permit waste therein. Any repair work, maintenance and any alterations
permitted by Sublessor in the Sublease Premises (i) shall be done at Sublessee's
sole cost and expense; (ii) shall be done by Sublessor's employees or agents or,
with Sublessor's consent, by persons requested by Sublessee; and (iii) shall
first be consented to by Sublessor. Sublessee shall, at Sublessee's expense, but
under the direction of Sublessor and performed by Sublessor's employees or
agents, or with Sublessor's consent, by persons requested by Sublessee and
consented to by Sublessor, promptly repair any injury or damage to the Sublease
Premises or Building caused by the misuse or neglect thereof by Sublessee, by
Sublessee's contractors, subcontractors, customers, employees, licensees,
agents, or invitees.
(b) Sublessee will not, without Sublessor's prior consent, and, as
applicable under the Prime Lease, without the prior consent of Prime Landlord,
make alterations, additions or improvements (including, but not limited to,
structural alterations, additions or improvements) in or about Sublease Premises
and will not do anything to or on the Sublease Premises which will increase the
rate of insurance on the Building or the Property. All alterations, additions or
improvements of a permanent nature made or installed by Sublessee to the
Sublease Premises shall become the property of Sublessor at the expiration or
early termination of this Lease. Sublessor reserves the right to require
Sublessee to remove any improvements or additions made to the Sublease Premises
by Sublessee and to repair and restore the Sublease Premises to their condition
prior to such alteration, addition or improvement, reasonable wear and tear,
unrepaired casualty and condemnation excepted, unless Sublessor and, if
applicable, Prime Landlord, has agreed at or prior to the time Sublessee
requests the right to make such alteration, addition or improvement that such
item need not be removed by Sublessee at the expiration or early termination of
the Term.
(c) No later than the last day of the Term, Sublessee will remove
Sublessee's personal property and repair injury done by or in connection with
installation or removal of said property and surrender the Sublease Premises
(together with all keys, access cards or entrance passes to the Sublease
Premises and/or the Building) in as good a condition at the beginning of the
Term, reasonable wear and tear, unrepaired casualty and condemnation excepted.
All property of Sublessee remaining in the Sublease Premises after expiration or
early termination of the Term shall be deemed conclusively abandoned and may be
removed by Sublessor, and Sublessee shall reimburse Sublessor for the cost of
removing the same, subject however, to Sublessor's right to require Sublessee to
remove any improvements or additions made to the Sublease Premises by Sublessee
pursuant to the preceding Paragraph.
(d) In doing any work on the installation of Sublessee's furnishings,
fixtures, or equipment in the Sublease Premises, Sublessee will use only
contractors or workers consented to by Sublessor prior to the time such work is
commenced. The foregoing sentence shall not apply to any internal wiring or
cabling in the Sublease Premises, so long as such work is done in accordance
with all applicable codes and legal requirements. Sublessor may condition its
consent upon its receipt from such contractors or workers of acceptable (i) lien
waivers; and (ii) evidence of liability and personal property insurance coverage
in amounts and with insurance carriers satisfactory to Sublessor. Sublessee
shall promptly remove any lien or claim of lien for material or labor claimed
against the Sublease Premises or Building, or both, by such contractors or
workers if such claim should arise, and hereby indemnifies and holds Sublessor
harmless from and against any and all loss, cost, damage, expense or liabilities
including, but not limited to, attorney's fees, incurred by Sublessor, as a
result of or in any way related to such claims or liens.
-7-
<PAGE> 8
(e) All personal property brought into the Sublease Premises by
Sublessee, its employees, licensees and invitees shall be at the sole risk of
Sublessee, and Sublessor shall not be liable for theft thereof or of money
deposited therein or for any damages thereto, such theft or damage being the
sole responsibility of Sublessee, unless arising out of the gross negligence or
willful misconduct of Sublessee.
17. Default By Sublessee; Sublessor's Remedies.
(a) The occurrence of any of the following shall constitute an Event of
Default hereunder by Sublessee:
(i) The Rent or any other sum of money due of Sublessee
hereunder is not paid within five (5) business days
of the effective date of notice of such late payment;
(ii) The Sublease Premises are abandoned or vacated;
(iii) Any petition is filed by or against Sublessee under
any section or chapter of the National or Federal
Bankruptcy Act or any other applicable Federal or
State bankruptcy, insolvency or other similar law,
and, in the case of a petition filed against
Sublessee, such petition is not dismissed within
ninety (90) days after the date of such filing; if
Sublessee shall become insolvent or transfer property
to defraud creditors; if Sublessee shall make an
assignment for the benefit of creditors; or if
receiver is appointed for any of Sublessee's assets;
(iv) Sublessee fails to bond off or otherwise remove any
lien filed against the Sublease Premises or the
Building by reason of Sublessee's actions, within
fifteen (15) business days after Sublessee has notice
of the filing of such lien;
(v) Sublessee fails to observe, perform and keep the
covenants, agreements, provisions, stipulations,
conditions and Rules herein contained to be observed,
performed and kept by Sublessee (other than the
failure to pay when due any Rent or any other sum of
money becoming due Sublessor hereunder, which under
all circumstances is governed by and subject to
Paragraph 17(a)(i) herein), and persists in such
failure after fifteen (15) days written notice by
Sublessor requiring that Sublessee remedy, correct,
desist or comply (or if any such failure to comply on
the part of Sublessee would reasonably require more
than fifteen (15) days to rectify, unless Sublessee
commences rectification within the fifteen (15) day
notice period and thereafter promptly, effectively
and continuously proceeds with the rectification of
the failure to comply on the part of Sublessee and,
in all such events, cures such failure to comply on
the part of Sublessee no later than ninety (90) days
after such notice).
(b) Upon the occurrence of an Event of Default, Sublessor shall have
the option to do and perform any one or more of the following:
(i) Terminate this Sublease, in which event Sublessee
shall immediately surrender the Sublease Premises to
Sublessor. If Sublessee shall fail to do so,
Sublessor may, without further notice and without
prejudice to any other
-8-
<PAGE> 9
remedy Sublessor may have, enter upon the Sublease
Premises as permitted by law, without the requirement
of resorting to the dispossessory procedures set
forth in O.C.G.A.SectionSection44-7-50 et seq. and
expel or remove Sublessee and Sublessee's effects
without being liable for any claim for trespass or
damages therefor. Upon any such termination,
Sublessee shall remain liable to Sublessor for
damages, due and payable monthly on the day Rent
would have been payable hereunder, in an amount equal
to the Rent and any other amounts which would have
been owing by Sublessee for the balance of the Term,
had this Sublease not been terminated, less the net
proceeds, if any, of any reletting of the Sublease
Premises by Sublessor, after deducting all of
Sublessor's costs and expenses (including, without
limitation, advertising expenses and professional
fees) incurred in connection with or in any way
related to the termination of this Sublease, eviction
of Sublessee and such reletting; and/or
(ii) Declare the entire amount of Rent calculated on the
current rate being paid by Sublessee, and other sums
which would become due and payable during the
remainder of the Term, discounted to present value by
using a reasonable discount rate selected by
Sublessor, to be due and payable immediately. Upon
such acceleration of such amounts, Sublessee agrees
to pay the same at once, together with all Rent and
other amounts theretofore due, less the market value
of the Sublease Premises for the remainder of the
Term, as reasonably determined by Sublessor (taking
into consideration the probable costs of marketing
and reletting the Sublease Premises, then-current
rental rates, probable rental rates for the remainder
of the Term, probable concession packages, the
probability of reletting the Sublease Premises and
the probable amount of time which will elapse before
the Sublease Premises are relet), at Sublessor's
address as provided herein; provided however, that
such payment shall not constitute a penalty or
forfeiture but shall constitute liquidated damages
for Sublessee's failure to comply with the terms and
provisions of this Sublease (Sublessor and Sublessee
agreeing that Sublessor's actual damages in such an
event are impossible to ascertain and that the amount
set forth above is a reasonable estimate thereof).
The acceptance of such payment by Sublessor shall not
constitute a waiver of rights or remedies to
Sublessor for any failure of Sublessee thereafter
occurring to comply with any term, provision,
condition or covenant of this Sublease; and/or
(iii) Enter the Sublease Premises as permitted by law,
without the requirement of resorting to the
dispossessory procedures set forth in
O.C.G.A.SectionSection44-7-50 et seq. and without
being liable for any claim for trespass or damages
therefor, and, in connection therewith, rekey the
Sublease Premises, remove Sublessee's effects
therefrom and store the same at Sublessee's expense,
without being liable for any damage thereto, and
relet the Sublease Premises as the agent of
Sublessee, without advertisement, by private
negotiations, for any term Sublessor deems proper,
and receive the rent therefor. Sublessee shall pay
Sublessor on demand any deficiency that may arise by
reason of
-9-
<PAGE> 10
such reletting, but Sublessee shall not be entitled
to any surplus so arising. Sublessee shall reimburse
Sublessor for all costs and expenses (including,
without limitation, advertising expenses and
professional fees) incurred in connection with or in
any way related to the eviction of Sublessee and
reletting the Sublease Premises, and for the amount
of any other Rent which would have been due of
Sublessee to Sublessor hereunder if not for certain
concessions granted by Sublessor to Sublessee.
Sublessor, in addition to but not in lieu of or in
limitation of any other right or remedy provided to
Sublessor under the terms of this Sublease or
otherwise (but only to the extent such sum is not
reimbursed to Sublessor in conjunction with any other
payment made by Sublessee to Sublessor), shall have
the right to be immediately repaid by Sublessee the
amount of all sums expended by Sublessor and not
repaid by Sublessee in connection with preparing or
improving the Sublease Premises to Sublessee's
specifications and any and all reasonable costs and
expenses incurred in renovating or altering the
Sublease Premises to make it suitable for reletting;
and/or
(iv) Do whatever Sublessee is obligated to do under this
Sublease, including, but not limited to, entering the
Sublease Premises, without being liable to
prosecution or any claims for damages, in order to
accomplish this purpose. Sublessee agrees to
reimburse Sublessor immediately upon demand for any
reasonable expenses which Sublessor may incur in thus
effecting compliance with this Lease on behalf of
Sublessee. Sublessor shall not be liable for any
damages resulting to Sublessee from such action,
whether caused by the negligence of Sublessor or
otherwise.
(c) Pursuit by Sublessor of any of the foregoing remedies shall not
preclude the pursuit of general or special damages incurred, or of any of the
other remedies provided herein, at law or in equity.
(d) No act or thing done by Sublessor or Sublessor's employees or
agents during the Term shall be deemed an acceptance of a surrender of the
Sublease Premises. Neither the mention in this Sublease of any particular
remedy, nor the exercise by Sublessor of any particular remedy hereunder, at law
or in equity, shall preclude Sublessor from any other remedy Sublessor might
have under this Sublease, at law or in equity. Any waiver of or redress for any
violation of any covenant or condition contained in this Sublease or any of the
Rules now or hereafter adopted by Sublessor, 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 Sublessor of Rent with
knowledge of the breach of any covenant in this Sublease shall not be deemed a
waiver of such breach.
18. Condemnation. If the Sublease Premises, or a part of such Sublease Premises
(comprising at least ten percent (10%) of the rentable square feet therein) such
that the Sublease Premises are unusable, are taken by eminent domain or other
similar proceeding or are conveyed in lieu of such taking, then at the option of
either Sublessor or Sublessee, such option to be exercised, if at all, within
thirty (30) days after the party first has knowledge of the condemnation, this
Sublease shall expire on the date when title or right of possession vests, and
Rent paid for any period beyond said
-10-
<PAGE> 11
date shall be repaid to Sublessee. If there is a partial taking where this
Sublease is not terminated, the Rent shall be adjusted in proportion to the
square feet of Sublease Premises taken, determined by Sublessor. In either
event, Sublessor shall be entitled, and Sublessee shall not have any right, to
claim any award made in any condemnation proceeding, action or ruling relating
to the Building or the Property; provided, however, Sublessee shall be entitled
to make a claim in any condemnation proceeding, action or ruling relating to the
Building for Sublessee's moving and relocation expenses and the unamortized
value of leasehold improvements in the Sublease Premises actually paid for by
Sublessee, to the extent such claim does not in any manner impact upon or reduce
Sublessor's claim or award in such condemnation proceeding, action or ruling.
Sublessor shall have, in Sublessor's sole discretion, the option of terminating
this Sublease if any such condemnation, action, ruling or conveyance in lieu
thereof makes continuation of Sublessor's use of the Building economically
unfeasible.
19. Inspections. Sublessor, its agents or employees may enter the Sublease
Premises at reasonable hours, upon reasonable notice (except in an emergency,
for which no notice shall be required), to (a) exhibit the Sublease Premises to
prospective purchasers or, during the last six (6) months of the Term or if an
Event of Default on the part of Sublessee has occurred and is continuing,
sublessees or other potential occupants of the Sublease Premises or the
Building; (b) inspect the Sublease Premises to see that Sublessee is complying
with its obligations hereunder; and (c) make repairs (i) required of Sublessor
under the terms hereof; (ii) to any adjoining space in the Building; or (iii) to
any systems serving the Building which run through the Sublease Premises.
Sublessor shall endeavor to conduct any such inspections or entries in the
Sublease Premises in such a manner as to not unreasonably disrupt or interrupt
Sublessee's operations in the Sublease Premises.
20. Subordination.
(a) This Sublease shall be subject and subordinate to the Prime Lease
and to any underlying land leases or deeds to secure debt which may now or
hereafter affect this Lease, the Building or the Property and also to all
renewals, modifications, extensions, consolidations, and replacements of such
underlying land leases and such deeds to secure debt. In confirmation of the
subordination set forth in this Paragraph 20, Sublessee shall, at Sublessor's
request, execute and deliver such further instruments as may be desired by the
holder of the deed to secure debt (a "Mortgagee") or by any lessor under any
such underlying land leases. Notwithstanding the foregoing, Sublessor or such
Mortgagee shall have the right to subordinate or cause to be subordinated, in
whole or in part, any such underlying land leases or deeds to secure debt to
this Sublease (but not in respect to priority of entitlement of insurance or
condemnation proceeds). If any such underlying land leases or deeds to secure
debt terminate for any reason or any such deeds to secure debt are foreclosed or
a conveyance in lieu of foreclosure is made for any reason, Sublessee shall,
notwithstanding any subordination, deliver to Mortgagee within ten (10) days of
written request an attornment agreement, providing that such Sublessee shall
continue to abide by and comply with the terms and conditions of this Sublease.
(b) If any proceedings are brought for the foreclosure of, or in the
event of exercise of the power of sale or conveyance in lieu of foreclosure
under any deed to secure debt, Sublessee shall at the option of the purchaser at
such foreclosure or other sale, attorn to such purchaser and recognize such
person as Sublessor under this Sublease. The institution of any suit, action or
other
-11-
<PAGE> 12
proceeding by a Mortgagee or a sale of the Sublease Property pursuant to the
powers granted to a Mortgagee under its deed to secure debt, shall not, by
operation of law or otherwise, result in the cancellation or the termination of
this Sublease or of the obligations of Sublessee hereunder.
(c) If such purchaser requests and accepts such attornment, from and
after such attornment, Sublessee shall have the same remedies against such
purchaser for the breach of an agreement contained in this Lease that Sublessee
might have had against Sublessor if the deed to secure debt had not been
terminated or foreclosed, except such purchaser shall not be (i) liable for any
act or omission of the prior Sublessor; (ii) subject to any offsets or defenses
which Sublessee might have against the prior Sublessor; or (iii) bound by any
Rent or security deposit which Sublessee might have paid in advance to the prior
Sublessor.
21. Indemnification And Hold Harmless.
(a) Sublessee hereby indemnifies, agrees to defend and holds Sublessor
harmless from and against any injury, expense, damage, liability or claim,
imposed on Sublessor by any person whomsoever, whether due to damage to the
Sublease Premises, claims for injuries to the person or property of any other
Sublessee of the Building or of any other person in or about the Building for
any purpose whatsoever, or administrative or criminal action by a governmental
authority, provided such injury, expense, damage, liability or claim results
either directly or indirectly from the act, omission, negligence, misconduct or
breach of any provisions of this Sublease by Sublessee, the agents, contractors,
or employees of Sublessee, or any other person entering upon the Sublease
Premises under express or implied invitation or consent of Sublessee, and
provided further that in assessing Sublessee's liability hereunder, the
negligence (if any) of Sublessor associated with such occurrence or incident
shall be taken into account. Sublessee further agrees to reimburse Sublessor,
its agents, contractors or employees or Sublessor's property manager for any
reasonable costs or expenses, including, but not limited to, court costs and
reasonable attorney's fees, which Sublessor or Sublessor's property manager may
incur in investigating, handling or litigating any such claim or any action by a
governmental authority.
(b) Sublessee shall give notice to Sublessor of any defective condition
in or about the Sublease Premises known to Sublessee, and further agrees to
attempt to contact Sublessor by telephone reasonably promptly, or if such
condition is, in Sublessee's reasonable judgment, dangerous, immediately in such
instance.
22. Taxes on Sublessee's Property. Sublessee shall be liable for all taxes
levied or assessed against personal property, furniture or fixtures placed by
Sublessee in the Sublease Premises (herein called "Sublessee's Property"). If
any such taxes for which Sublessee is liable are levied or assessed against
Sublessor or Sublessor's property and if Sublessor elects to pay the same, after
notice to Sublessor, or if the assessed value of Sublessor's Property is
increased as a result of inclusion of Sublessee's Property, and Sublessor elects
to pay the taxes based on such increase, Sublessee shall pay to Sublessor upon
demand and evidence of payment that part of such taxes for which Sublessee is
primarily liable hereunder.
23. Mechanic's Lien. In the case of the filing of any mechanic's lien upon the
Sublease Premises, the Building or any improvements thereon during the Term
caused by or resulting from any work performed, materials furnished or
obligation incurred by or at the request of Sublessee, Sublessee will promptly
pay, post an adequate bond or otherwise discharge the same. If default in
-12-
<PAGE> 13
payment or discharge thereof, or failure to post bond, shall continue for thirty
(30) days after notice thereto from Sublessor to Sublessee, Sublessor shall have
the right and privilege at Sublessor's option, in addition to and not in lieu of
any other remedies available to Sublessee hereunder, of bonding off said lien.
In such event, any amounts so paid, including expenses and interest, shall be so
much Rent hereunder due from Sublessee to Sublessor and shall be repaid to
Sublessor immediately on demand.
24. Remedies Cumulative. The rights given to Sublessor and Sublessee herein are
in addition to any rights that may be given to Sublessor or Sublessee by any
statute or under law.
25. Entire Agreement-No Waiver. This Sublease contains the entire agreement of
the parties hereto and no representations, inducements, promises or agreements,
oral or otherwise, between the parties not embodied herein shall be of any force
and effect. The failure of either party to insist in any instance on strict
performance of any covenant or condition hereof, or to exercise any option
herein contained, shall not be construed as a waiver of such covenant, condition
or option in any other instance. This Sublease cannot be changed or terminated
orally, and can be modified only in writing, executed by each party hereto.
26. Holding Over. If Sublessee remains in possession of the Sublease Premises
after expiration of the Term, or after any termination of the Sublease by
Sublessor, with Sublessor's acquiescence and without any written agreement
between the parties, Sublessee shall be a tenant at sufferance and such tenancy
shall be subject to all the provisions hereof, except that the Monthly Rental
for said holdover period shall be one hundred fifty percent (150%) of the amount
of Rent due in the last month of the Term, for the first three (3) months of any
such holdover, and then double the amount of such Rent thereafter. There shall
be no renewal of this Sublease by operation of law. Nothing in this Paragraph
shall be construed as a consent by Sublessor to the possession of the Sublease
Premises by Sublessee after the expiration of the Term or any termination of the
Sublease by Sublessor.
27. Estoppel Certificates. (a) Sublessee shall furnish from time to time when
requested by Sublessor or the holder of any deed to secure debt or mortgage
covering all or any part of the Building or the improvements therein or the
Sublease Premises or any interest of Sublessor therein, a certificate signed by
Sublessee confirming and containing the following factual certifications: (i)
this Sublease is unmodified and in full force and effect (or if there shall have
been modifications that this Sublease is in full force and effect as modified
and stating such modifications); (ii) the dates to which all rental and other
charges have been paid and whether any such payment represents payment in
advance; and (iii) to the best knowledge of Sublessee no default of the other
party in the performance of any covenant, agreement or condition has occurred
and remains uncured or has been waived or, if default has occurred, the steps
being taken, if any, to cure or correct the same, and Sublessee shall, within
fifteen (15) days following receipt of said proposed certificate from Sublessor,
return a fully executed copy of said certificate to Sublessor.
(b) Sublessor shall furnish from time to time when requested by
Sublessee, a certificate signed by Sublessor confirming and containing the
following factual certifications: (i) this Sublease is unmodified and in full
force and effect (or if there shall have been modifications that this Sublease
is in full force and effect as modified and stating such modifications); (ii)
the dates to which all rental and other charges have been paid and whether any
such payment represents payment in advance; and (iii) to the best knowledge of
Sublessor no default of the other party in the
-13-
<PAGE> 14
performance of any covenant, agreement or condition has occurred and remains
uncured or has been waived or, if default has occurred, the steps being taken,
if any, to cure or correct the same, and Sublessor shall, within fifteen (15)
days following receipt of said proposed certificate from Sublessee, return a
fully executed copy of said certificate to Sublessee.
28. Other Charges. If Sublessor is charged for additional rent or any other sums
pursuant to the provisions of the Prime Lease, as a result of or in connection
with requests made or actions taken by Sublessee, including, but not limited to,
Article II thereof, Sublessee shall be liable for Sublessee's Share of such
additional rent or other sums, unless such charge arises out of the acts or
failure to act (where action is required) of Sublessor. If Sublessee shall
procure any additional services from the Building, such as alterations or
after-hour air conditioning, Sublessee shall pay for same at the rates charged
therefor by the Prime Landlord and shall make such payment to the Sublessor or
Prime Landlord, as Sublessor shall direct. If payment is made to Sublessor,
Sublessor shall be liable to Prime Landlord for such charges and shall indemnify
and hold harmless Sublessee against any claim by Prime Landlord, for payment.
Any sums payable by Sublessee under this Paragraph shall be additional Rent and
collectible by Sublessor as such. If Sublessor receives any refund from Prime
Landlord, Sublessee shall be entitled to the return of so much thereof as shall
be attributable to prior payments by Sublessee.
29. Headings. The headings in this Sublease are included for convenience only
and shall not be taken into consideration in any construction or interpretation
of any part of this Sublease.
30. Attorney's Fees. If Sublessor has to engage or consult with an attorney as a
result of or in connection with a failure by Sublessee to pay any Rent as and
when due under the Sublease, then Sublessee shall owe to Sublessor, in addition
to and not in lieu of any other amounts due hereunder, and shall pay within ten
(10) days after demand for payment therefor is made, all such attorneys fees
incurred by Sublessor. Also, if any law suit or court action between Sublessor
and Sublessee arises out of or under this Sublease, the prevailing party in such
law suit or court action shall be entitled to and shall collect from the
non-prevailing party the reasonable attorney's fees and court costs actually
incurred by the prevailing party with respect to said lawsuit or court action.
31. Time Of Essence. TIME IS OF THE ESSENCE OF THIS SUBLEASE.
32. No Estate In Land. Sublessee has only a usufruct under this Sublease, not
subject to levy or sale. No estate shall pass out of Sublessor by this Sublease.
33. Services. (a) Except as otherwise provided herein, the only services or
rights to which Sublessee is entitled hereunder are those to which Sublessor is
entitled to as "Tenant" under the Prime Lease, and Sublessee shall be entitled
to all such services or rights. For all such services and rights Sublessee will
look to Prime Landlord under the Prime Lease. Notwithstanding the foregoing
sentence, unless consented to by Sublessor, Sublessee shall not contact Prime
Landlord directly, but instead shall request that Sublessor do so, if Sublessee
is not receiving services from Prime Landlord as provided for in the Prime
Lease.
(b) Supplementing Paragraph 8 of this Sublease, the following services
are (by way of illustration but not limitation) available and shall be provided
to the Sublease Premises and are included in the Base Rent:
1. Halon and other specialized fire protection systems.
-14-
<PAGE> 15
2. Uninterruptable Power Systems, generators, power
distribution units, and batteries.
3. 24-hours per day, 7 days per week, HVAC systems
4. Raised, computer flooring
5. Special security or monitoring systems
6. Janitorial Service
7. Elevator Service
34. No Acts. Neither party shall do nor permit anything to be done which would
cause the Prime Lease to be terminated or forfeited or any claims to accrue to
the benefit of Prime Landlord by reason of any right of termination or
forfeiture reserved or vested in Prime Landlord under the Prime Lease, or any
rights to damages accruing to or for the benefit of Prime Landlord under the
Prime Lease, and each party shall indemnify, agree to defend and hold the other
party harmless from and against all loss, cost, damage or expense, including,
but not limited to, attorney's fees and court costs, incurred by such party by
reason of any default on the part of the other party by reason of which the
Prime Lease may be terminated or forfeited, or any claims shall accrue to the
benefit of or for Prime Landlord under the Prime Lease. Notwithstanding the
above, if Sublessee fails to make a payment when due hereunder, then Sublessor
may not, in turn, fail to pay Prime Landlord the rent due under the Prime Lease,
and make a claim against Sublessee hereunder that Sublessee, by virtue of such
non-payment, has caused a default under the Prime Lease. Sublessor shall provide
to Sublessee in a reasonably prompt manner any notice received by Sublessor from
Prime Landlord of a default under the Prime Lease to the extent such default
relates to the Sublease Premises and events, occurrences or actions arising
therefrom or therein.
35. Parking Arrangements. Sublessor shall maintain parking spaces on the
Property for use by Sublessee and Sublessee's invitees and employees, on an
unreserved and non-exclusive basis in the ratio 4.0 parking passes per 1000
rentable square feet of office space leased by Sublessee, and Sublessee shall
use no more than said amount of parking spaces. Such parking shall be available
subject to the limitations and conditions from time to time imposed by
Sublessor.
36. Rules And Regulations. The Rules on Exhibit "E" are a part of this Sublease.
Sublessor may from time to time reasonably amend, modify, delete or add
additional Rules for the use, operation, safety, cleanliness and care of the
Sublease Premises and the Building. Such new or modified Rules shall be
effective upon notice to Sublessee. Sublessee will cause its employees and
agents, or any others permitted by Sublessee to occupy or enter the Sublease
Premises to at all times abide by the Rules. If there is a breach of any Rules,
Sublessor shall have all remedies in this Sublease provided for in an Event of
Default by Sublessee. Sublessor shall not be responsible to Sublessee for the
nonobservance by any other Sublessee or person of any such Rules.
37. Late Payments. Any payment due of Sublessee hereunder not received by
Sublessor within five (5) days of the date when due shall be assessed a five
percent (5%) charge for Sublessor's administrative and other costs in processing
and pursuing the payment of such late payment, and shall be assessed an
additional five percent (5%) charge for the aforesaid costs of Sublessor for
each month thereafter until paid in full; provided, however, that the aforesaid
five percent (5%) charge shall not be due the 1st time in any twelve (12) month
period that a payment is not made when due
-15-
<PAGE> 16
by Sublessee, unless such payment is not made within five (5) days after notice
that such payment has not been made is given to Sublessee. Acceptance by
Sublessor of a payment, and the cashing of a check, in an amount less than that
which is currently due shall in no way affect Sublessor's rights under this
Sublease and in no way be an accord and satisfaction. This provision does not
prevent Sublessor from declaring the non-payment of Rent when due an event of
default hereunder.
38. Severability And Interpretation.
(a) if any clause or provision of this Sublease shall be deemed
illegal, invalid or unenforceable under present or future laws effective during
the Term, the remainder of this Sublease shall not be affected by such
illegality, invalidity or unenforceability, and in lieu of each clause or
provision of this Sublease that is illegal, invalid or unenforceable, there
shall be added as a part of this Lease a clause or provision as similar in terms
to such illegal, invalid or unenforceable clause or provision as may be possible
and be legal, valid and enforceable.
(b) If any provisions of this Sublease require judicial interpretation,
the court interpreting or construing the same shall not apply a presumption that
the terms of any such provision shall be more strictly construed against one
party or the other by reason of the rule of construction that a document is to
be construed most strictly against the party who itself or through its agent
prepared the same, as all parties hereto have participated in the preparation of
this Sublease.
39. Multiple Sublessees. If more than one individual or entity comprises and
constitutes Sublessee, then all individuals and entities comprising Sublessee
are and shall be jointly and severally liable for the due and proper performance
of Sublessee's duties and obligations arising under or in connection with this
Sublease.
40. Force Majeure. Sublessor and Sublessee shall be excused for the period of
any delay and shall not be deemed in default with respect to the performance of
any of the terms, covenants, and conditions of this Sublease when prevented from
so doing by causes beyond Sublessor's and Sublessee's respective, reasonable
control, which shall include, but not be limited to, all labor disputes,
governmental regulations or controls, fire or other casualty, inability to
obtain any material or services, or acts of God; provided however, in no event
and under no circumstances shall an inability or failure to pay money be
attributable to or be excused by any of the matters set forth above.
41. Quiet Enjoyment. So long as an Event of Default on the part of Sublessee has
not occurred and is continuing, Sublessor shall warrant and defend Sublessee in
the quiet enjoyment and possession of the Sublease Premises during the Term
against any and all claims made by, through or under Sublessor, subject to the
terms of this Sublease.
42. Exculpation Of Sublessor. Sublessor's liability to Sublessee with respect to
this Sublease shall be limited solely to Sublessor's interest in the Building.
Neither Sublessor nor any of the partners of Sublessor nor any officer,
director, or shareholder of Sublessor shall have any personal liability
whatsoever with respect to this Sublease. No partners of Sublessee, nor any
officer, director, or shareholder of Sublessee shall have any personal liability
whatsoever with respect to the Sublease.
43. Original Instrument. Any number of counterparts of this Sublease may be
executed, and each such counterpart shall be deemed to be an original
instrument.
-16-
<PAGE> 17
44. Georgia Law. This Sublease has been made under and shall be construed and
interpreted under and in accordance with the laws of the State of Georgia.
45. No Recordation Of Sublease. Without the prior consent of Sublessor, neither
this Sublease nor any memorandum hereof shall be recorded or placed on public
record.
46. Hazardous Wastes.
(a) Sublessee shall not (either with or without negligence) cause or
permit the escape, disposal or release of any biologically or chemically active
or other hazardous substances or materials. Sublessee shall not allow the
storage or use of such substances or materials in any manner not sanctioned by
law, nor allow to be brought into the Building, the Sublease Premises or the
Property, any such materials or substances except to use in the ordinary course
of Sublessee's business, and then only if such are "Permitted Hazardous
Substances" (as that term is herein defined). Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq., any applicable state or local laws and
the regulations adopted under these acts. If any lender or governmental agency
shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Sublessee to Sublessor upon demand as additional charges if such
requirement applies to the Sublease Premises. In addition, Sublessee shall
execute affidavits, representations and the like from time to time at
Sublessor's request concerning Sublessee's best knowledge and belief regarding
the presence of hazardous substances or materials on the Sublease Premises. In
all events, Sublessee shall indemnify Sublessor in the manner elsewhere provided
in this Sublease from any release of hazardous materials on the Sublease
Premises occurring while Sublessee is in possession, or elsewhere if caused by
Sublessee or persons acting under Sublessee. The within covenants shall survive
the expiration or earlier termination of the Term.
(b) As used herein, the term "Hazardous Material" means any hazardous
or toxic substance, material, or waste which is or becomes regulated as such by
any local governmental authority or the United States Government. The term
"Hazardous Material" includes, without limitation, any material or substance
which is (i) defined as a "hazardous waste", "extremely hazardous waste", or
"restricted hazardous waste" or similar term under the law of the jurisdiction
where the property is located, or (ii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317), (iii) defined as a "hazardous waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 47 U.S. Section 6901 et seq.
(42 U.S.C. Section 6903), or (iv) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601).
(c) The term "Permitted Hazardous Substances" shall mean such Hazardous
Substances as are commonly and legally used or stored as a consequence of using,
maintaining or operating the Sublease Premises, but only so long as the
quantities thereof do not pose a threat to public health or to the environment
or would necessitate a "response action" as that term is defined in CERCLA, and
so long as Landlord strictly complies or causes compliance with all applicable
governmental rules and regulations concerning the use, storage, production,
transportation and disposal of such Hazardous Substances.
-17-
<PAGE> 18
(d) The Sublease Premises and the Building have not to Sublessor's
knowledge, but without any independent investigation or inquiry of any nature or
kind, been used by Sublessor for the handling, treatment, storage or disposal of
any Hazardous Material; no Release (hereinafter defined) of any Hazardous
Material and no soil, water or air contamination by any Hazardous Material has
occurred or is occurring in, from or on the Sublease Premises or the Building;
Sublessor has not arranged for the disposal of any Hazardous Material on the
Sublease Premises or the Building; Sublessor has complied with all reporting
requirements under any applicable federal, state or local environmental laws and
permits as they relate to the Sublease Premises, and there are no existing
violations by the Sublessor of any such environmental laws or permits; there are
no claims, actions, suits, proceedings or investigations related to the
presence, release, production, handling, discharge, spillage, transportation or
disposal of any Hazardous Material or contamination of soil, water or air by any
Hazardous Material pending or threatened with respect to the Sublease Premises
or the Building or otherwise against Sublessor in any court or before any state,
federal or other governmental agency or private arbitration tribunal and there
is no basis for any such claim, and action, suit, proceeding or investigation;
and the Sublease Premises and the Building are free from radon contamination.
Release shall mean any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing into the
environment (including the abandonment or discarding of barrels, containers, and
other closed receptacles containing any Hazardous Material).
(e) In the event the presence of any Hazardous Material in the Building
or the soil or ground water on or under the Building caused by Sublessor has
resulted in any contamination of the Building or the soil or ground water on or
under the Building, Sublessor hereby indemnifies Sublessee from and against any,
and agrees to defend and hold Sublessee harmless from and against any and all
loss, damage, cost and/or expenses (including, without limitation, sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the Term of this Sublease as a result therefrom. This
indemnification of Sublessee by Sublessor includes, without limitation, costs
incurred by Sublessee in connection with any investigation of site conditions or
any cleanup, remedial, removal, or restoration work required by any federal,
state, or local governmental agency or political subdivision because of
Hazardous Material present in the soil or ground water on or under the Building
which results from such a breach. If Sublessor is required by law to remediate
such condition, Sublessor shall do so in a manner which does not unreasonably
disrupt or interfere with Sublessee's use of the Sublease Premises.
47. Sublease Binding Upon Delivery. This Sublease shall not be binding until and
unless all parties have duly executed said Lease and a fully executed
counterpart of said Sublease has been delivered to Sublessee.
48. Omitted.
49. Maintenance of Building and Services. Sublessor shall, at Sublessee's
request, use all reasonable efforts to cause Prime Landlord to (i) maintain or
cause to be maintained and make or cause to be made all necessary repairs to the
Building as more fully described in the Prime Lease, including, without
limitation, the mechanical systems of the Sublease Premises and Building, and
all interior and exterior structural elements of the Sublease Premises and
Building, including, without limitation, the exterior doors, walls, windows,
glass, ceilings, floors, foundation, and roof; (ii) furnish or provide or cause
to be furnished or provided through Prime Landlord, to Sublessee
-18-
<PAGE> 19
the services more fully described in the Prime Lease. Sublessor shall notify
Sublessee of any services or operations it has assumed, or at any time assumes,
under the Prime Lease.
50. Sublessor's Compliance with Prime Lease. Sublessor covenants and agrees to
comply with the terms of the Prime Lease and this Sublease. Sublessor covenants
and agrees to use its best efforts to enforce the Prime Lease for the benefit of
Sublessee and to take such actions in connection therewith as Sublessee may
reasonably request and, if Sublessor fails to do so, Sublessee may, upon ten
(10) days prior notice to Sublessor, elect to seek to enforce against Prime
Landlord the terms of the Prime Lease directly. Sublessor shall not cancel,
terminate or amend the Prime Lease which does not materially affect Sublessee,
without the prior written consent of Sublessee, which in the case of amendment
shall not be unreasonably withheld. Provided an Event of Default on the part of
Sublessee has not occurred and is continuing, Sublessor agrees to maintain the
Prime Lease in force during the Term of this Sublease and to pay rent to Prime
Landlord in accordance with the terms of the Prime Lease. Without limiting any
other right or remedy of Sublessee under this Sublease, if Prime Landlord seeks
to terminate the Prime Lease because of a default or alleged default by
Sublessor under the Prime Lease, Sublessor shall use its best efforts to
maintain the Prime Lease in full force and effect for the benefit of Sublessee
and/or to claim and pursue any right of redemption or relief from any forfeiture
of the Prime Lease (and as a consequence thereof any forfeiture of this
Sublease) to which Sublessor may be entitled at law or in equity. In furtherance
and not in limitation of the foregoing, after written notice, if it reasonably
appears that Sublessor will not cure any default under the Prime Lease within
the applicable grace period, Sublessee may cure any default at Sublessor's cost.
If Sublessee at any time, by reason of Sublessor's default, pays any sum to cure
any default, the sum so paid by Sublessee shall be immediately due from
Sublessor to Sublessee on demand and evidence of payment, and shall bear
interest at the "Default Rate" (as that term is herein defined) from the date
paid by Sublessee until Sublessee shall have been reimbursed by Sublessor. Said
sum, together with interest thereon, may be offset against the Rent. Sublessee
may exercise any or all other rights or remedies available at law or equity,
including, without limitation, the right to obtain restraining orders,
injunctions and decrees of specific performance.
51. Sublessor's Representations and Warranties. Sublessor represents and
warrants that, to Sublessor's best knowledge and belief, and solely in its
capacity as a "Tenant", and without any independent investigation or inquiry of
any nature or kind whatsoever by Sublessor:
(a) No default on the part of Sublessor exists under the Prime Lease,
the Prime Lease is in full force and effect and all payments of rent and other
charges payable by Sublessor to Prime Sublessor under the Prime Lease are
current.
(b) Sublessor holds a leasehold interest in and to the Sublease
Premises under the Prime Lease, and has full right and lawful authority to enter
into this Sublease.
52. Sublease Intended to Benefit Affiliates of Sublessor. Sublessor is entering
into this Sublease not only for its own benefit but also for the benefit of any
affiliates of, or with a common parent with, Sublessor, present and future, and
that each such affiliate of Sublessor or other party described above occupying
any portion of the Sublease Premises shall be a third-party beneficiary of this
Sublease (a "Benefited Party", or collectively the "Benefited Parties").
However, in no event shall any provision of this Sublease be construed as making
any affiliate of or party related to Sublessor liable for any rents or other
amounts due hereunder. Present affiliates of Sublessor include Alabama Power
Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company,
Savannah Electric and Power Company, Southern Nuclear Operating Company,
-19-
<PAGE> 20
Southern Electric Generating Company, Southern Development and Investments
Group, Southern Electric International, Inc., and Southern Communications, Inc.
53. Notice. Any notice or demand which either party may or must give to the
other hereunder shall be in writing and delivered personally or sent by
certified mail, return receipt requested, addressed if to Sublessor, as follows:
Southern Company Services, Inc.
Bin 10151
241 Ralph McGill
Atlanta, Georgia 30308
Attention: Mr. Kingsley Corbin
With a copy to: Corporate Secretary
Southern Company Services, Inc.
Southern Company Center
270 Peachtree Street
Atlanta, Georgia 30308
and if to Sublessee, as follows:
Sage Networks, Inc.
215 First Street
Cambridge, MA 02142
Attn: Scott R. Bryce
With a copy to: Bruce S. Klein, Esq.
Vice-President
General Counsel
Sage Networks, Inc.
11 Martine Avenue
White Plains, NY 10606
Either party may, by notice in writing, direct that future notices or demands be
sent to a different address.
54. Binding. The covenants and agreements herein contained shall bind and inure
to the benefit of Sublessor, Sublessee, and their respective executors,
administrators, successors and assigns.
55. Confidentiality. Sublessor and Sublessee hereby covenant and agree not to
disclose this Sublease or the terms hereof to any other party or entity, except
to their respective advisors (such as, by way of illustration but not
limitation, their respective lawyers, brokers and accountants), and under law,
court order, governmental mandate or other similar requirement.
56. Direct Lease with Prime Landlord. Sublessor may, at any time, assign this
Sublease and its rights hereunder to Prime Landlord. Sublessee shall, in such
event, accept such assignment and look to Prime Landlord as the Sublessor
hereunder, or, at Prime Landlord's request, enter into a new lease with Prime
Landlord on the same terms and conditions as contained in this Sublease (except
for such terms which do not apply, because the lease is direct with Sublessee).
-20-
<PAGE> 21
57. Antenna. If Sublessee desires to have and utilize an antenna and related
equipment on the Building in connection with and as a part of Sublessee's use of
the Sublease Premises, then Sublessor shall assist Sublessee and use Sublessor's
good faith, reasonable efforts (at no additional, out of pocket costs to
Sublessor) to induce Prime Landlord to consent to such request of Sublessee.
IN WITNESS WHEREOF, the undersigned have caused this Sublease to be
executed under seal and delivered, on the day and year first above-written.
"SUBLESSOR"
SOUTHERN COMPANY SERVICES, INC.
By: /s/ Martin L. Brannon
----------------------------
Its: Corporate Real Estate Manager
-----------------------
Attest:
------------------------
Its:
-----------------------
(CORPORATE SEAL)
"SUBLESSEE"
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
----------------------------
Its: Co-Chairman
-----------------------
Attest:
------------------------
Its:
-----------------------
(CORPORATE SEAL)
-21-
<PAGE> 22
EXHIBIT A
ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 347 of the 18th
District of Dekalb Count, Georgia and being more particularly described as
follows:
BEGINNING at an iron pin on the south line of the south leg of the right-of-way
of Perimeter Center East a distance of 2,212.57 feet as measured easterly and
southeasterly along the south line of said right-of-way of Perimeter Center
East, with the east line of the right-of-way of Ashford-Dunwoody Road (Perimeter
Center East is a loop road which intersects the east line of Ashford-Dunwoody
Road at two places and the intersection referred to herein is the southernmost
of the two intersections); running thence easterly along the arc of the curve of
the south line of said right-of-way of Perimeter Center East, which arc has a
chord as measured north 89 degrees 18 minutes 30 seconds east of 120.85 feet, a
distance of 121.96 feet to a point; running thence north 75 degrees 53 minutes
30 seconds east along the south line of said right-of-way of Perimeter Center
East a distance of 261.78 feet to a point; running thence northeasterly along
the arc of the curve of the south east line of said right-of-way of Perimeter
Center East, which arc has a chord as measured north 62 degrees 30 minuets 30
seconds east of 176.45 feet, a distance of 178.06 feet to an iron pin, said iron
pin also marking the northwest corner of that certain property commonly known as
Building 56, Perimeter Center East; running thence south 04 degrees 28 minutes
30 seconds west along the west line of said building 56 property a distance of
112.35 feet to a point; running thence south 06 degrees 31 minutes 30 seconds
east along the west line of said building 56 property a distance of 154.39 feet
to a point; running thence south 03 degrees 55 minutes 30 seconds west along the
west line of said building 56 property a distance of 47.64 feet to a point;
running thence south 06 degrees 19 minutes 30 seconds east along the west line
of said Building 56 property a distance of 165.42 feet to an iron pin on the
north line of the right-of-way of Interstate Highway No. 285; running thence
southwesterly along the arc of the curve of the north line of the right-of-way
of Interstate Highway No. 285, which arc has a chord as measured south 78
degrees 41 minutes west of 658.7 feet, a distance of 659.14 feet to an iron pin,
said iron pin being the southeast corner of property commonly known as Building
64, Perimeter Center East; running thence north 25 degrees 07 minuets 30 seconds
east along the east line of said building 64 property a distance of 220.0 feet
to a point; running thence north 00 degrees 33 minutes west along the east line
of said Building 64 property a distance of 260.70 feet to the point of
beginning; being 5.4 acres as shown on that certain survey prepared by James
Robert Cheatum, Georgia registered land surveyor, dated August 14, 1972, last
revised June 22, 1973.
-22-
<PAGE> 23
EXHIBIT "B"
SUBLEASE PREMISES
Usable Area: 6,296
Multi Tenant Factor of 15%: 944
Total Rentable Area: 7,240
[MAP GRAPHIC]
-23-
<PAGE> 24
EXHIBIT "C"
SCHEDULE OF RENT DUE
1 Jul-98 7,240 $25.59 $15,439.30
2 Aug-98 7,240 $25.59 $15,439.30
3 Sep-98 7,240 $25.59 $15,439.30
4 Oct-98 7,240 $25.59 $15,439.30
5 Nov-98 7,240 $25.59 $15,439.30
6 Dec-98 7,240 $25.59 $15,439.30
7 Jan-99 7,240 $25.59 $15,439.30
8 Feb-99 7,240 $25.59 $15,439.30
9 Mar-99 7,240 $25.59 $15,439.30
10 Apr-99 7,240 $25.59 $15,439.30
11 May-99 7,240 $26.36 $15,439.30
12 Jun-99 7,240 $26.36 $15,439.30
13 Jul-99 7,240 $26.36 $15,902.48
14 Aug-99 7,240 $26.36 $15,902.48
15 Sep-99 7,240 $26.36 $15,902.48
16 Oct-99 7,240 $26.36 $15,902.48
17 Nov-99 7,240 $26.36 $15,902.48
18 Dec-99 7,240 $26.36 $15,902.48
19 Jan-2000 7,240 $26.36 $15,902.48
20 Feb-2000 7,240 $26.36 $15,902.48
21 Mar-2000 7,240 $26.36 $15,902.48
22 Apr-2000 7,240 $26.36 $15,902.48
23 May-2000 7,240 $27.15 $15,902.48
24 Jun-2000 7,240 $27.15 $15,902.48
25 Jul-2000 7,240 $27.15 $16,379.55
26 Aug-2000 7,240 $27.15 $16,379.55
27 Sep-2000 7,240 $27.15 $16,379.55
28 Oct-2000 7,240 $27.15 $16,379.55
29 Nov-2000 7,240 $27.15 $16,379.55
30 Dec-2000 7,240 $27.15 $16,379.55
31 Jan-2001 7,240 $27.15 $16,379.55
32 Feb-2001 7,240 $27.15 $16,379.55
33 Mar-2001 7,240 $27.15 $16,379.55
34 Apr-2001 7,240 $27.15 $16,379.55
35 May-2001 7,240 $27.96 $16,379.55
36 Jun-2001 7,240 $27.96 $16,379.55
37 Jul-2001 7,240 $27.96 $16,870.94
38 Aug-2001 7,240 $27.96 $16,870.94
39 Sep-2001 7,240 $27.96 $16,870.94
-24-
<PAGE> 25
40 Oct-2001 7,240 $27.96 $16,870.94
41 Nov-2001 7,240 $27.96 $16,870.94
42 Dec-2001 7,240 $27.96 $16,870.94
43 Jan-2002 7,240 $27.96 $16,870.94
44 Feb-2002 7,240 $27.96 $16,870.94
45 Mar-2002 7,240 $27.96 $16,870.94
46 Apr-2002 7,240 $27.96 $16,870.94
47 May-2002 7,240 $28.80 $16,870.94
48 Jun-2002 7,240 $28.80 $16,870.94
49 Jul-2002 7,240 $28.80 $17,377.07
50 Aug-2002 7,240 $28.80 $17,377.07
51 Sep-2002 7,240 $28.80 $17,377.07
52 Oct-2002 7,240 $28.80 $17,377.07
53 Nov-2002 7,240 $28.80 $17,377.07
54 Dec-2002 7,240 $28.80 $17,377.07
55 Jan-2003 7,240 $28.80 $17,377.07
56 Feb-2003 7,240 $28.80 $17,377.07
57 Mar-2003 7,240 $28.80 $17,377.07
58 Apr-2003 7,240 $28.80 $17,377.07
59 May-2003 7,240 $28.80 $17,377.07
60 June-2003 7,240 $28.80 $17,377.07
-25-
<PAGE> 26
EXHIBIT "D"
Commission Calculation
The Wesley Company
Total Rent $983,632.09
Total Months 60
Procurement Fee equal to Average Months Rent $16,393.87
Total Rent less Procurement Fee $967,238.22
Commission Rate 0.04
Commission $38,689.53
Total Commission and Procurement Fee $55,083.40
CB Commercial
Total Rent $983,632.09
Total Months 60
Procurement Fee equal to 1/2 Average Months Rent $8,196.93
Total Rent less Procurement Fee $975,435.15
Commission Rate 0.02
Commission $19,508.70
Total Commission and Procurement Fee $27,705.64
Total Commissions and Fees $82,789.03
For any expansion or renewal of the Sublease Premises, The Wesley Company shall
be paid a commission by Sublessor of 2.0% of the total rent due from such
expansion or renewal, if such party is actively involved in the negotiation of
such expansion or renewal.
For any expansion or renewal of the Sublease Premises, CB Commercial shall be
paid a commission by Sublessor of 1.0% of the total rent due from such expansion
or renewal, if such party is actively involved in the negotiation of such
expansion or renewal.
-26-
<PAGE> 27
EXHIBIT "E"
PARKING
1. Sublessee and its employees and invitees shall observe and obey all
parking and traffic regulations as imposed by Sublessor.
2. Employees of Sublessees are authorized to park in the Parking Garage
subject to the Sublessee's allocation of Parking Permits in the
subleases.
3. Sublessees must use their access cards to gain entry into the garage..
4. Only one vehicle may be parked by a permit holder on the Sublessee's at
one time.
5. Parking cards are non-transferable except with the consent of the
Sublessor.
6. A replacement fee of $10.00 will be charged for lost or damaged access
cards.
7. All vehicles should be locked when parked in garage.
8. For the safety of pedestrians and as a courtesy to other drivers, the
speed limit in the garage is 5 MPH.
9. Drivers shall at all times abide by the directional graphics in the
garage and shall park only between the lines designating each parking
space.
10. No parking is allowed along any of the driveways or roadways serving
the project.
11. Overnight parking, without prior notification to and consent of the
Sublessor, is prohibited.
12. Various areas within the parking garage are designated as Reserved,
Oversized Vehicle or Visitor Parking. Sublessees must have special
authorization from the Sublessor to park in the reserved parking area.
The Oversized Vehicle area is reserved for vehicles with a height of at
least six feet, eight inches (6'8"). Sublessees shall not park in
visitor parking.
13. Unauthorized or improperly parked vehicles may be towed at the vehicle
owners expense.
14. Sublessees may not charge for parking without the approval of
Sublessor.
15. Sublessees will maintain a current listing of vehicle tag numbers for
its employees.
16. Building Security will place parking citations on vehicles illegally
parked or otherwise in violation of these rules. For severe or frequent
violations of these parking regulations, vehicles may be towed.
17. Tenants are not allowed to park in the loading dock/service area of the
building.
SECURITY
1. Through the use of electronic access equipment, 64 Perimeter Center
shall be open to Sublessee on a 24 hour, 365 days per year basis.
2. A replacement fee of $10.00 will be charged for lost or damaged access
cards.
3. Neither Sublessor nor Sublessor's agents shall be responsible for any
losses due to theft, collision, or any other damage done to vehicles
either in the Parking Garage or anywhere else on the 64 Perimeter
Center Complex.
-27-
<PAGE> 28
GENERAL
1. No sign, picture, advertisement or notice shall be displayed by
Sublessee outside the Sublessee's Premises unless the same is first
approved by Sublessor, which approval shall not be unreasonably
withheld or delayed by Sublessor. Any such sign, picture, advertisement
or notice approved by Sublessor shall be painted or installed at
Sublessee's expense. No awnings, curtains, blinds, shades or screens
shall be attached to or hung in, or used in connection with any window
or door of the Sublessee's Premises without the prior consent of the
Sublessor, including approval by Sublessor of the quality, type,
design, color and manner of attachment.
2. Sublessee agrees that its use of electrical current shall never exceed
the capacity of existing feeders, risers or wiring installation.
3. Sublessee shall not do or permit to be done in or about the Sublessee's
Premises or 64 Perimeter Center Complex anything which shall increase
the rate of insurance on said 64 Perimeter Center Complex or obstruct
or interfere with the rights of other sublessees of Sublessor or annoy
them in any way, including, but not limited to, using any musical
instrument, making loud or unseemly noises, or singing, etc., nor use
the Sublessee's Premises for sleeping, lodging, or cooking by any
person at any time except with permission of Sublessor. Sublessee will
be permitted to use for its own employees within the Sublessee's a
conventional coffee-maker; however, no vending machines of any kind
will be installed, permitted or used on any part of the Sublessee's
without the Sublessor's approval. No part of said 64 Perimeter Center
Complex or Sublessee's Premises shall be used for gambling, immoral or
other unlawful purposes. No intoxicating beverage shall be sold in the
64 Perimeter Center Complex without prior written consent of Sublessor.
No area outside of the Sublessee's Premises shall be used for storage
purposes at any time.
4. No bicycles, motorcycles or other motorized vehicles, birds or animals
of any kind shall be brought into 64 Perimeter Center. All vehicles
shall be parked only in areas designated therefor by Sublessor.
5. The sidewalks, entrances, passages, corridors, halls, elevators, and
stairways in the 64 Perimeter Center Complex shall not be obstructed by
Sublessee or used for any purposes other than those for which same were
intended as ingress and egress. No windows, floors or skylights that
reflect or admit light into the 64 Perimeter Center Complex shall be
covered or obstructed by Sublessee. Toilets, wash basins and sinks
shall not be used for any purpose other than those for which they were
constructed, and no sweeping, rubbish, or other obstructing or improper
substances shall be thrown therein. Any damage resulting to them, or to
heating apparatus, from misuse by Sublessee or its employees, shall be
borne by Sublessee.
6. Sublessee is responsible for installation an maintenance of locks and
keys with the Sublessee's Premises. One Master Key is to furnished to
Sublessor's security station for use by Sublessor if an emergency
should arise.
-28-
<PAGE> 29
GENERAL (CONTINUED)
7. Sublessor shall have the right to prescribe the weight, position and
manner of installation of heavy articles such as safes, filing
cabinets, machines and other equipment which Sublessee may use in the
Sublessee's Premises. No safes, furniture, boxes, large parcels or
other kind of freight shall be taken to or from the Sublessee's
Premises or allowed in any elevator, hall or corridor at any time
except by permission of and at times allowed by Sublessor. Sublessee
shall make prior arrangements with Sublessor for use of freight
elevator for the purpose of transporting such articles and such
articles may be taken in or out of said 64 Perimeter Center Complex
only between or during such hours as may be arranged with and
designated by Sublessor. The persons employed to move the same must be
approved by Sublessor. In no event shall any weight be placed upon any
floor by Sublessee so as to exceed 50 pounds per square foot of floor
space without prior written approval of Sublessor.
8. Sublessee shall not cause or permit any gases, liquids or odors to be
produced upon or permeate from the Sublessee's Premises, and no
flammable, combustible, explosive, toxic or other hazardous fluid,
chemical or substance shall be brought into 64 Perimeter Center.
9. Unless explicitly permitted by the Sublease, Sublessee shall not employ
any person other than Sublessor's contractors and employees for the
purpose of cleaning and taking care of the Sublessee's Premises.
Sublessor shall not be responsible for any loss, theft, mysterious
disappearance of or damage to, any property, however occurring.
10. All glass, locks and trimmings in or upon the doors and windows of the
Sublessee's shall be kept whole and in good repair. Sublessee shall not
injure, overload or deface the 64 Perimeter Center Complex , the
woodwork or the walls of the Sublessee's Premises, nor permit upon the
Sublessee's Premises.
11. Canvassing, peddling, soliciting and distribution of handbills or any
other written materials in the 64 Perimeter Center Complex are
prohibited, and Sublessee shall cooperate to prevent the same.
12. 64 Perimeter Center is a smoke free facility and Sublessee's employees
and guests will smoke only in areas expressly designated for this
purpose by the Sublessor.
13. Sublessor may waive any one or more of these Rules and Regulations for
the benefit of any particular lessee, but no such waiver by Sublessor
shall be construed as a waiver of such Rules and Regulations in favor
of any other lessee, nor prevent Sublessor from thereafter enforcing
any such Rules and Regulations against any or all of the other
sublessees of the 64 Perimeter Center Complex.
14. These Rules and Regulations are supplemental to, and shall not be
construed to in any way modify or amend, in whole or in part, the
terms, covenants, agreements and conditions of the Sublease.
15. Sublessor reserves the right to make such other and reasonable Rules
and Regulations as in its judgment may from time to time be needed for
the safety, care and cleanliness of the 64 Perimeter Center Complex and
the Property, and for the preservation of good order therein.
-29-
<PAGE> 1
EXHIBIT 10.18
FIRST AMENDMENT TO SUBLEASE AGREEMENT
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT ("First Amendment") is made
as of this 15th day of December, 1998, between SOUTHERN COMPANY SERVICES, INC.,
having an office at 64 Perimeter Center East, Atlanta, Georgia 30346
("Sublessor"), and SAGE NETWORKS, INC., having an office at 64 Perimeter Center
East, Suite G-300, Atlanta, Georgia 30346 ("Tenant", hereinafter referred to as
"Sublessee").
W I T N E S S E T H:
WHEREAS, Sublessor and Sublessee entered into that certain Sublease
Agreement, dated the 29th day of May, 1998 ("the "Sublease"), for space known as
Suite G-300 (the "Sublease Premises") located in that certain building known as
64A Perimeter Center, Atlanta, Georgia (the Building"); and
WHEREAS, pursuant to the Sublease, Sublessee has notified Sublessor of
Sublessee's desire to sublease additional space in the Building; and
WHEREAS, Sublessor and Sublessee desire to enter into this First
Amendment for the purpose of evidencing their mutual understanding and agreement
regarding the expansion of the Sublease Premises and certain other matters
relating thereto as set forth in this First Amendment;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter contained, and for Ten and No/100ths Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Sublessor and Sublessee, intending to be legally bound,
agree as follows:
1. DEFINED TERMS. All terms used herein and denoted by their initial
capitalization shall have the meanings set forth in the Sublease unless
set forth herein to the contrary.
2. DATA CENTER EXPANSION PREMISES. The approximately 7,240 rentable square
feet in the Building leased to Sublessee pursuant to the Sublease is
defined in the Sublease and in this First Amendment as the "Sublease
Premises". As of the Data Center Expansion Premises Commencement Date
(hereinafter defined), the Sublease Premises is expanded to include the
approximate 8,500 rentable square feet of Data Center Space (the "Data
Center Expansion Premises") on floor G2 of the Building as shown on the
drawing attached as Exhibit "A".
Adding the Data Center Expansion Premises increases the Sublease
Premises to 15,740 rentable square feet. Sublessor and Sublessee agree
the measurement of 8,500 rentable square feet of Data Center Expansion
Premises represents Sublessor's estimate in accordance with preliminary
Sublessee designs. On or before January 31, 1999, this First Amendment
shall be reasonably modified to reflect the actual rentable square feet
of the final design of the Data Center Expansion Premises, such
modification to be mutually determined by Sublessor and Sublessee.
Usable square
<PAGE> 2
feet shall be measured according to the Standard Method for Measuring
Area in Office Buildings, ANSI Z65.1-1996 (BOMA).
Sublessee hereby subleases the Data Center Expansion Premises and the
Temporary Office Space (as hereafter defined) on the same terms and
conditions as the Sublease Premises except as otherwise set forth
herein to the contrary; provided, however, Sublessee shall receive no
concessions or allowance on account of subleasing the Data Center
Expansion Premises, except as specifically set forth in this First
Amendment. Among those same terms and conditions of the Sublease which
shall apply to the Data Center Expansion Premises, but not in
limitation thereof, shall be Sublessee's renewal rights set forth in
Paragraph 5 of the Sublease.
3. DATA CENTER EXPANSION PREMISES TERM. The term for the Data Center
Expansion Premises (as part of the Sublease Premises) shall commence on
the Data Center Expansion Premises Commencement Date (as herein
defined) and end on June 30, 2003 (subject to Sublessee's renewal
rights set forth in Paragraph 5 of the Sublease). The Data Center
Expansion Premises Commencement Date shall be the later of August 1,
1999, or 30 days after the Data Center Expansion Premises are made
available to Sublessee for Sublessee to commence its improvement work.
Sublessee recognizes that the Data Center Expansion Premises are (a)
being made available because Sublessor is relocating the users of such
space into another building and that Sublessor anticipates that such
relocation shall be accomplished and the Data Center Expansion Premises
shall be available to Sublessee for Sublessee to commence its
improvement work, by June 30, 1999; (b) that such relocation may be
delayed if the space in the other building is not available, and (c)
any such delay in the relocation and resulting availability of such
space for use by Sublessee shall not eliminate or limit the obligations
of Sublessee under the Sublease or this First Amendment, or create any
claims against Sublessor, except to the extent the commencement date
and corresponding rent obligations of Sublessee hereunder may be
delayed. Notwithstanding anything to the contrary stated herein, if the
Data Center Expansion Premises is not available to Sublessee for
Sublessee to commence its improvement work by June 30,1999, then
Sublessee may, at its option, and as its sole and exclusive remedy for
such late availability, terminate the portion of this First Amendment
relative to the Data Center Expansion Premises, by a notice to
Sublessor indicating such termination, such notice to be delivered to
Sublessor on or before July 15, 1999.
4. BASE RENT FOR THE DATA CENTER EXPANSION PREMISES. The Base Rent for the
Data Center Expansion Premises shall be equal to the Base Rent in the
Sublease on a per rentable square foot basis as shown in Exhibit "B"
attached hereto and incorporated herein by this reference. The Base
Rent shown in Exhibit "B" includes the escalations required by
Paragraph 1.b of the Sublease.
5. TENANT IMPROVEMENT ALLOWANCE. Sublessor shall provide to Sublessee a
Tenant Improvement Allowance equal to $0.05 per rentable square foot
per month from the Data Center Rent Commencement Date to the end of the
Term (i.e., June 30, 2003). By way of illustration only, assuming a
Data Center Rent Commencement Date of August 1, 1999, the Tenant
Improvement Allowance will be $14,875.00 (35 months times $0.05 per
month per rentable square foot times 8,500 rentable square feet). Such
Tenant Improvement Allowance will be payable to Sublessee by Sublessor
2
<PAGE> 3
within 15 days of the Data Center Expansion Premises being made
available to Sublessee for Sublessee to commence its improvement work.
6. TEMPORARY OFFICE SPACE. Sublessor agrees to sublease, "as-is, where
is", the space indicated in Exhibit "A.1." for use as temporary office
space (the "Temporary Office Space"). The commencement date for the
term of the sublease of the Temporary Office Space on the 1st floor
consisting of 15,000 rentable square feet shall be the later of
December 15, 1998 or the date that Sublessee takes occupancy of the
Temporary Office Space. On or before January 31, 1999, this First
Amendment shall be reasonably modified to reflect the actual rentable
square feet of the final design of the Temporary Office Space, such
modification to be mutually determined by Sublessor and Sublessee.
Usable square feet shall be measured according to the Standard Method
for Measuring Area in Office Buildings, ANSI Z65.1-1996 (BOMA). The
rental rate for the Temporary Office Space shall be $19.00 per rentable
square foot which is a full service rate including operating expenses.
Set forth in Exhibit B is a schedule of rent for the Temporary Office
Space during the period from December 15, 1998 to December 14, 1999,
subject to appropriate adjustment if the Commencement Date is other
than December 15th. The term of the sublease of the Temporary Office
Space shall end twelve (12) months from the date of commencement of
same. Notwithstanding the foregoing, Sublessee shall have the option to
extend the term of all or a portion of the Temporary Office Space (such
portion as, in the sole opinion of the Sublessor, must not interfere
with the use or sublease of the remainder of the Temporary Office Space
and shall be no less than 2,000 rentable square feet) for an additional
period of time terminating on the same date as the expiration of the
Term of the Sublease (including any renewal thereof) upon the same
terms and conditions set forth herein except the Base Rent therefore
shall escalate by 3% per annum on each anniversary date, by delivering
to Sublessor notice of its intent to do so provided such notice is
delivered at least 90 days prior to the expiration of the term of the
sublease of the Temporary Office Space.
7. CONDITION OF SUBLEASE PREMISES. Sublessee shall take the Data Center
Expansion Premises and the Temporary Office Space "as-is, where is",
except that Sublessor has agreed to and shall provide, at no additional
cost or expense to Sublessee, demising walls separating the Data Center
Expansion Premises from other space on floor G2 and separating the
Temporary Office Space from the other space on the 1st floor, in
accordance with all applicable codes, but otherwise as Sublessor deems
appropriate. In the case of the Data Center Expansion Premises, such
demising wall shall be constructed during the time Sublessee is
performing its construction in the Data Center Expansion Premises prior
to the Data Center Expansion Premises Commencement Date, reasonably
coordinated with Sublessee's construction so as not to interfere or
cause a delay therewith. In the case of the Temporary Office Space,
such demising wall(s) shall be constructed at such times as to minimize
the disturbance of Sublessee's operations in the applicable areas.
Sublessee has had the opportunity to and has inspected the Data Center
Expansion Premises and the Temporary Office Space, and Sublessor makes
and has made no representations or warranties whatsoever with respect
to the Data Center Expansion Premises or Temporary Office Space or the
fitness thereof for Sublessee's use. Notwithstanding anything to the
contrary contained herein, all demising walls to be constructed by the
3
<PAGE> 4
Sublessor in the Data Center Expansion Premises and the Temporary
Office Space shall be constructed in such locations as mutually agreed
upon by the parties.
8. PARKING ARRANGEMENTS. Paragraph 35 of the Sublease is deleted in its
entirety and the following is substituted therefor: Sublessee shall be
entitled to 2 parking passes per 1,000 rentable square feet of data
center space and 4 parking passes per 1,000 rentable square feet of
office space (including Temporary Office Space during the term of the
Sublease for the Temporary Office Space) and Sublessee shall use no
more than said amount of parking passes.
9. LETTER OF CREDIT. The initial Letter of Credit amount of $99,999.00 as
specified in Paragraph 7, subpart (a) of the Sublease will be replaced
by a letter of credit of $140,000.00 with all other stipulations of
Paragraph 7, subpart (a) of the Sublease remaining in effect. The
reduced letter of credit referenced in Paragraph 7, subpart (b) of the
Sublease is increased to $125,000. The reduced letter of credit
referenced in Paragraph 7, subpart (c) of the Sublease is increased to
$99,999.00.
10. BROKERAGE COMMISSIONS. CB RICHARD ELLIS, INC. ("CBRE") HAS ACTED AS
AGENT FOR SUBLESSOR IN THIS TRANSACTION. THE WESLEY COMPANY HAS ACTED
AS AGENT FOR SUBLESSEE IN THIS TRANSACTION. CBRE AND THE WESLEY COMPANY
SHALL EACH BE PAID A COMMISSION BY SUBLESSOR PURSUANT TO A SEPARATE
AGREEMENT. Sublessor shall indemnify and hold Sublessee harmless, from
and against all loss, cost, damage or expense, including, but not
limited to, attorney's fees and court costs, incurred by Sublessee as
result of Sublessor's breach of the foregoing covenant to pay CBRE and
the Wesley Company their respective commissions due in connection with
this transaction. Sublessor and Sublessee hereby indemnify one another,
and hold one another harmless, from and against all loss, cost, damage
or expense, including, but not limited to, attorney's fees and court
costs, incurred by a party hereto as a result of any claims for
brokerage fees or commissions due which are made by reason of such
party having dealt with any broker (other than CBRE or THE WESLEY
COMPANY). Sublessee shall cause any agent or broker representing
Sublessee to execute a lien waiver to and for the benefit of Sublessor
and Prime Landlord, upon receipt by such agent or broker of any
commission due hereunder, waiving any and all lien rights with respect
to the Building or Property such agent or broker has or might have
under Georgia law.
11. BINDING EFFECT. This First Amendment shall be governed by and construed
in accordance with the laws of the State of Georgia, and shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, representatives and assigns, but always
subject, in case of the Sublessee, to the limitations on assignment and
sublease set forth in the Sublease. In the event of any inconsistency
or conflict between the terms of this First Amendment and the Sublease,
the terms hereof shall control. Time is of the essence of all terms of
this First Amendment.
12. CONTINUED VALIDITY. Except as hereinabove provided, all other terms and
conditions of the Sublease shall remain unchanged and in full force and
effect, and are hereby ratified and confirmed by Sublessor and
Sublessee. Sublessee and Sublessor hereby
4
<PAGE> 5
each acknowledge and agree that, as of the date hereof, the Sublease is
subject to no offsets, claims, counterclaims or defenses of any nature
whatsoever and no Events of Default on the part of Sublessor or
Sublessee have occurred under the Sublease.
13. MODIFICATIONS. This First Amendment may not be changed, modified,
discharged or terminated orally or in any manner other than by an
agreement in writing signed by the Sublessor and Sublessee or their
respective heirs, representatives, successors and permitted assigns.
14. AUTHORITY. The person executing this First Amendment on behalf of
Sublessee does hereby personally represent and warrant that Sublessee
is a validly existing corporation and is fully authorized and qualified
to do business in the State of Georgia, that the corporation has full
right and authority to enter into this First Amendment, and the
undersigned, who is signing on behalf of the corporation, is a duly
authorized officer of the corporation and is authorized to sign on
behalf of the corporation.
IN WITNESS WHEREOF, the parties have set their hands and affixed their
seals to this First Amendment to be effective as of the day and year first above
written.
"SUBLESSOR"
SOUTHERN COMPANY SERVICES, INC.
By: /s/ Martin L. Brannon
------------------------------
its Corporate Services Manager
Attest: ------------------------------
its
--------------------------
"SUBLESSEE"
SAGE NETWORKS, INC.
By: /s/ Stephen Maggs
------------------------------
its President
--------------------------
Attest:
------------------------------
its
--------------------------
5
<PAGE> 6
Exhibit "B"
Schedule of Rent Due
<TABLE>
<CAPTION>
DATA
CENTER TOTAL TEMPORARY
EXPANSION DATA MONTHLY TEMPORARY OFFICE TEMPORARY
SUBLEASE PREMISES CENTER DATA OFFICE SPACE OFFICE TOTAL
SQUARE SQUARE SQUARE CENTER SPACE SQUARE SPACE MONTHLY
RENT FOR RATE FEET FEET FEET RENT RATE FEET RENT RENT
- -------- ---- -------- --------- ------ ------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jul-98 $25.59 7,240 0 7,240 $15,439.30 $15,439.30
Aug-98 $25.59 7,240 0 7,240 $15,439.30 $15,439.30
Sep-98 $25.59 7,240 0 7,240 $15,439.30 $15,439.30
Oct-98 $25.59 7,240 0 7,240 $15,439.30 $15,439.30
Nov-98 $25.59 7,240 0 7,240 $15,439.30 $15,439.30
Dec-98 $25.59 7,240 0 7,240 $15,439.30 $19.00 15,000 $11,875.00 $27,314.30
Jan-99 $25.59 7,240 0 7,240 $15,439.30 $19.00 15,000 $23,750.00 $39,189.30
Feb-99 $25.59 7,240 0 7,240 $15,439.30 $19.00 15,000 $23,750.00 $39,189.30
Mar-99 $25.59 7,240 0 7,240 $15,439.30 $19.00 15,000 $23,750.00 $39,189.30
Apr-99 $25.59 7,240 0 7,240 $15,439.30 $19.00 15,000 $23,750.00 $39,189.30
May-99 $25.59 7,240 0 7,240 $15,439.30 $19.00 15,000 $23,750.00 $39,189.30
Jun-99 $25.59 7,240 0 7,240 $15,439.30 $19.00 15,000 $23,750.00 $39,189.30
Jul-99 $26.36 7,240 0 7,240 $15,902.48 $19.00 15,000 $23,750.00 $39,652.48
Aug-99 $26.36 7,240 0 7,240 $15,902.48 $19.00 15,000 $23,750.00 $39,652.48
Sep-99* $26.36 7,240 8,500 15,740 $34,575.53 $19.00 15,000 $23,750.00 $58,325.53
Oct-99 $26.36 7,240 8,500 15,740 $34,575.53 $19.00 15,000 $23,750.00 $58,325.53
Nov-99 $26.36 7,240 8,500 15,740 $34,575.53 $19.00 15,000 $23,750.00 $58,325.53
Dec-99 $26.36 7,240 8,500 15,740 $34,575.53 $19.00 15,000 $11,875.00 $46,450.53
Jan-2000 - $26.36 7,240 8,500 15,740 $34,575.53 $34,575.53
Jun-2000
Jul-2000 - $27.15 7,240 8,500 15,740 $35,611.75 $35,611.75
Jun-2001
Jul-2001 - $27.96 7,240 8,500 15,740 $36,674.20 $36,674.20
Jun-2002
Jul-2002 - $28.80 7,240 8,500 15,740 $37,776.00 $37,776.00
Jun-2003
</TABLE>
* Assuming a Commencement Date of September 1, 1999 for the Data Center
Expansion Premises; otherwise, the schedule will be adjusted accordingly.
6
<PAGE> 1
Exhibit 10.21
STANDARD LEASE AGREEMENT
- --------------------------------------------------------------------------------
This Standard Lease Agreement (this "Lease") is made this 11th day of
June, 1995 between LASALLE PARTNERS MANAGEMENT LIMITED (in its capacity as agent
for Fannin Street Limited Partnership, a Delaware limited partnership), as
Landlord ("Landlord"), and WOLF COMMUNICATIONS COMPANY, a Texas corporation, as
Tenant ("Tenant"). This Lease consists of this paragraph, the Basic Lease
Provisions, the Supplemental Lease Provisions and each exhibit, rider, and
schedule or other attachment to the Basic Lease Provisions and/or Supplemental
Lease Provisions as listed at the end of the Basic Lease Provisions or in the
Table of Exhibits and Riders attached to the Basic Lease Provisions and
preceding the Supplemental Lease Provisions.
BASIC LEASE PROVISIONS
1. Building and Property:
a. The "Building" is the structure commonly known as the 1301 Fannin
Street Building located on the land bounded by Fannin, San Jacinto,
Polk and Clay Streets (Block 294), Houston, Texas and more
particularly described in Exhibit B attached to the Supplemental
Lease Provisions (the "Land").
b. Agreed Rentable Area of the Building: 784,143 square feet.
c. The Building, the Land, the parking garage located on the Land and
serving the Building (the "Garage") and all improvements and
appurtenances to the Building, the Garage and the Land are referred
to collectively in this Lease as the "Property."
2. Premises and Agreed Rentable Area of the Premises:
Building Agreed Rentable Area
Floor (in Square Feet)
7 12,312
Total Agreed Rentable Area of the Premises:
The Premises are hereby defined to mean 12,312 square feet on
Building Floor 7. The Suite Number for the Premises is 775. Tenant shall
initially occupy 7,500 square feet of Rentable Area. An additional 2,465
square feet of Rentable Area shall be added on the third month anniversary
of the Commencement Date and an additional 2,347 square feet of Rentable
Area shall be added on the sixth month anniversary of the Commencement
Date.
3. Basic Rent (See Article 2, Supplemental Lease Provisions):
<TABLE>
<CAPTION>
Annual
Rate Per Square Basic
Rental Foot of Agreed Monthly
Period Rentable Area Rent
------ ------------- ----
<S> <C> <C>
Months 1-3 $15.00 $ 9,375.00
Months 4-6 $15.00 $12,456.25
Months 7-72 $15.00 $15,390.00
</TABLE>
<PAGE> 2
A "Lease Month" shall mean any calendar month during the Term of this
Lease.
4. Tenant's Pro Rata Share Percentage: 1.57% (the Agreed Rentable Area of the
Premises divided by the Agreed Rentable Area of the Building, expressed in
a percentage). This percentage shall be modified during the first six
months of the Term as necessary to reflect the stepped occupancy.
5. Tenant's Operating Expense Stop: Equal to actual Operating Expenses for
the calendar year 1995, grossed up in accordance with subsection 2.202 of
the Supplemental Lease Provisions (see Article 2, Supplemental Lease
Provisions).
6. Initial Term: six (6) years (see Article 1, Supplemental Lease
Provisions).
7. Commencement Date: the earlier to occur of Substantial Completion or 10
weeks from Landlord's approval of the Construction Plans per Exhibit C
(see Article 1, Supplemental Lease Provisions).
8. Expiration Date: sixth anniversary of the Commencement Date (see Article
1, Supplemental Lease Provisions).
9. Security Deposit: $261,074.21 (see Article 3, Supplemental Lease
Provisions).
10. Tenant's Broker: Cushman Realty Corporation.
11. Permitted Use: General office and computer facility use and other uses
incidental or ancillary to the foregoing so long as consistent with a
Class A office building (see Article 4, Supplemental Lease provisions).
12. All payments shall be sent to Landlord in care of LaSalle Partners
Management Limited ("Property Manager") at 1301 Fannin Street, Suite 2400,
Houston, Texas 77002, or such other place as Landlord may designate from
time to time by notice given in accordance with the Lease. All payments
shall be in the form of check or other delivery of good funds (such as
electronic transfer), provided that payment by check shall not be
considered made if the check is not duly honored with good funds upon
proper and timely presentation.
13. Parking: See Exhibit E attached to the Supplemental Lease Provisions.
14. Addresses for notices due under this Lease (see Article 14, Supplemental
Lease provisions):
Landlord: Tenant:
LASALLE PARTNERS PRIOR TO COMMENCEMENT DATE:
MANAGEMENT LIMITED
1301 Fannin Wolf Communications Company
Suite 2400 1001 Fannin, Suite 2000
Houston, Texas 77002 Houston, Texas 77002
Attention: Al Palamara Attn: Michael J. August
Fax: 713-752-2925 Fax: 713/650-6522
With a copy to: ON AND AFTER COMMENCEMENT
DATE:
2
<PAGE> 3
LASALLE PARTNERS The Premises
MANAGEMENT LIMITED
The Plaza at Las Colinas With a copy to:
300 East Carpenter Freeway
Irving, Texas 75062 Wolf Exploration, Inc.
Attention: Bret E. Bunnett 1001 Fannin, Suite 2000
Houston, Texas 77002
Fannin Street Limited Partnership Attn: Michael J. August
c/o GE Investments
3003 Summer Street
Stamford, Connecticut 06904-2900
Attention: Southwest Asset Manager
Fax:203-326-4179
and
GE Investments
3003 Summer Street
Stamford, Connecticut 06904-2900
Attention: Real Estate Counsel
Fax:203-326-2497
Landlord and Tenant are initialing these Basic Lease Provisions in the
appropriate space provided below as an acknowledgment that they are a part of
this Lease.
Initial:
Landlord: ______
Tenant: ________
3
<PAGE> 4
TABLE OF EXHIBITS AND RIDERS
TO
SUPPLEMENTAL LEASE PROVISIONS
Exhibit A Floor Plan
Exhibit A-1 Secure Area
Exhibit B Land Legal Description
Exhibit C Work Letter
Exhibit D Acceptance of Premises Memorandum
Exhibit E Parking Agreement
Exhibit F Amortization Schedule
Exhibit G Operating Expense Exclusions
Exhibit H Janitorial Specifications
Guaranty _____ Check, if applicable
Addendum _____ Check, if applicable
Rider 1 Renewal Option
Rider 2 Expansion Option
Rider 3 Right of First Opportunity and First Offer
Rider 4 Rules and Regulations
<PAGE> 5
TABLE OF CONTENTS
FOR
SUPPLEMENTAL LEASE PROVISIONS
Description Page
----------- ----
ARTICLE I TERM AND POSSESSION ................................ 1
SECTION 1.1 LEASE OF PREMISES, COMMENCEMENT AND EXPIRATION ..... 1
1.101 Lease of Premises ....................... 1
1.102 Initial Term and Commencement ........... 1
SECTION 1.2 INSPECTION AND DELIVERY OF PREMISES, CONSTRUCTION
OF LEASE SPACE IMPROVEMENTS AND POSSESSION ......... 1
1.201 Delivery and Completion ................. 1
1.202 Acceptance of Premises Memorandum ....... 2
SECTION 1.3 REDELIVERY OF THE PREMISES ......................... 2
SECTION 1.4 HOLDING OVER ....................................... 2
ARTICLE 2 RENT ............................................... 2
SECTION 2.1 BASIC RENT ......................................... 3
SECTION 2.2 ADDITIONAL RENT .................................... 3
2.201 Definitions ............................. 3
2.202 Gross-Up ................................ 4
2.203 Payment Obligation ...................... 4
2.204 Revisions in Estimated Additional Rent .. 5
SECTION 2.3 RENT DEFINED AND NO OFFSETS ........................ 5
SECTION 2.4 LATE CHARGES ....................................... 5
ARTICLE 3 SECURITY DEPOSIT ................................... 5
ARTICLE 4 OCCUPANCY AND USE .................................. 6
SECTION 4.1 USE OF PREMISES .................................... 6
4.101 General ................................. 6
4.102 Hazardous and Toxic Materials ........... 6
4.103 Disability Acts ......................... 7
SECTION 4.2 PERMITS ............................................ 8
SECTION 4.3 COMPLIANCE WITH LAWS ............................... 8
SECTION 4.4 RULES AND REGULATIONS .............................. 8
i
<PAGE> 6
SECTION 4.5 ACCESS ............................................. 8
SECTION 4.6 QUIET POSSESSION ................................... 9
ARTICLE 5 UTILITIES AND SERVICES ............................. 9
SECTION 5.1 SERVICES TO BE PROVIDED ............................ 9
5.101 Elevator Service ........................ 9
5.102 Heat and Air Conditioning ............... 9
5.103 Electricity ............................. 10
5.104 Water ................................... 11
5.105 Janitorial Services ..................... 11
5.106 Common Areas ............................ 11
5.107 Bulbs and Ballasts ...................... 11
SECTION 5.2 SERVICE INTERRUPTION ............................... 11
5.201 Service Interruption .................... 11
5.202 Limited Right to Abatement of Rent ...... 12
ARTICLE 6 MAINTENANCE, REPAIRS, ALTERATIONS AND IMPROVEMENTS . 12
SECTION 6.1 LANDLORD'S OBLIGATION TO MAINTAIN AND REPAIR ....... 12
SECTION 6.2 TENANT'S OBLIGATION TO MAINTAIN AND REPAIR ......... 12
6.201 Tenant's Obligation ..................... 12
6.202 Rights of Landlord ...................... 13
SECTION 6.3 IMPROVEMENTS AND ALTERATIONS ....................... 13
6.301 Landlord's Construction Obligation ...... 13
6.302 Alteration of Building .................. 13
6.303 Alterations, Additions, Improvements and
Installations by Tenant ................. 14
6.304 Approvals ............................... 14
ARTICLE 7 INSURANCE, FIRE AND CASUALTY ....................... 14
SECTION 7.1 TOTAL OR PARTIAL DESTRUCTION OF THE BUILDING OR THE
PREMISES ........................................... 14
7.2 TENANT'S INSURANCE ................................. 15
7.201 Types of Coverage ....................... 15
7.202 Other Requirements of Insurance ......... 16
7.203 Proof of Insurance ...................... 16
SECTION 7.3 LANDLORD'S INSURANCE ............................... 16
7.301 Types of Coverage ....................... 16
7.302 Blanket Insurance ....................... 16
SECTION 7.4 WAIVER OF SUBROGATION .............................. 16
ii
<PAGE> 7
SECTION 7.5 INDEMNITY .......................................... 17
ARTICLE 8 CONDEMNATION ....................................... 17
SECTION 8.1 CONDEMNATION RESULTING IN CONTINUED USE NOT
FEASIBLE ........................................... 17
SECTION 8.2 TOTAL CONDEMNATION OF PREMISES ..................... 17
SECTION 8.3 CONDEMNATION WITHOUT TERMINATION ................... 17
SECTION 8.4 CONDEMNATION PROCEEDS .............................. 17
ARTICLE 9 LIENS .............................................. 18
ARTICLE 10 TAXES ON TENANT'S PROPERTY ......................... 18
ARTICLE 11 SUBLETTING AND ASSIGNING ........................... 18
SECTION 11.1 SUBLEASE AND ASSIGNMENT ............................ 18
SECTION 11.2 TENANT'S CONTINUING OBLIGATIONS .................... 18
SECTION 11.3 LANDLORD'S RIGHTS RELATING TO ASSIGNEE OR SUBTENANT 19
SECTION 11.4 ERISA AND UBTI RESTRICTIONS ........................ 19
SECTION 11.5 ASSIGNMENT BY OPERATION OF LAW ..................... 19
ARTICLE 12 TRANSFERS BY LANDLORD, SUBORDINATION AND TENANT'S
ESTOPPEL CERTIFICATE ............................... 20
SECTION 12.1 SALE OF THE PROPERTY ............................... 20
SECTION 12.2 SUBORDINATION, ATTORNMENT AND NOTICE ............... 20
SECTION 12.3 TENANT'S ESTOPPEL CERTIFICATE ...................... 20
ARTICLE 13 DEFAULT ............................................ 21
SECTION 13.1 DEFAULTS BY TENANT ................................. 21
13.101 Failure to Pay Rent ..................... 21
13.102 Failure to Perform ...................... 21
13.103 Continual Failure to Perform ............ 21
13.104 Bankruptcy, Insolvency, Etc ............. 21
13.105 Loss of Right to do Business ............ 21
13.106 Dissolution or Liquidation .............. 21
SECTION 13.2 REMEDIES OF LANDLORD ............................... 21
13.201 Termination of the Lease ................ 22
13.202 Repossession and Re-Entry ............... 22
13.203 Cure of Default ......................... 23
13.204 Continuing Obligations .................. 23
iii
<PAGE> 8
13.205 Cumulative Remedies ..................... 23
SECTION 13.3 DEFAULTS BY LANDLORD ............................... 23
SECTION 13.4 LANDLORD'S LIABILITY ............................... 23
13.401 Tenant's Rights in Respect of Landlord
Default ................................. 23
13.402 Certain Limitations on Landlord's
Liability ............................... 24
SECTION 13.5 WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT ...... 24
SECTION 13.6 LANDLORD'S LIEN .................................... 25
SECTION 13.7 LEASE CANCELLATION OPTIONS ......................... 25
13.701 Initial Cancellation Options ............ 25
13.702 Additional Cancellation Option .......... 25
SECTION 13.8 SATELLITE DISH ..................................... 26
ARTICLE 14 NOTICES ............................................ 26
ARTICLE 15 MISCELLANEOUS PROVISIONS ........................... 26
SECTION 15.1 BUILDING NAME AND ADDRESS .......................... 26
SECTION 15.2 SIGNAGE ............................................ 26
SECTION 15.3 NO WAIVER .......................................... 26
SECTION 15.4 APPLICABLE LAW ..................................... 27
SECTION 15.5 COMMON AREAS ....................................... 27
SECTION 15.6 SUCCESSORS AND ASSIGNS ............................. 27
SECTION 15.7 BROKERS ............................................ 27
SECTION 15.8 SEVERABILITY ....................................... 28
SECTION 15.9 EXAMINATION OF LEASE ............................... 28
SECTION 15.10 INTEREST ON TENANT'S OBLIGATIONS ................... 28
SECTION 15.11 TIME ............................................... 28
SECTION 15.12 DEFINED TERMS AND MARGIN HEADINGS .................. 28
SECTION 15.13 AUTHORITY OF TENANT ................................ 28
SECTION 15.14 FORCE MAJEURE ...................................... 28
SECTION 15.15 RECORDING .......................................... 28
iv
<PAGE> 9
SECTION 15.16 NO REPRESENTATIONS ................................. 28
SECTION 15.17 ATTORNEYS' FEES .................................... 29
SECTION 15.18 NO LIGHT, AIR OR VIEW EASEMENT ..................... 29
SECTION 15.19 RELOCATION ......................................... 29
SECTION 15.20 SURVIVAL OF INDEMNITIES ............................ 30
SECTION 15.21 ENTIRE AGREEMENT ................................... 30
v
<PAGE> 10
SUPPLEMENTAL LEASE PROVISIONS
ARTICLE I
TERM AND POSSESSION
SECTION 1.1 LEASE OF PREMISES, COMMENCEMENT AND EXPIRATION.
1.101 Lease of Premises. In consideration of the mutual covenants herein,
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, subject to all the terms and conditions of this Lease, the
portion of the Building (as described in Item 1 of the Basic Lease
Provisions) described as the Premises in Item 2 of the Basic Lease
Provisions and that is more particularly described by the
crosshatched area on Exhibit A attached hereto (hereinafter called
(the "Premises"). The agreed rentable area of the Premises is hereby
stipulated to be the "Agreed Rentable Area" of the Premises set
forth in Item 2.b of the Basic Lease Provisions, irrespective of
whether the same should be more or less as a result of minor
variations resulting from construction of Tenant's Improvements (as
defined in the Work Letter (herein so called) attached hereto as
Exhibit C). The agreed rentable area of the Building is hereby
stipulated to be the "Agreed Rentable Area" of the Building set
forth in Item 1.b of the Basic Lease Provisions, irrespective of
whether the same should be more or less as a result of minor
variations resulting from actual construction or repair of the
Building. Landlord also grants Tenant a non-exclusive license for
the Term to use the Common Areas (as hereinafter defined) of the
Building in common with others entitled to use the Common Areas,
including, without limitation, Landlord, other tenants of the
Building and their respective employees and invitees, and other
persons authorized by Landlord, subject to the terms and conditions
of this Lease and the rules and regulations applicable to the Common
Areas.
1.102 Initial Term and Commencement. The initial term of this Lease shall
be the period of time specified in Item 6 of the Basic Lease
Provisions. The initial term shall commence on the Commencement Date
(herein so called) set forth in Item 7 of the Basic Lease Provisions
(as such Commencement Date may be adjusted pursuant to Sections 4
and $ of the Work Letter) and, unless sooner terminated pursuant to
the terms of this Lease, the initial term shall expire, without
notice to Tenant, on the Expiration Date (herein so called) set
forth in Item 8 of the Basic Lease Provisions (as such Expiration
Date may be adjusted pursuant to Sections 4 and 5 of the Work
Letter). As used in this Lease, "Term" shall mean the Initial Term
and any validly exercised Renewal Term (as defined in Rider 1
attached hereto).
SECTION 1.2 INSPECTION AND DELIVERY OF PREMISES, CONSTRUCTION OF LEASE SPACE
IMPROVEMENTS AND POSSESSION.
1.201 Delivery and Completion. Tenant hereby acknowledges that Tenant has
inspected the Premises and the Common Areas (as hereinafter defined)
and, except for latent defects discovered and reported to Landlord
by Tenant within one hundred eighty (180) days from the Commencement
Date, hereby (i) accepts the Common Areas in "as is" condition for
all purposes, subject to Landlord's completion of its obligations
under the Work Letter and (ii) subject to Landlord's completion of
its obligations under the Work Letter, accepts the Premises
(including the suitability of the Premises for the Permitted Use)
for all purposes. Tenant will perform or cause to be performed the
work and/or construction of Tenant's Improvements (as defined in the
Work Letter) in accordance with the terms of the Work Letter and
will use reasonable efforts to Substantially Complete (as defined in
the Work Letter) Tenant's Improvements by the Commencement Date set
forth in Item 7 of the Basic Lease Provisions. If Tenant's
Improvements are not Substantially Complete by the Commencement Date
set forth in Item 7 of the Basic Lease Provisions for any reason
whatsoever (including, without limitation, because of any delays
caused by Landlord), Tenant's sole remedy shall be an adjustment of
the Commencement Date and the Expiration Date to the extent
permitted under Sections 4 and 5 of the Work Letter.
1
<PAGE> 11
1.202 Acceptance of Premises Memorandum. Upon Substantial Completion (as
defined in the Work Letter) of Tenant's Improvements, Landlord and
Tenant shall execute the Acceptance of Premises Memorandum (herein
so called) attached hereto as Exhibit D. If Tenant occupies the
Premises without executing an Acceptance of Premises Memorandum,
Tenant shall be deemed to have accepted the Premises for all
purposes and Substantial Completion shall be deemed to have occurred
on the earlier to occur of (i) actual occupancy or (ii) the
Commencement Date set forth in Item 7 of the Basic Lease Provisions.
SECTION 1.3 REDELIVERY OF THE PREMISES. Upon the expiration or earlier
termination of this Lease or upon the exercise by Landlord of its right to
re-enter the Premises without terminating this Lease and subject to Tenant's
remaining obligations under this Section, Tenant shall immediately deliver to
Landlord the Premises, ordinary wear and tear excepted, but free of offensive
odors and in a safe, clean, neat, sanitary and operational condition, together
with all keys and parking and access cards. Tenant shall (i) within seven (7)
days after the expiration or earlier termination of this Lease, remove from the
Premises, at the sole expense of Tenant and unless Landlord is asserting its
lien rights therein, any equipment, machinery, trade fixtures and personalty
installed or placed in the Premises by or on behalf of Tenant and (ii) if
requested by Landlord for improvements designated at the time Landlord grants
consent to the construction or installation of the Tenant Improvements, (a)
remove all or any part of said improvements made to and conduit installed in the
Premises or the Building by or on behalf of Tenant and (b) restore the Premises
to the condition existing prior to the installation of such improvements. All
removals and work described above shall be accomplished in a good and
workmanlike manner and shall be conducted in a fashion so as not to damage the
Premises or the Building or any portion thereof. Tenant shall, at its expense,
promptly repair any damage caused by any such removal or work. If Tenant fails
to deliver the Premises in the condition aforesaid, then Landlord may restore
the Premises to such a condition at Tenant's expense. All property required to
be removed pursuant to this Section not removed within the time period required
hereunder shall thereupon be conclusively presumed to have been abandoned by
Tenant and Landlord may, at its option, take over possession of such property
and either (a) declare the same to be the property of Landlord by written notice
to Tenant at the address provided herein or (b) at the sole cost and expense of
Tenant, remove and store and/or dispose of the same or any pan thereof in any
manner that Landlord shall choose without incurring liability to Tenant or any
other person.
SECTION 1.4 HOLDING OVER. In the event Tenant or any party under Tenant claiming
rights to this Lease, retains possession of the Premises after the expiration or
earlier termination of this Lease, such possession shall constitute and be
construed as a tenancy at will only, subject, however, to all of the terms,
provisions, covenants and agreements on the pan of Tenant hereunder; such
parties shall be subject to immediate eviction and removal and Tenant or any
such party shall pay Landlord as rent for the period of such holdover an amount
equal to the greater of (i) one and one-half (1.5) times the Basic Annual Rent
and Additional Rent (as hereinafter defined) in effect immediately preceding
expiration or termination, as applicable, prorated on a daily basis or (ii) the
then prevailing market rental rate, prorated on a daily basis. Landlord and
Tenant agree that they have included the foregoing provision for liquidated
damages because the actual damages to be incurred by Landlord can reasonably be
expected to approximate the amount of liquidated damages called for herein and
because the actual amount of such damages would be difficult if not impossible
to measure accurately. Tenant shall also pay and agrees to indemnify and hold
Landlord harmless from any and all damages sustained by Landlord as a result of
such holdover. The rent during such holdover period shall be payable to Landlord
in accordance with the provisions of Article 2. Tenant will vacate the Premises
and deliver same to Landlord within fourteen (14) days after Landlord's delivery
of written notice to Tenant to vacate the Premises. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend the term of
this Lease; no payments of money by Tenant to Landlord after the expiration or
earlier termination of this Lease shall reinstate, continue or extend the term
of this Lease; and no extension of this Lease after the expiration or earlier
termination thereof shall be valid unless and until the same shall be reduced to
writing and signed by both Landlord and Tenant.
2
<PAGE> 12
ARTICLE 2
RENT
SECTION 2.1 BASIC RENT. Tenant shall pay as annual rent for the Premises the
applicable Basic Annual Rent shown in Item 3 of the Basic Lease Provisions. The
Basic Annual Rent shall be payable in advance, in monthly installments equal to
the applicable Basic Monthly Rent shown in Item 3 of the Basic Lease Provisions,
which monthly installments shall commence on the Commencement Date and shall
continue on the first (1st) day of each calendar month thereafter. If the
Commencement Date occurs on a day other than the first day of a calendar month
or the Expiration Date occurs on a day other than the last day of a calendar
month, the Basic Monthly Rent for such partial month shall be prorated on a
daily basis.
SECTION 2.2 ADDITIONAL RENT.
2.201 Definitions. For purposes of this Lease, the following definitions
shall apply:
(a) "Additional Rent," for a particular calendar year, shall equal
the sum of (i) Tenant's Pro Rata Share Percentage multiplied
by the amount by which Operating Expenses (as hereinafter
defined) for such year exceed Tenant's Operating Expense Stop
(as set forth in Item 5 of the Basic Lease Provisions), plus
(ii) the total Monthly Submetered BTU Charges (as hereinafter
defined) for such calendar year, plus (iii) the total Monthly
Submetered Electrical Charges (as hereinafter defined) for
such calendar year, plus (iv) the total charges for after
hours HVAC delivered to Tenant pursuant to subsection
5.102(b).
(b) "Operating Expenses" shall mean all of the costs and expenses
Landlord incurs, pays or becomes obligated to pay in
connection with operating, maintaining, insuring and managing
the Property for a particular calendar year or portion thereof
as determined by Landlord in accordance with generally
accepted accounting principles, including, but not limited to,
the following: (i) insurance premiums; (ii) water, sewer,
electrical and other utility charges; (iii) service, testing
and other charges incurred in the operation and maintenance of
the elevators and the plumbing, fire sprinkler, security,
heating, ventilation and air conditioning system; (iv)
cleaning and other janitorial service (inclusive of window
cleaning); (v) tools and supplies costs; (vi) repair costs;
(vii) costs of landscaping, including landscape maintenance
and sprinkler maintenance costs and rental and supply costs in
connection therewith; (viii) security and alarm services; (ix)
license, permit and inspection fees; (x) management fees; (xi)
wages and related benefits payable to employees, including
taxes and insurance relating thereto; (xii) accounting
services; (xiii) legal services, unless incurred in connection
with tenant defaults or lease negotiations; (xiv) trash
removal; (xv) maintenance, repair, repaving and operating
costs associated with the Garage; (xvi) Real Estate Taxes (as
hereinafter defined); (xvii) Additional Pass Through Costs (as
hereinafter defined); (xviii) the charges assessed against the
Property pursuant to any contractual covenants or recorded
declaration of covenants or the covenants, conditions and
restrictions of any other similar instrument affecting the
Property; and (xix) costs of inspection, testing, repair, and
maintenance (including preventative maintenance) for the
Building's uninterruptible power supply systems, emergency
generating systems, chillers and related equipment serving the
Premises (or portions thereof) or other Rentable Area within
the Building.
Notwithstanding any contrary provision in subsection 2.201
above, "Operating Expenses" shall not include any of the items
set forth in Exhibit G.
(c) "Real Estate Taxes" shall mean (i) all real estate taxes and
other taxes or assessments which are levied with respect to
the Property or any portion thereof for each calendar year,
(ii) any tax, surcharge or assessment which shall he levied in
addition or as a
3
<PAGE> 13
supplement to or in lieu of real estate taxes, (iii) the costs
and expenses of a consultant, if any, or of contesting the
validity or amount of such real estate or other taxes, and
(iv) any rental, excise, sales, transaction, privilege or
other tax or levy, however denominated, imposed upon or
measured by the rental reserved hereunder or on Landlord's
business of leasing the Premises, excepting only Landlord's
net income taxes.
(d) "Additional Pass Through Costs" shall mean the following costs
and expenses incurred by Landlord from and after January 1 of
the calendar year in which this Lease is executed: (i) subject
to the limitations of clause (ii) following, the cost of any
improvement made to the Property by Landlord that is required
under any governmental law or regulation which is not in
effect, or is in effect but is not interpreted to affect the
Building, on the date this Lease is executed, amortized over
its useful life, together with an amount equal to interest at
the rate often percent (10%) per annum (the "Amortization
Rate") on the unamortized balance thereof; (ii) the cost of
any improvement made to the Common Areas of the Property that
is required under interpretations or regulations issued after
the Commencement Date under, or any amendments made after the
Commencement Date to, the provisions of Tex. Rev. Civ. Stat.
Ann. art. 9102 and the provisions of the Americans With
Disabilities Act of 1990, 42 U.S.C.ss.ss.12101-12213
(collectively, the "Disability Acts"), amortized over such
period as Landlord shall reasonably determine, together with
an amount equal to interest at the Amortization Rate on the
unamortized balance thereof; and (iii) the cost of any
labor-saving or energy-saving device or other equipment
installed in the Building (provided Landlord reasonably
anticipates that the installation thereof will reduce
Operating Expenses), amortized over such period as is
reasonably determined by Landlord, together with an amount
equal to interest at the Amortization Rate on the unamortized
balance thereof.
(e) Adjustments on Account of Submetered Electricity. So long as
Tenant's electrical usage is submetered, then the electrical
expenses component of Operating Expenses, for purposes of
calculating Tenant's pro rata share of Operating Expenses,
shall be reduced by the amount of Monthly Submetered
Electrical Charges for the applicable year, the electrical
component included in Monthly Submetered BTU Charges for the
applicable year, and the cost of submetered electricity
provided to other tenants of the Building during the
applicable year; Tenant's pro rata share of Operating Expenses
shall include the electrical expenses attributable to areas of
the Building other than tenant occupied or occupiable areas
multiplied by a fraction, the numerator of which is the Agreed
Rentable Area of the Premises and denominator of which is the
Agreed Rentable Area of the Building.
2.202 Gross-Up. Operating Expenses shall be grossed up to include all
additional costs and expenses of owning, operating, maintaining and
managing the Building which Landlord reasonably determines that it
would have incurred, paid or been obligated to pay during such year
if the Building had been one hundred percent (100%) occupied.
2.203 Payment Obligation. In addition to the Basic Rent specified in this
Lease, Tenant shall pay to Landlord the Additional Rent, in each
calendar year or partial calendar year during the term of this
Lease, payable in monthly installments as hereinafter provided. At
least thirty (30) days prior to each calendar year commencing after
the Commencement Date (or as soon thereafter as is reasonably
possible), Landlord shall give Tenant written notice of Tenant's
estimated Additional Rent (other than Monthly Submetered Electrical
Charges, Monthly Submetered BTU Charges and the charge for after
hours HVAC, each of which will be payable monthly in arrears within
thirty (30) days after receipt of an invoice therefor) for the
applicable calendar year and the amount of the monthly installment
due for each month during such year. Tenant shall pay to Landlord on
the first day of each month beginning the first calendar year
occurring after the Commencement Date the amount of the applicable
monthly installment; provided, however, if the applicable
4
<PAGE> 14
installment covers a partial month, then such installment shall be
prorated on a daily basis. Within one hundred twenty (120) days
after the end of (i) each calendar year and (ii) the Expiration Date
or as soon thereafter as is reasonably possible, Landlord shall
prepare and deliver to Tenant a statement showing Tenant's actual
Additional Rent for the applicable calendar year, provided that with
respect to the calendar year in which the Expiration Date occurs,
(x) that calendar year shall be deemed to have commenced on January
1 of that year and ended on the Expiration Date (the "Final Calendar
Year") and (y) Landlord shall have the right to estimate the actual
Operating Expenses allocable to the Final Calendar Year but which
are not determinable within such 120 day period. If Tenant's total
monthly payments of Additional Rent for the applicable year are less
than Tenant's actual Additional Rent, then Tenant shall pay to
Landlord the amount of such underpayment. If Tenant's total monthly
payments of Additional Rent for the applicable year are more than
Tenant's actual Additional Rent, then Landlord shall credit against
the next Additional Rent payment or payments due from Tenant the
amount of such overpayment; provided, however, with respect to the
Final Calendar Year, Landlord shall pay to Tenant the amount of such
excess payments, less any amounts then owed to Landlord. Unless
Tenant takes written exception to any item within ninety (90) days
after the furnishing of an annual statement, such statement shall be
considered as final and accepted by Tenant. Any amount due Landlord
as shown on any such statement shall be paid by Tenant within thirty
(30) days after it is furnished to Tenant.
2.204 Revisions in Estimated Additional Rent. If Real Estate Taxes,
utility expenses or Additional Pass Through Costs increase during a
calendar year (based on new information and supporting documentation
from actual or anticipated operations of the Building) or if the
number of square feet of rentable area in the Premises increases,
Landlord may revise the estimated Additional Rent during such year
by giving Tenant written notice to that effect and thereafter Tenant
shall pay to Landlord, in each of the remaining months of such year,
an additional amount equal to the amount of such increase in the
estimated Additional Rent divided by the number of months remaining
in such year.
SECTION 2.3 RENT DEFINED AND NO OFFSETS. Basic Annual Rent, Additional Rent and
all other sums (whether or not expressly designated as rent) required to be paid
to Landlord by Tenant under this Lease (including, without limitation, any sums
payable to Landlord under any addendum, exhibit, rider or schedule attached
hereto) shall constitute rent and are sometimes collectively referred to as
"Rent." Each payment of Rent shall be paid by Tenant when due, without prior
demand therefor and without deduction or setoff, except as specifically set
forth in Sections 5.202, 7.1 and 8.3.
SECTION 2.4 LATE CHARGES. If any installment of Basic Annual Rent or Additional
Rent or any other payment of Rent under this Lease shall not be paid when due, a
"Late Charge" of five cents (5.05) per dollar so overdue may be charged by
Landlord to defray Landlord's administrative expense incident to the handling of
such overdue payments. Each Late Charge shall be payable on demand.
ARTICLE 3
SECURITY DEPOSIT
Tenant will provide to Landlord on the date this Lease is executed by Tenant the
Security Deposit set forth in Item 9 of the Basic Lease Provisions as security
for the performance of the terms hereof by Tenant. The Security Deposit may be
in the form of an unconditional and irrevocable letter of credit with a term of
no less than one year and on a form satisfactory to Landlord, which shall be
renewed or shall provide for adjustment in a manner reasonably satisfactory to
Landlord each year in accordance with the following schedule:
End of first Lease year - renew in same amount
End of second Lease year - renew in 2/3 of original amount
End of third Lease year - renew in 1/2 of original amount
5
<PAGE> 15
No Security Deposit shall be required after the fourth anniversary of the
Commencement Date. Tenant shall, at the proper times prior to the fourth
anniversary of the Commencement Date, provide an additional Security Deposit
with Landlord on the same prorata percentages and for the same time frames with
respect to any future finish allowance given to Tenant in connection with an
expansion or other addition to the Premises. Tenant shall not be entitled to
interest thereon and Landlord may commingle such Security Deposit with any other
funds of Landlord. The Security Deposit shall not be considered an advance
payment of rental or a measure of Landlord's damages in case of default by
Tenant. If Tenant defaults with respect to any provision of this Lease, Landlord
may, but shall not be required to, from time to time, without prejudice to any
other remedy, draw on any letter of credit and use, apply or retain all or any
part of this Security Deposit for the payment of any Rent or any other sum in
default or for the payment of any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default, including, without limitation, costs and attorneys' fees
incurred by Landlord to recover possession of the Premises. If Tenant is not in
default of the Lease on the fourth anniversary of the Commencement Date, the
Security Deposit shall be reduced to $0.00 and any letter of credit shall
promptly be returned to Tenant. Tenant agrees that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as the
Security Deposit and that Landlord and its successors and assigns shall not be
bound by any such actual or attempted assignment or encumbrance. Regardless of
any assignment of this Lease by Tenant, Landlord may return the Security Deposit
to the original Tenant, in the absence of evidence satisfactory to Landlord of
an assignment of the right to receive the Security Deposit or any part of the
balance thereof.
ARTICLE 4
OCCUPANCY AND USE
SECTION 4.1 USE OF PREMISES.
4.101 General. The Premises shall, subject to the remaining provisions of
this Section, be used solely for the Permitted Use (herein so
called) specified in Item II of the Basic Lease Provisions. Without
in any way limiting the foregoing, Tenant will not use, occupy or
permit the use or occupancy of the Premises for any purpose (and the
Permitted Use shall not include any use) which is forbidden by or in
violation of any law, ordinance or governmental or municipal
regulation, order, or certificate of occupancy, or which may be
dangerous to life, limb or property; or permit the maintenance of
any public or private nuisance; or do or permit any other thing
which may disturb the quiet enjoyment of any other tenant of the
Property; or keep any substance or carry on or permit any operation
which might emit offensive odors or conditions from the Premises; or
commit or suffer or permit any waste in or upon the Premises; or
sell, or permit the sale in any form by or to any of Tenant's agents
or employees or other parties in the Premises except through vending
machines in employee lunch or rest areas within the Premises for use
by Tenant's employees only; or use any apparatus which makes undue
noise or vibrations in the Building; or permit anything to be done
which would increase the fire and extended coverage insurance rate
on the Building or Building contents and, if there is any increase
in such rate by reason of acts of Tenant, then Tenant agrees to pay
such increase upon demand therefor by Landlord; or use, occupy or
permit the use or occupancy of the Premises as offices or agencies
of a foreign government or political subdivision, offices of any
governmental bureau or agency of the United States or any state or
political subdivision thereof, or offices of personnel agencies.
Payment by Tenant of any such rate increase shall not be a waiver of
Tenant's duty to comply herewith. Tenant shall keep the Premises
neat and clean at all times. Tenant shall promptly correct any
violation of a governmental law, rule or regulation relating to the
Premises. Tenant shall comply with any direction of any governmental
authority having jurisdiction which imposes any duty upon Tenant or
Landlord with respect to the Premises or with respect to the
occupancy or use thereof.
4.102 Hazardous and Toxic Materials.
(a) For purposes of this Lease, "Hazardous Materials" shall mean
asbestos containing materials and all other materials,
substances, wastes and chemicals classified as hazardous
6
<PAGE> 16
or toxic substances, materials, wastes or chemicals under
then-current applicable governmental laws, rules or
regulations.
(b) Tenant shall not knowingly incorporate into, or use or
otherwise place or dispose of at, the Premises, the Building
or on the Land any Hazardous Materials, except for use and
storage of cleaning and office supplies used in the ordinary
course of Tenant's business and then only if (i) such
materials are in small quantities, properly labeled and
contained, (ii) such materials are handled and disposed of in
accordance with the highest accepted industry standards for
safety, storage, use and disposal, (iii) notice of and a copy
of the current material safety data sheet is provided to
Landlord for each such hazardous or toxic material and (iv)
such materials are used, transported, stored, handled and
disposed of in accordance with all applicable governmental
laws, rules and regulations. Landlord shall have the right to
periodically inspect, take samples for testing and otherwise
investigate the Premises for the presence of Hazardous
Materials.
(c) Landlord shall not knowingly dispose of at the Premises,
Building or the Land any Hazardous Materials and shall
otherwise deal with all Hazardous Materials at the Premises,
Building or Land of which Landlord is aware in a manner that
will not materially and adversely affect Tenant's access, use
or occupancy of the Premises.
(d) If Landlord or Tenant ever has knowledge of the presence in
the Premises or the Building or the Land of Hazardous
Materials which affect the Premises, the party having
knowledge shall notify the other party thereof in writing
promptly after obtaining such knowledge.
(e) If Tenant or its employees, agents or contractors shall ever
violate the provisions of paragraph (a) of this subsection
4.102 or otherwise contaminate the Premises or the Property,
then Tenant shall clean up, remove and dispose of the material
causing the violation, in compliance with all applicable
governmental standards, laws, rules and regulations and then
prevalent industry practice and standards and shall repair any
damage to the Premises or Building within such period of time
as may be reasonable under the circumstances after written
notice by Landlord (collectively, "Tenant's Environmental
Corrective Work"). Tenant shall notify Landlord of its method,
time and procedure for any clean up or removal and Landlord
shall have the right to require reasonable changes in such
method, time or procedure or to require the same to be done
after normal business hours. Tenant's obligations under this
subsection 4.102(e) shall survive the termination or
expiration of this Lease.
(f) If any Tenant's Environmental Corrective Work (i) is to occur
outside of the Premises or (ii) will in any way affect any
portion of the Building other than the Premises, then Landlord
shall have the right to undertake Tenant's Environmental
Corrective Work. Tenant shall allow Landlord, its agents,
employees and contractors such access to the Premises as
Landlord may reasonably request in order to perform such
Tenant's Environmental Corrective Work.
(g) To the actual knowledge of Landlord, (i) no Hazardous
Materials are present on the Property or the soil, surface
water or groundwater thereof in amounts exceeding applicable
law, (ii) no underground storage tanks are present on the
Property in violation of applicable law, and (iii) no action,
proceeding or claim is pending or threatened regarding the
Property concerning any Hazardous Materials or pursuant to any
environmental law.
4.103 Disability Acts. From and after the Commencement Date, Tenant shall
cause the Premises to be in compliance with all existing
requirements of and regulations issued under the Disability Acts,
7
<PAGE> 17
as interpreted and enforced, for each of the following: (i)
alterations or improvements to any portion of the Premises
(including the initial build-out of the Premises); (ii) obligations
or complaints resulting in obligations, arising under or out of
Title I of the Americans With Disabilities Act or Tenant's
employer-employee obligations; (iii) obligations, or complaints
resulting in obligations, arising under or out of the conduct or
operations of Tenant's business, including any obligations or
requirements for barrier removal to customers or invitees as a
commercial facility or as a public accommodation (as defined in the
Disability Acts); and (iv) any change in the nature of Tenant's
business, or its employees, or financial net worth, or Tenant's
business operations that triggers an obligation under the Disability
Acts. Notwithstanding the foregoing, in the event the Premises
should be expanded to include a full floor, Landlord (and not
Tenant) shall be responsible for compliance with the Disabilities
Acts with respect to all Common Areas within the Premises, provided
that Landlord's responsibilities shall not exceed those applicable
to Landlord if the Premises were on a multi-tenant floor and shall
not increase by virtue of Tenant's specific use of the Premises.
SECTION 4.2 PERMITS. Tenant shall obtain the certificate of occupancy, if any,
required for occupancy of the Premises following construction of Tenant's
Improvements. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business in the Premises or any part
thereof, Tenant, at its expense, shall procure and thereafter maintain such
license or permit. Additionally, if Tenant's Improvements or any subsequent
alteration or improvement made to the Premises by Tenant or Tenant's use of the
Premises require any modification or amendment of any certificate of occupancy
for the Building or the issuance of any other permit of any nature whatsoever,
Tenant shall, at its expense, take all actions to procure any such modification
or amendment or additional permit.
SECTION 4.3 COMPLIANCE WITH LAWS. Tenant shall comply with all laws, statutes,
ordinances, orders and regulations affecting (i) Tenant's use and occupancy of
the Premises, (ii) any improvements constructed within the Building by or on
behalf of Tenant and (iii) any equipment installed within the Building by Tenant
or installed by a party other than Landlord on behalf of Tenant as same may be
interpreted and enforced, including (without limitation) the Americans with
Disabilities Act, the Texas Elimination of Architectural Barriers Act and the
Clean Air Act. Landlord shall comply with all laws, statutes, ordinances, orders
and regulations affecting the base Building structural, mechanical and life
safety systems outside of the Premises and in the Common Areas, as same may be
interpreted and enforced, including (without limitation) the Americans with
Disabilities Act, the Texas Elimination of Architectural Barriers Act and the
Clean Air Act.
SECTION 4.4 RULES AND REGULATIONS. Tenant will comply with such rules and
regulations (the "Rules and Regulations") generally applying to tenants in the
Building as may be reasonably adopted from time to time by Landlord for the
management, safety, care and cleanliness of, and the preservation of good order
and protection of property in, the Premises and the Building and at the
Property. All such Rules and Regulations are hereby made a part hereof.
Notwithstanding anything contained herein to the contrary, Tenant shall not be
required to comply with any new or amended rules and regulations, if the same
are designed to have a discriminatory effect on Tenant or unreasonably and
materially interfere with Tenant's permitted use of the Premises. The Rules and
Regulations in effect on the date hereof are on file with the Property Manager
and are attached hereto as Rider 4. All changes and amendments to the Rules and
Regulations sent by Landlord to Tenant in writing and conforming to the
foregoing standards shall be carried out and observed by Tenant. Landlord hereby
reserves all rights necessary to implement and enforce the Rules and Regulations
and each and every provision of this Lease.
SECTION 4.5 ACCESS. Without being deemed guilty of an eviction of Tenant and
without abatement of Rent, Landlord or its authorized agents shall have the
right to enter the Premises, upon reasonable notice, to inspect the Premises, to
show the Premises to prospective lenders, purchasers or tenants and to fulfill
Landlord's obligations or exercise its rights under this Lease. Tenant hereby
waives any claim for damages for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises
and any other loss occasioned by Landlord's reasonable exercise of its rights
under this Section 4.5. For each of the aforesaid purposes, Landlord shall at
all times have and retain a key with which to unlock the doors to and within the
Premises, excluding Tenant's vaults and safes. Landlord shall have the right to
enter the Premises in
8
<PAGE> 18
an emergency without notice to Tenant and in such event shall have the right to
use any and all means which Landlord may deem proper to enter the Premises
without liability therefor. Landlord and Landlord's agents, except in the case
of emergency, shall provide Tenant with twenty-four (24) hours' notice prior to
entry of the Premises and shall be accompanied by a representative of Tenant
when entering the secured area (shown as the cross-hatched area on Exhibit A-1).
Any such entry by Landlord and Landlord's agents shall comply with all
reasonable security measures of Tenant, and shall be made so as not to
unreasonably interfere with the conduct of Tenant's business.
SECTION 4.6 QUIET POSSESSION. Provided Tenant timely pays Rent and observes and
performs all of the covenants, conditions and provisions on Tenant's part to be
observed and performed hereunder, Tenant shall have the quiet possession of the
Premises for the entire term hereof, subject to all of the provisions of this
Lease and all laws and restrictive covenants to which the Property is subject.
ARTICLE 5
UTILITIES AND SERVICES
SECTION 5.1 SERVICES TO BE PROVIDED. Landlord agrees to furnish or cause to be
furnished to the Premises, the utilities and services described in subsections
5.101 through 5.109 below, subject to all other provisions of this Lease.
5.101 Elevator Service. Landlord shall provide normal elevator service 24
hours a day, seven days a week, subject only to temporary
interruption in service caused by maintenance or repairs of the
elevators, but shall at all times have at least one elevator
servicing the Premises.
5.102 Heat and Air Conditioning.
(a) Hours and Standards. On Monday through Friday from 7:00 a.m.
to 6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m.
(other than holidays which are defined as New Years Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving
holidays, and Christmas holidays), Landlord shall ventilate
the Premises and furnish heat or air conditioning from the
heating, ventilation and air conditioning ("HVAC") system
serving the Building, at such temperatures and in such amounts
as is customary in buildings of comparable size, quality and
in the general vicinity of the Building, with such adjustments
as Landlord reasonably deems necessary for the comfortable
occupancy of the Premises, subject to events of force majeure
and to any governmental requirements, ordinances, rules,
regulations, guidelines or standards relating to, among other
things, energy conservation. Landlord shall, on a continuous
basis and at all times, supply the Premises with chilled water
from the Building's HVAC system to meet the following
performance standards: chilled water meeting the load
requirements of one (1) ton per 200 square feet of Agreed
Rentable Area leased by Tenant delivered at a specified
constant temperature (+/-5(0) F.) selected from temperatures
in a range from 42 - 48 F. The specific temperature may be
changed by Landlord from time to time within the range
indicated in the preceding sentence.
(b) After Hours HVAC. If Tenant requires HVAC to the Premises
during times other than the hours stated above, Landlord shall
make such services available upon request by Tenant if
requested by Tenant within the time periods specified by
Landlord, and provided Tenant pays, as Additional Rent,
Landlord's then current actual cost to provide after hours
HVAC. The current actual cost is $25.00 per hour.
(c) Submetering of Air Conditioning. Tenant, as part of Tenant's
Improvements, shall install, maintain and repair at Tenant's
expense separate metering for all of Tenant's mainframe
computer heat exchangers, Tenant's HVAC air handling units,
and Tenant's fan coil units in the Computing Center (such
mainframe computer heat exchangers, HVAC air handling units,
and fan coil units are called the "HVAC Equipment" and such
9
<PAGE> 19
meters are called "BTU Meters"). The BTU Meters measure the
energy consumed by the HVAC Equipment by British Thermal Units
("BTUs"). As part of Additional Rent, Tenant will pay
Landlord, monthly, the cost of the energy consumed by the HVAC
Equipment ("Monthly Submetered BTU Charges"), which cost shall
be the product of (x) the BTUs consumed during such month by
the HVAC Equipment (as evidenced by the BTU Meters),
multiplied by (y) the per hour amount then charged to tenants
in the Building generally, but not to exceed Landlord's then
current actual cost, which rate is currently $8.56 per
1,000,000 BTUs per hour.
5.103 Electricity.
(a) Consumption. Landlord shall furnish to the Premises electric
current for normal office purposes at the electrical panel on
the Building Floor on which the Premises are located;
provided, however, Tenant shall be solely responsible for the
costs of electrical consumption (without duplication) within
the Premises which is in excess of 7.0 watts per square foot
of the Agreed Net Rentable Area of the Premises (such
consumption is herein referred to as "Excess Consumption" and
the costs of Excess Consumption are herein referred to as
"Excess Consumption Costs"). Without in any way limiting
Tenant's responsibility for Excess Consumption Costs, Tenant
shall not (i) without the express prior written consent of
Landlord (except as provided below), install or use or permit
the installation or use of any computer or electronic data
processing equipment or any other electrical equipment which
(singly) requires a voltage other than 120 volts single phase
or otherwise has high electrical consumption or (ii) use
electric current in excess of the capacity of the feeders or
lines to the Building or the risers or wiring installation of
the Building or the Premises.
(b) Submetering Electrical Usage. All electricity delivered to the
Premises shall be submetered, and in that regard Tenant shall,
at Tenant's expense and as part of Tenant's Improvements,
install or cause to be installed, maintain and repair
submeters. All electrical lines to or panel boxes for the
Premises that are submetered are herein referred to as
"Submetered Lines," and each such submeter which measures
electrical consumption of the Submetered Lines or the Premises
is herein referred to as a "Submeter." As a part of Additional
Rent, Tenant shall pay Landlord the Excess Consumption Costs,
which shall be equal to the kilowatt hours of Excess
Consumption multiplied by the then current cost per kilowatt
hour of electricity charged by the electric utility provider
to the Building. Billing for metered electricity will be on an
actual cost basis from the electric utility without mark-up to
Landlord.
(c) UPS. Landlord shall also furnish, twenty-four (24) hours a
day, seven (7) days a week, to the Premises uninterruptible
power supply ("UPS") power with the characteristics described
below to meet Tenant's loads in an amount not to exceed 50
kVA. Tenant shall have the right to install, at its sole cost
and expense and with Landlord's prior written approval,
equipment of high electrical consumption (480 volts) which may
be connected to the UPS source on Tenant's floor. Tenant may
install, at its sole cost and expense and with Landlord's
prior written approval, circuits within the Premises to
connect to the UPS. All requirements for UPS will be
separately metered and billed to the Tenant as additional
rent. The Building shall also provide for Tenant's use an
alternate electrical power supply to the Premises from standby
generators located in the Building ("Building Backup
Generators"). Such alternate supply shall be used only in case
the Building's normal power supply is interrupted or during
temporary, scheduled testing of such equipment, or as deemed
necessary by Landlord. Such power supply shall be sufficient
to supply, under normal operating conditions, electrical power
adequate for the operation of the Building, subject to the
limitations described herein, and the Premises. For purposes
of this 5.103(c), the total power requirements for all
equipment in the Premises,
10
<PAGE> 20
whether non-emergency or emergency, shall not exceed 111 kVA.
In the event Tenant desires to exceed the 111 kVA limit,
Tenant must obtain the written approval of Landlord and, if
approved (and subject to availability), Tenant shall pay a
one-time charge of Landlord's cost to provide such additional
power, which cost is currently $750 per kVA. The Building
Back-up Generators shall be maintained so as to start up and
operate automatically in the event of interruption of normal
power supply, and shall provide emergency power to all
Building systems on a priority basis. As generator capacity
becomes available, the system begins loading the critical load
groups in order of priority. The system will not add load
unless generator capacity is available. Those Building systems
receiving priority in order of their importance are fire and
life safety systems, elevator systems, chilled water and
building automation systems, UPS power and data center floors
of the Building. Tenant acknowledges that in the event of an
emergency, the Building Back-up Generators may be required to
shed non-critical loads servicing standard Building systems
lighting to office space and Common Areas, power to the
cafeteria, components of the transportation systems and other
Building systems not critical to the continued operation of
the data center floors.
5.104 Water. Landlord shall furnish regular (not deionized) water for
humidification, drinking, cleaning and lavatory purposes only in the
Premises and to appropriate places in the Common Areas.
5.105 Janitorial Services. Landlord shall provide janitorial services to
the Premises after 6:00 p.m. in accordance with the standards set
forth on Exhibit H attached hereto and made a part hereof, provided
Tenant complies with subsection 6.201 below.
5.106 Common Areas. Landlord shall perform routine maintenance in the
Common Areas (hereinafter defined).
5.107 Bulbs and Ballasts. Landlord shall provide Building standard bulbs
and ballasts as necessary in the Premises. Landlord shall also
provide non-building standard bulbs and ballasts provided Tenant
shall pay the cost thereof, together with an administrative fee
equal to ten percent (10%) of such cost.
5.108 Fire Suppression. Landlord shall provide Tenant access to the
existing Building fire alarm system to accommodate a separate
pre-action fire suppression system to be installed by Tenant at its
sole cost and expense within the Premises. The Tenant fire
suppression system shall be compatible with the Building fire alarm
system and shall otherwise be acceptable to Landlord in its sole
discretion. Tenant shall provide to Landlord written plans and
specifications for the Tenant fire suppression system. All wiring
and other improvements necessary for the system outside of the
Building fire alarm closet, including (without limitation) control
wires for indication of system alarm, system trouble, system tamper,
and flow condition, shall be installed and paid for by Tenant.
5.109 Security. Landlord shall provide security personnel, equipment, and
access control in accordance with the practice generally of other
Class A high-rise office buildings in the Central Business District
of Houston, Texas. Tenant acknowledges that, currently, Landlord
maintains security personnel on site twenty-four (24) hours per day,
seven (7) days per week and a security officer at the main lobby
security desk from 8 a.m. to 7 p.m., with the building security
control center manned twenty-four (24) hours per day. Landlord shall
permit Tenant, at Tenant's sole cost and expense, to utilize the
Building's security control systems to limit access to the Premises
upon terms and conditions currently followed by other tenants of the
Building using such system. Landlord shall provide Tenant, at no
expense to Tenant, one hundred (100) security cards for purposes of
permitting Tenant and its employees to access the Building security
system.
11
<PAGE> 21
SECTION 5.2 SERVICE INTERRUPTION.
5.201 Service Interruption. Landlord shall not be liable for and, except
as provided in subsection 5.202 below, Tenant shall not be entitled
to any abatement or reduction of Rent by reason of, Landlord's
failure to maintain temperature or electrical constancy levels or to
furnish any of the foregoing services when such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor
disturbance or labor dispute of any character, governmental
regulation, moratorium or other governmental action, inability by
exercise of reasonable diligence to obtain electricity, water or
fuel, or by any other cause beyond Landlord's reasonable control
(collectively, "Uncontrollable Events"), nor shall any such
Uncontrollable Event or results or effects thereof be construed as
an eviction (constructive or actual) of Tenant or as a breach of any
implied warranty, or relieve Tenant front the obligation to perform
any covenant or agreement herein and in no event shall Landlord be
liable for damage to persons or property (including, without
limitation, business interruption), or be in default hereunder, as a
result of any such Uncontrollable Event or results or effects
thereof. However, promptly upon any interruption, curtailment,
stoppage or suspension of services and/or utilities to be furnished
by Landlord under Section 5.1, Landlord will commence diligent good
faith efforts to restore same and will diligently proceed with such
efforts until such services and/or utilities are restored.
5.202 Limited Right to Abatement of Rent. If any portion of the Premises
becomes unfit for occupancy because Landlord fails to deliver any
service as required under Section 5.1 above for any period (other
than a reconstruction period conducted pursuant to Section 7.1 or
Article 8 below) exceeding five (5) consecutive days after written
notice by Tenant to Landlord and provided such failure is not caused
by Tenant, Tenant's contractors or any of their respective agents or
employees, Tenant shall be entitled to a fair partial abatement of
Basic Annual Rent and Additional Rent for any such portion of the
Premises from the expiration of such five (5) consecutive day period
until such service is restored. If the failure to furnish services
which causes the Premises to be unfit for occupancy is caused by the
failure of Landlord, its employees, agents or contractors, to
perform Landlord's duties under this Lease and is not cured within
thirty (30) consecutive days after receipt of Tenant's notice to
Landlord, or if the failure to furnish services which causes the
Premises to be unfit for occupancy is not caused by such failure and
is not cured within ninety (90) consecutive days after receipt of
Tenant's notice to Landlord, then Tenant at its option may terminate
this Lease and all of its obligations for the remaining balance of
the Term by delivering notice to Landlord within ten (10) days after
the applicable thirty (30) consecutive day period or ninety (90)
consecutive day period, as the case may be. For purposes of this
Section 5.202, the term "unfit for occupancy" shall mean the
Premises cannot reasonably be used for its then current Permitted
Use.
ARTICLE 6
MAINTENANCE, REPAIRS, ALTERATIONS AND IMPROVEMENTS
SECTION 6.1 LANDLORD'S OBLIGATION TO MAINTAIN AND REPAIR. Landlord shall
(subject to Section 7.1, Section 7.4, Article 8 below and Landlord's rights
under Section 2.2 above and except for ordinary wear and tear) maintain exterior
walls, roof and load bearing elements and Common Areas of the Building. Except
for load bearing elements of the Building located within the Premises, Landlord
shall not be required to maintain or repair any portion of the Premises.
SECTION 6.2 TENANT'S OBLIGATION TO MAINTAIN AND REPAIR.
6.201 Tenant's Obligation. Tenant shall, at Tenant's sole cost and
expense, (i) maintain and keep the interior of the Premises
(including, but not limited to, all fixtures, walls, ceilings,
floors, doors, windows [except replacement of exterior plate glass
unless the replacement is by reason of damage caused by Tenant],
appliances and equipment which are a part of the Premises) in good
repair and condition, (ii) repair or replace any damage or injury
done to the Building or any other part of the
12
<PAGE> 22
property caused by Tenant, Tenant's agents, employees, licensees,
invitees or visitors or resulting from a breach of its obligations
under this Section 6.2 and (iii) indemnify and hold Landlord
harmless from, and reimburse Landlord for and with respect to, any
and all costs, expenses (including reasonable attorneys' fees),
claims and causes of action arising from or incurred by and/or
asserted in connection with such maintenance, repairs, replacements,
damage or injury. All repairs and replacements performed by or on
behalf of Tenant shall be performed in a good and workmanlike manner
and in accordance with the standards applicable to alterations or
improvements performed by Tenant. Tenant shall continue to pay Rent,
without abatement, during any period that repairs or replacements
are performed or required to be performed by Tenant under this
Section 6.2.
6.202 Rights of Landlord. Landlord shall have the same rights with respect
to repairs performed by Tenant as Landlord has with respect to
improvements and alterations performed by Tenant under subsection
9.303 below. In the event Tenant fails, in the reasonable judgment
of Landlord, to maintain the Premises in good order, condition and
repair, or otherwise satisfy its repair and replacement obligations
under subsection 6.201 above, Landlord shall have the right to
perform such maintenance, repairs and replacements at Tenant's
expense. Tenant shall pay to Landlord on demand any such cost or
expense incurred by Landlord, together with interest thereon at the
rate specified in Section 15.10 below from the date of demand until
paid.
SECTION 6.3 IMPROVEMENTS AND ALTERATIONS.
6.301 Landlord's Construction Obligation. Landlord's sole construction
obligation under this Lease is as set forth in the Work Letter.
6.302 Alteration of Building. Subject to Section 4.5, Landlord hereby
reserves the right and at all times shall have the right to repair,
change, redecorate, alter, improve, modify, renovate, enclose or
make additions to any, part of the Property (including, without
limitation, structural elements and load bearing elements within the
Premises) and to enclose and/or change the arrangement and/or
location of driveways or parking areas or landscaping or other
Common Areas of the Property, all without being held guilty of an
actual or constructive eviction of Tenant or breach of any implied
warranty and without an abatement of Rent (the "Reserved Right").
Without in any way limiting the generality of the foregoing,
Landlord's Reserved Right shall include, but not be limited to, the
right to do any of the following: (i) erect and construct
scaffolding, pipe, conduit and other structures on, within and
outside of the Premises when reasonably required by the nature of
the changes, alterations, improvements, modifications, renovations
and/or additions being performed, (ii) repair, change, renovate,
remodel, alter, improve, modify or make additions to the
arrangement, appearance, location and/or size of entrances or
passageways, doors and doorways, corridors, elevators, elevator
lobbies, stairs, toilets or other Common Areas or Service Areas,
(iii) temporarily close any Common Area and/or temporarily suspend
Building services and facilities in connection with any repairs,
changes, alterations, modifications, renovations or additions to any
part of the Building, (iv) repair, change, alter or improve
plumbing, pipes and conduits located in the Building, including
without limitation, those located within the Premises, the Common
Areas, the Service Corridors or the Service Areas (hereinafter
defined) of the Building and (v) repair, change, modify, alter,
improve, renovate or make additions to the Building's central
heating, ventilation, air conditioning, electrical, mechanical or
plumbing systems. When exercising the Reserved Right, Landlord will
interfere with Tenant's use and occupancy of the Premises as little
as is reasonably practicable. Landlord shall schedule all repairs
and alterations, except emergencies, with twenty-four (24) hours
notice to Tenant and shall, to the extent possible, conduct the same
before or after normal business hours so as to minimize disruption
of Tenant's business operations. Absent an emergency, Landlord shall
not enter the secure area identified in Exhibit A-I unless
accompanied by a representative of Tenant. Landlord shall be
relieved of all obligations to provide services to the secured area
chat require Landlord's access to the secured area, such as
janitorial service. If Landlord enters such secure area during an
emergency,
13
<PAGE> 23
Landlord shall use reasonable efforts to notify Tenant of such entry
immediately thereafter. For purposes of this Lease, an emergency
shall be deemed to exist if Landlord reasonably believes that a
condition within the Premises presents an imminent danger of injury
or loss of life or damage to property.
6.303 Alterations, Additions, Improvements and Installations by Tenant.
Tenant shall not, without the prior written consent of Landlord,
make any changes, modifications, alterations, additions or
improvements (other than Tenant's Improvements under the Work
Letter) to, or install any equipment or machinery (other than office
equipment and unattached personal property) on, the Premises (all
such changes, modifications, alterations, additions, improvements
(other than Tenant's Improvements under the Work Letter] and
installations are herein collectively referred to as
"Installations") if any such Installations would (i) affect any
structural element of the Property, (ii) reduce the load bearing
capacity of any portion of the Building or the Garage (other than by
reason of the weight of the Installations themselves, as long as
total load capacity is not exceeded), (iii) involve slab
penetrations or curtain wall penetrations in the Building or Garage,
(iv) penetrate into portions of the Building outside of the
Premises, or (iv) adversely affect (A) the functioning of the
Building HVAC system, or the electrical, mechanical, plumbing,
lighting, life safety or any other system of the Building or (B)
Landlord's ability to deliver Building services to other tenants of
the Building. As to Installations not covered by the preceding
sentence, Tenant will not perform same without the prior written
consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed. All Installations shall be at
Tenant's sole cost and expense. Without in any way limiting
Landlord's consent rights, Tenant shall not be permitted to proceed
until (a) Landlord approves the contractor or person making such
Installations and approves such contractor's insurance coverage to
be provided in connection with the work, (b) Landlord approves final
and complete plans and specifications for the work and (c) the
appropriate governmental agency, if any, has approved the plans and
specifications for such work. All work performed by Tenant or its
contractor relating to the Installations shall conform to applicable
governmental laws, rules and regulations, including, without
limitation, the Disability Acts. Upon completion of the
Installations, Tenant shall deliver to Landlord "as built" plans. If
Landlord performs such Installations, Tenant shall pay Landlord, as
Additional Rent, the cost thereof plus fifteen percent (15%) as
reimbursement for Landlord's overhead. Each payment shall be made to
Landlord within ten (10) days after receipt of an invoice from
Landlord. All Installations that constitute improvements constructed
within the Premises shall be surrendered with the Premises at the
expiration or earlier termination of this Lease, unless Landlord
requests that same be removed pursuant to Section 1.3 above. Tenant
shall indemnify and hold Landlord harmless from, and reimburse
Landlord for and with respect to, any and all costs, expenses
(including reasonable attorneys' fees and court costs), demands,
claims, causes of action and liens arising from or in connection
with any Installations performed by or on behalf of Tenant. All
Installations performed by or on behalf of Tenant will be performed
diligently and in a first-class workmanlike manner and in compliance
with all applicable laws, ordinances, regulations and rules of any
public authority having jurisdiction over the Building and/or
Tenant's and Landlord's insurance carriers. Landlord will have the
right, but not the obligation, to inspect periodically the work on
the Premises and may require reasonable changes in the method or
quality of the work.
6.304 Approvals. Any approval by Landlord (or Landlord's architect and/or
engineers) of any of Tenant's contractors or Tenant's drawings.
plans or specifications which are prepared in connection with any
construction of improvements (including, without limitation,
Tenant's Improvements) in the Premises shall not in any way be
construed as or constitute a representation or warranty of Landlord
as to the abilities of the contractor or the adequacy or sufficiency
of such drawings, plans or specifications or the improvements to
which they relate, for any use, purpose or condition.
14
<PAGE> 24
ARTICLE 7
INSURANCE, FIRE AND CASUALTY
SECTION 7.1 TOTAL OR PARTIAL DESTRUCTION OF THE BUILDING OR THE PREMISES. In the
event that the Building is totally destroyed by fire or other casualty or in the
event the Building (or any portion thereof) is so damaged that the Premises will
be, in Landlord's reasonable opinion, unfit for occupancy (as defined in Section
5.202 hereof) for a period exceeding one hundred eighty (180) days after the
date of such damage, Landlord or Tenant may terminate this Lease, in which event
Basic Annual Rent and Additional Rent shall be abated during the unexpired
portion of this Lease effective with the date of such damage. Landlord or Tenant
shall exercise the termination right pursuant to the preceding sentence, if at
all, by delivering written notice of termination within ten (10) days after
Landlord's determination given to Tenant in writing that the repairs cannot be
completed within such one hundred eighty (180) day period. In the event the
Building or the Premises are damaged by fire or other casualty and, in
Landlord's reasonable opinion, the Premises can be made tenantable within one
hundred eighty (180) days after the date of such damage, or if the damage is
more serious but neither Landlord nor Tenant elects to terminate this Lease
pursuant to this Section, in either such event Landlord shall, within sixty (60)
days after the date of such damage, commence rebuilding or repairing the
Building and the Premises (including Tenant's Improvements), but only to the
extent of insurance proceeds actually received by Landlord for such repairs, to
substantially the same condition which existed immediately prior to the
happening of the casualty. Landlord shall allow Tenant a fair diminution of
Basic Annual Rent and Additional Rent during the time the Premises are unfit for
occupancy; provided, that if such casualty was caused by Tenant, its agents,
employees, or contractors, Basic Annual Rent and Additional Rent shall be abated
only to the extent Landlord is compensated for such Basic Annual Rent and
Additional Rent by loss of rents insurance, if any. Notwithstanding any
provision or inference herein to the contrary, Landlord's obligation to restore
the Building and the Premises is expressly limited to the amount of casualty
insurance proceeds actually received by Landlord. Without limiting the preceding
sentence, Tenant understands and agrees that if any mortgagee under a deed of
trust, security agreement or mortgage on the Building should require that the
insurance proceeds be used to retire or reduce the mortgage debt or if the
insurance company issuing Landlord's fire and casualty insurance policy fails or
refuses to pay Landlord the proceeds under such policy, Landlord shall have no
obligation to rebuild and this Lease shall terminate upon notice by Landlord to
Tenant. Any insurance which may be carried by Landlord or Tenant against loss or
damage to the Building or to the Premises shall be for the sole benefit of the
party carrying such insurance and under its sole control.
SECTION 7.2 TENANT'S INSURANCE.
7.201 Types of Coverage. Tenant covenants and agrees that from and after
the date of delivery of the Premises from Landlord to Tenant, Tenant
will carry and maintain, at its sole cost and expense, the insurance
set forth in paragraphs (a), (b), (c) and (d) of this subsection.
(a) Commercial General Liability Insurance. Commercial General
Liability Insurance coverage including personal injury, bodily
injury, property damage, operations hazard and contractual
liability, such insurance to insure both Tenant and, as
additional insureds, Landlord and the Property Manager, and to
afford protection to the limit of not less than $3,000,000.00,
combined single limit, in respect to injury or death to any
number of persons and all property damage arising out of any
one (1) occurrence, with a deductible reasonably acceptable to
Landlord.
(b) Property Insurance. Property insurance on an all risk, full
replacement cost basis (including coverage against fire, wind,
tornado, vandalism, malicious mischief, water damage and
sprinkler leakage) covering Tenant's Improvements,
Installations and all other fixtures, equipment and personalty
located in the Premises. Such policy will be written in the
names of Tenant, Landlord and any other parties reasonably
designated by Landlord from time to time, as their respective
interests may appear. The property insurance may, with the
consent of the Landlord, provide for a reasonable deductible.
15
<PAGE> 25
(c) Workers Compensation Insurance. Worker's compensation
insurance insuring against and satisfying Tenant's obligations
and liabilities mandated by the worker's compensation laws of
the State of Texas.
(d) Employers Liability Insurance. Employer's liability insurance
in an amount not less than $1,000,000.00.
7.202 Other Requirements of Insurance. All such insurance will be issued
and underwritten by companies reasonably acceptable to Landlord and
will contain endorsements that (a) such insurance may not lapse with
respect to Landlord or Property Manager or be canceled or amended
with respect to Landlord or Property Manager without the insurance
company giving Landlord and Property Manager at least thirty (30)
days prior written notice of such cancellation or amendment, (b)
Tenant will be solely responsible for payment of premiums, (c) in
the event of payment of any loss covered by such policy, Landlord or
Landlord's designees will be paid first by the insurance company for
Landlord's loss (but only if Landlord elects to rebuild the Building
and/or the Premises) and (d) Tenant's insurance is primary in the
event of overlapping coverage which may be carried by Landlord.
7.203 Proof of Insurance. Tenant shall deliver to Landlord certified
copies of all policies of insurance required by this Section 7.2 or
duly executed Certificates of Insurance evidencing in-force coverage
of the required insurance, within ten (10) days prior to the
commencement of construction of Tenant's Improvements. Further,
Tenant shall deliver to Landlord renewals thereof at least thirty
(30) days prior to the expiration of the respective policy terms.
SECTION 7.3 LANDLORD'S INSURANCE.
7.301 Types of Coverage. Landlord covenants and agrees that from and after
the date of delivery of the Premises from Landlord to Tenant,
Landlord will carry and maintain, at its sole cost and expense, the
insurance set forth in paragraphs (a) and (b) of this subsection.
(a) Commercial General Liability Insurance. Commercial General
Liability Insurance coverage including personal injury, bodily
injury, broad form property damage, operations hazard and
contractual liability, such insurance to afford protection to
the limit of not less than $3,000,000 combined single limit in
respect to injury or death to any number of persons and
property damage arising out of any one (1) occurrence.
(b) Fire and Extended Coverage Insurance. A policy or policies of
property insurance covering the Property on an all risk
replacement cost basis, including without limitation,
sprinkler and water damage, vandalism, malicious mischief,
fire, wind and tornado and with any such deductibles as
Landlord may from time to time determine.
7.302 Blanket Coverage. Any insurance provided for in subsection 7.301
above may be effected by a policy or policies of blanket insurance
covering additional items or locations or assureds, provided that
the requirements of this Section 7.3 are otherwise satisfied. Tenant
shall have no rights in any policy or policies maintained by
Landlord.
SECTION 7.4 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives any
rights it may have against the other (including, but not limited to, a direct
action for damages) on account of any loss or damage occasioned to Landlord or
Tenant, as the case may be (even if such loss or damage is caused by the fault,
negligence or other tortious conduct, acts or omissions of the released party or
the released party's directors, employees, agents or invitees), to their
respective property, the Premises, its contents or to any other portion of the
Building or the Property arising from any risk covered by the fire and extended
coverage property insurance required to be carried by Tenant and Landlord,
respectively, under subsections 7.201(b) and 7.301(b) above or, if the coverage
provided thereby is broader, the fire and extended property insurance actually
carried by the damaged
16
<PAGE> 26
party. Without in any way limiting the foregoing waivers and to the extent
permitted by applicable law, the parties hereto each, on behalf of their
respective insurance companies insuring the property of either Landlord or
Tenant against any such loss, waive any right of subrogation that Landlord or
Tenant or their respective insurers may have against the other party or their
respective officers, directors, employees, agents or invitees and all rights of
their respective insurance companies based upon an assignment from its insured.
Each party to this Lease agrees immediately to give to each such insurance
company written notification of the terms of the mutual waivers contained in
this Section and to have said insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverage by reason of
said waivers. The foregoing waiver shall be effective whether or not the parties
maintain the required insurance.
SECTION 7.5 INDEMNITY. Tenant will indemnify and hold Landlord, Property Manager
and their respective officers, directors, employees and agents harmless from,
and reimburse Landlord for and with respect to, all claims, demands, actions,
damages, loss liabilities, judgments, costs and expenses, including without
limitation, reasonable attorney's fees and court costs (each a "Claim" and
collectively the "Claims") which (i) are suffered by, recovered from or asserted
against Landlord, (ii) are not paid by insurance carried by Tenant or Landlord
(without in any way affecting the requirements of or Landlord's rights under
subsection 7.202(d) above) and (iii) arise from or in connection with (a) the
use or occupancy of the Premises and/or any accident, injury or damage occurring
in or at the Premises or (b) any breach by Tenant of any representation or
covenant in this Lease; provided, however, such indemnification of Landlord by
Tenant shall not include any Claim waived by Landlord under Section 7.4 above or
any Claim to the extent caused by the negligence, gross negligence or willful
misconduct of Landlord. Landlord will indemnify and hold Tenant, its officers,
directors, employees and agents harmless from, and reimburse Tenant for and with
respect to, all Claims which (i) are suffered by, recovered from or asserted
against Tenant, (ii) are not paid by insurance carried by Tenant or Landlord,
and (iii) arise from or in connection with any negligent act or omission or
willful misconduct of Landlord or Landlord's agents, employees or contractors;
provided, however, such indemnification of Tenant by Landlord shall not include
any Claim waived by Tenant under Section 7.4 above or any Claim to the extent
caused by the negligence, gross negligence or willful misconduct of Tenant.
ARTICLE 8
CONDEMNATION
SECTION 8.1 CONDEMNATION RESULTING IN CONTINUED USE NOT FEASIBLE. If the
Property or any portion thereof that, in Landlord's reasonable opinion, is
necessary to the continued efficient and/or economically feasible use of the
Property shall be taken or condemned in whole or in part for public purposes, or
sold to a condemning authority in lieu of taking, then the term of this Lease
shall, at the option of Landlord, forthwith cease and terminate.
SECTION 8.2 TOTAL CONDEMNATION OF PREMISES. In the event that all or
substantially all of the Premises is taken or condemned or sold in lieu thereof
or if Tenant will be unable to use a substantial portion of the Premises or it
is reasonably anticipated that safe and reasonable access to the Building will
not be available or that Tenant's use of the Premises in the manner used
immediately prior to such taking will be substantially impaired for a period of
one hundred eighty (180) consecutive days by reason of a taking, either Landlord
or Tenant may terminate this Lease by delivering written notice thereof to the
other within ten (10) business days after notice of the taking, condemnation or
sale in lieu thereof to be effective as of the date of such taking, condemnation
or sale in lieu thereof.
SECTION 8.3 CONDEMNATION WITHOUT TERMINATION. If upon a taking or condemnation
or sale in lieu of the taking of all or less than all of the Property which (a)
does not give either Landlord or Tenant the right to terminate this Lease or (b)
gives either Landlord or Tenant the right to terminate this Lease pursuant to
Section 8.1 or 8.2 above and neither Landlord nor Tenant elect to exercise such
termination right, then this Lease shall continue in full force and effect,
provided that, if the taking, condemnation or sale includes any portion of the
Premises, the Basic Annual Rent and Additional Rent shall be redetermined on the
basis of the remaining square feet of Agreed Rentable Area of the Premises.
Landlord, at Landlord's sole option and expense, shall restore and reconstruct
the Building to substantially its former condition to the extent that the same
may be reasonably feasible, but such work shall not be required to exceed the
scope of the work done by Landlord in originally constructing
17
<PAGE> 27
the Building, nor shall Landlord in any event be required to spend for such work
an amount in excess of the amount received by Landlord as compensation or
damages (over and above amounts going to the mortgagee of the property taken)
for the part of the Building or the Premises so taken.
SECTION 8.4 CONDEMNATION PROCEEDS. Landlord shall receive the entire award
(which shall include sales proceeds) payable as a result of a condemnation,
taking or sale in lieu thereof. Tenant hereby expressly assigns to Landlord any
and all right, title and interest of Tenant now or hereafter arising in and to
any such award. Tenant shall, however, have the right to recover from such
authority through a separate award which does not reduce Landlord's award, any
compensation as may be awarded to Tenant on account of moving and relocation
expenses and depreciation to and removal of Tenant's physical property.
ARTICLE 9
LIENS
Tenant shall keep the Premises free from all liens arising out of any work
performed, materials furnished or obligations incurred by or for Tenant and
Tenant shall indemnify and hold Landlord harmless from, and reimburse Landlord
for and with respect to, any and all claims, causes of action, damages, expenses
(including reasonable attorneys' fees), arising from or in connection with any
such liens. In the event that Tenant shall not, within ten (10) days following
notification to Tenant of the imposition of any such lien, cause the same to be
released of record by payment or the posting of a bond in amount, form and
substance reasonably acceptable to Landlord, Landlord shall have, in addition to
all other remedies provided herein and by law, the right but not the obligation,
to cause the same to be released by such means as it shall deem proper,
including payment of or defense against the Claim giving rise to such lien. All
amounts paid or incurred by Landlord in connection therewith shall be paid by
Tenant to Landlord on demand and shall bear interest from the date of demand
until paid at the rate set forth in Section 15.10 below. Nothing in this Lease
shall be deemed or construed in any way as constituting the consent or request
of Landlord, express or implied, by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration or repair
of or to the Building or the Premises or any part thereof, nor as giving Tenant
any right, power or authority to contract for or permit the rendering of any
services or the furnishing of any materials that would give rise to the filing
of any mechanic's or other liens against the interest of Landlord in the
Property or the Premises.
ARTICLE 10
TAXES ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, prior to their becoming delinquent,
any and all taxes and assessments levied against, and any increases in Real
Estate Taxes as a result of, any personal property or trade or other fixtures
placed by Tenant in or about the Premises and any improvements (other than
Tenant's Improvements) constructed in the Premises by or on behalf of Tenant.
ARTICLE 11
SUBLETTING AND ASSIGNING
SECTION 11.1 SUBLEASE AND ASSIGNMENT. Tenant shall not assign this Lease, or
allow it to be assigned, in whole or in part, by operation of law or otherwise
(it being agreed that for purposes of this Lease, assignment shall include,
without limitation, the transfer of a majority interest of stock, partnership or
other forms of ownership interests, merger or dissolution) or mortgage or pledge
the same, or sublet the Premises or any part thereof or permit the Premises to
be occupied by any firm, person, partnership or corporation or any combination
thereof, other than Tenant, without the prior written consent of Landlord. In no
event shall any assignment or sublease ever release Tenant from any obligation
or liability hereunder.
SECTION 11.2 TENANT'S CONTINUING OBLIGATIONS. Without limiting Landlord's
consent rights and as a condition to obtaining Landlord's consent, (i) each
assignee must assume all obligations under this Lease and (ii) each subtenant
must confirm that its sublease is subject and subordinate to this Lease. In
addition, each assignee and subtenant shall agree to cause the Premises to
comply at all times with all requirements of the Disability Acts
18
<PAGE> 28
(as amended), including, but not limited to, obligations arising out of or
associated with such assignee's or subtenant's use of or activities or business
operations conducted within the Premises. No assignee or subtenant of the
Premises or any portion thereof may assign or sublet the Premises or any portion
thereof. 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/or
sublettings. All reasonable legal fees and expenses incurred by Landlord in
connection with any assignment or sublease proposed by Tenant will be the
responsibility of Tenant and will be paid by Tenant upon receipt of an invoice
from Landlord.
SECTION 11.3 LANDLORD'S RIGHTS RELATING TO ASSIGNEE OR SUBTENANT. To the extent
the rentals or income derived from any sublease or assignment exceed the rentals
due hereunder, all such excess rentals (after first deducting all reasonable
costs associated with such sublease or assignment) shall be the property of and
paid over to Landlord in consideration for Landlord's consent to the applicable
assignment or sublease. Landlord may at its option collect directly from such
assignee or subtenant all rents becoming due to Tenant under such assignment or
sublease. Tenant here by authorizes and directs any such assignee or subtenant
to make such payments of rent directly to Landlord upon receipt of notice from
Landlord, and Tenant agrees that any such payments made by an assignee or
subtenant to Landlord shall, to the extent of the payments so made, be a full
and complete release and discharge of rent owed to Tenant by such assignee or
subtenant. No direct collection by Landlord from any such assignee or subtenant
shall be construed to constitute a novation or a release of Tenant or any
guarantor of Tenant from the further performance of its obligations hereunder.
Receipt by Landlord of any rent from any assignee, subtenant or occupant of the
Premises or any part thereof shall not be deemed a waiver of the above covenant
in this Lease against assignment and subletting or a release of Tenant under
this Lease. In the event that, following an assignment or subletting, this Lease
or the rights and obligations of Tenant hereunder are terminated for any reason,
including without limitation in connection with default by or bankruptcy of
Tenant (which, for the purposes of this Section 11.3, shall include all persons
or entities claiming by or through Tenant), Landlord may, at its sole option,
consider this Lease to be thereafter a direct lease to the assignee or subtenant
of Tenant upon the terms and conditions contained in this Lease.
SECTION 11.4 ERISA AND UBTI RESTRICTIONS. Notwithstanding anything to the
contrary contained herein, including, without limitation Sections 11.1 and 11.2
above, no assignment or subletting shall be permitted if (i) the proposed
assignee or subtenant or any person which, directly or indirectly, controls, is
controlled by, or is under common control with, the proposed assignee or
subtenant directly or indirectly, controls, is controlled by, or is under common
control with Landlord or any person who controls Landlord; and (ii) the proposed
assignment or sublease (1) provides for a rental or other payment for the
leasing, use, occupancy or utilization of all or any portion of the Premises
based, in whole or in part, on the income or profits derived by any person from
the property so leased, used, occupied or utilized other than an amount based on
a fixed percentage or percentages of gross receipts or sales or (2) does not
provide that such assignee or subtenant shall not enter into any lease,
sublease, license, concession or other agreement for the use, occupancy or
utilization of all or any portion of the Premises which provides for a rental or
other payment for such use, occupancy or utilization based, in whole or in part,
on the income or profits derived by any person from the property so leased,
used, occupied or utilized other than an amount based on a fixed percentage or
percentages of gross receipts or sales; or (iii) in the reasonable opinion of
Landlord's counsel, such proposed assignment or subletting will (1) cause a
violation of the Employee Retirement Income Security Act of 1974 by such
proposed assignee or subtenant, by Landlord, or by any person which, directly or
indirectly, controls, is controlled by, or is under common control with,
Landlord or any person who controls Landlord or (2) result in Landlord, or any
person which, directly or indirectly controls Landlord, receiving "unrelated
business taxable income" (as defined in the Internal Revenue Code).
SECTION 11.5 ASSIGNMENT BY OPERATION OF LAW. The dissolution of a corporation or
partnership which is Tenant, the transfer of a majority of the assets of Tenant,
the addition and withdrawal of shareholders in a corporation which is Tenant and
the withdrawal from and addition of partners to any partnership which is Tenant
shall constitute an assignment of this Lease which is prohibited without
Landlord's consent. However, notwithstanding the foregoing and for purposes of
this Lease, the following shall not be considered assignments prohibited
hereunder or otherwise require Landlord's consent: (1) the dissolution of Tenant
(if Tenant is a partnership) and immediate reconstitution into a partnership or
the addition or withdrawal of partners, or the reallocation of interests among
partners of Tenant; (2) the dissolution of Tenant (if Tenant is a corporation)
and the
19
<PAGE> 29
immediate reconstitution of Tenant into a new corporation, or the addition of
stockholders and the withdrawal of stockholders in the normal course of Tenant's
business, (3) the assignment of this Lease to any successor of Tenant (A) into
which or with which Tenant is merged or consolidated, (B) arising from the
transfer of Tenant's interest under this Lease made in conjunction with the
transfer of a majority of the assets and liabilities of Tenant, or (C) arising
from the acquisition of the assets and liabilities of another corporation by
Tenant so long as in each of the circumstances described in (1) through (3)
above the surviving partnership, corporation or assignee shall assume all
obligations of Tenant hereunder and include a majority of the partners that were
partners (in the case of a partnership) or include the same controlling
shareholders (in the case of a corporation) of Tenant during the twelve (12)
month period immediately prior to the time of the applicable event and the
surviving partnership, corporation or assignee can demonstrate to Landlord's
reasonable satisfaction the same or better financial strength as possessed by
Tenant on the date hereof. Further, Landlord agrees to not unreasonably withhold
or delay its consent to any proposed sublease or assignment to an Affiliate of
Tenant.
ARTICLE 12
TRANSFERS BY LANDLORD, SUBORDINATION AND
TENANT'S ESTOPPEL CERTIFICATE
SECTION 12.1 SALE OF THE PROPERTY. In the event of a sale, transfer or
conveyance by Landlord of the Property (which sale, transfer or conveyance by
Landlord may be consummated freely without consent or approval of Tenant), the
same shall operate to release Landlord from any and all liability under this
Lease arising after the date of such sale, provided that if a Security Deposit
has been made by Tenant, Landlord shall not be released from liability with
respect thereto unless Landlord transfers the Security Deposit to the purchaser.
SECTION 12.2 SUBORDINATION, ATTORNMENT AND NOTICE. This Lease is subject and
subordinate to (i) any lease wherein Landlord is the tenant and to the liens of
any and all mortgages and deeds of trust, regardless of whether such lease,
mortgage or deed of trust now exists or may hereafter be created with regard to
all or any part of the Property, (ii) any and all advances (including interest
thereon) to be made under any such lease, mortgage or deed of trust and (iii)
all modifications, consolidations, renewals, replacements and extensions of any
such lease, mortgage or deed of trust. Tenant also agrees that any lessor,
mortgagee or trustee may elect (which election shall be revocable) to have this
Lease superior to any lease or lien of its mortgage or deed of trust and, in the
event of such election and upon notification by such lessor, mortgagee or
trustee to Tenant to that effect, this Lease shall be deemed superior to the
said lease, mortgage or deed of trust, whether this Lease is dated prior to or
subsequent to the date of said lease, mortgage or deed of trust. Tenant shall,
in the event of the sale or assignment of Landlord's interest in the Premises
(except in a sale-leaseback financing transaction), or in the event of the
termination of any lease in a sale-leaseback financing transaction wherein
Landlord is the lessee, attorn to and recognize such purchaser, assignee or
mortgagee as Landlord under this Lease. Tenant shall, in the event of any
proceedings brought for the foreclosure of, or in the event of the exercise of
the power of sale under, any mortgage or deed of trust covering the Premises,
attorn to and recognize purchaser at such sale, assignee or mortgagee, as the
case may be, as Landlord under this Lease. The above subordination and
attornment clauses shall be self-operative and no further instruments of
subordination or attornment need be required by any mortgagee, trustee, lessor,
purchaser or assignee. In confirmation thereof, Tenant agrees that, upon the
request of Landlord, or any such lessor, mortgagee, trustee, purchaser or
assignee, Tenant shall execute and deliver whatever instruments may be required
for such purposes and to carry out the intent of this Section 12.2. If an
Affiliate of Landlord shall be the mortgagee, then it shall be an express
condition precedent to the effectiveness of the agreement to subordinate set
forth in this Section 12.2 that Landlord obtain from Landlord's mortgagee an
agreement, on mortgagee's standard form, that, notwithstanding any foreclosure
by Landlord's mortgagee's, or deed, or other conveyance in lieu of foreclosure
with respect thereto, Tenant's leasehold estate created hereunder and Tenant's
other options and rights arising out of this Lease should not be disturbed or
affected so long as no default by Tenant exists under the terms of this Lease
(after notice and opportunity to cure as provided herein).
SECTION 12.3 TENANT'S ESTOPPEL CERTIFICATE. Tenant shall, upon the request of
Landlord or any mortgagee of Landlord, without additional consideration, deliver
an estoppel certificate, consisting of reasonable statements required by
Landlord, any mortgagee or purchaser of any interest in the Property, which
statements may include but shall not be limited to the following: this Lease is
in full force and effect, with rental paid through [a
20
<PAGE> 30
current date]; this Lease has not been modified or amended; Landlord is not in
default and Landlord has fully performed all of Landlord's obligations
hereunder; and such other statements as may reasonably be required by the
requesting party. If Tenant is unable to make any of the statements contained in
the estoppel certificate because the same is untrue, Tenant shall with
specificity state the reason why such statement is untrue. Tenant shall, if
requested by Landlord or any such mortgagee, deliver to Landlord a fully
executed instrument in form reasonably satisfactory to Landlord evidencing the
agreement of Tenant to the mortgage or other hypothecation by Landlord of the
interest of Landlord hereunder.
ARTICLE 13
DEFAULT
SECTION 13.1 DEFAULTS BY TENANT. The occurrence of any of the events described
in subsections 13.101 through 13.106 shall constitute a default by Tenant under
this Lease.
13.101 Failure to Pay Rent. Any failure by Tenant to pay Rent or to make
any other payment required to be made by Tenant hereunder within
five (5) days following written notice to Tenant; however, no notice
shall be required for default in payment of Rent after the second
such monetary default during any twelve (12) month period.
13.102 Failure to Perform. Except for a failure covered by subsection
13.101 above or 13.103 below, any failure by Tenant to observe and
perform any provision of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after
written notice to Tenant, provided that if such failure cannot be
cured within said thirty (30) day period, Tenant shall not be in
default hereunder so long as Tenant commences curative action within
such thirty (30) day period, diligently and continuously pursues the
curative action and fully and completely cures the failure within
ninety (90) days after such written notice to Tenant. However, such
ninety (90) days may be extended as necessary if the default does
not adversely impact the Building operations or Building systems or
any other tenant in the Building and so long as Tenant diligently
and continuously pursues the curative action.
13.103 Continual Failure to Perform. The third failure by Tenant in any
twelve (12) month period to perform and observe a particular
provision of this Lease to be observed or performed by Tenant (other
than the failure to pay Rent, which in all instances will be covered
by subsection 13.101 above), no notice being required for any such
third failure.
13.104 Bankruptcy, Insolvency, Etc. Tenant or any guarantor of Tenant's
obligations hereunder (hereinafter called "Guarantor", whether one
(1) or more), (i) cannot meet its obligations as they become due,
(ii) becomes or is declared insolvent according to any law, (iii)
makes a transfer in fraud of creditors according to any applicable
law, (iv) assigns or conveys all or a substantial portion of its
property for the benefit of creditors or (v) files a petition for
relief under the Federal Bankruptcy Code or any other present or
future federal or state insolvency, bankruptcy or similar law
(collectively, "applicable bankruptcy law"); a receiver or trustee
is appointed for Tenant or Guarantor or its property; the interest
of Tenant or Guarantor under this Lease is levied on under execution
or under other legal process; any involuntary petition is filed
against Tenant or Guarantor under applicable bankruptcy law; or any
action is taken to reorganize or modify Tenant's or Guarantor's
capital structure if Tenant or Guarantor is a corporation or other
entity (provided that no such levy, execution, legal process or
petition filed against Tenant or Guarantor shall constitute a breach
of this lease if Tenant or Guarantor shall vigorously contest the
same by appropriate proceedings and shall remove or vacate the same
within ninety (90) days from the date of its creation, service or
filing).
13.105 Loss of Right to do Business. If Tenant is a corporation or limited
partnership, Tenant fails to maintain its right to do business in
the State of Texas or fails to pay any applicable annual
21
<PAGE> 31
franchise taxes as and when same become finally due and payable and
such failure continues for a period of thirty (30) days after
written notice of same from Landlord to Tenant.
13.106 Dissolution or Liquidation. If Tenant is a corporation or
partnership, Tenant dissolves or liquidates or otherwise fails to
maintain its corporate or partnership structure, as applicable.
SECTION 13.2 REMEDIES OF LANDLORD.
13.201 Termination of the Lease. Upon the occurrence of a default by Tenant
hereunder, Landlord may, without judicial process, terminate this
Lease by giving written notice thereof to Tenant (whereupon all
obligations and liabilities of Landlord hereunder shall terminate)
and, without further notice and without liability, repossess the
Premises. Landlord shall be entitled to recover all loss and damage
Landlord may suffer by reason of such termination, whether through
inability to relet the Premises on satisfactory terms or otherwise,
including without limitation, the following (without duplication of
any element of damages):
(1) accrued Rent to the date of termination and Late
Charges, plus interest thereon at the rate established
under Section 15.10 below from the date due through the
date paid or date of any judgment or award by any court
of competent jurisdiction, the unamortized cost of
Tenant's Improvements, brokers' fees and commissions,
attorneys' fees, moving allowances and any other costs
incurred by Landlord in connection with making or
executing this Lease, the cost of recovering the
Premises and the costs of reletting the Premises
(including, without limitation, advertising costs,
brokerage fees, leasing commissions, reasonable
attorneys' fees and refurbishing costs and other costs
in readying the Premises for a new tenant);
(2) the present value of the Rent (discounted at a rate of
interest equal to six percent [6%] per annum [the
"Discount Rate"]) that would have accrued under this
Lease for the balance of the Lease term but for such
termination, reduced by the reasonable fair market
rental value of the Premises for such balance of the
Lease term (determined from the present value of the
actual base rents, discounted at the Discount Rate,
received and to be received from Landlord's reletting of
the Premises or, if the Premises are not relet, the base
rents, discounted at the Discount Rate, that would be
received from a comparable lease and comparable tenant
for a comparable term and taking into account among
other things, the condition of the Premises, market
conditions and the period of time the Premises may
reasonably remain vacant before Landlord is able to
re-lease the same to a suitable replacement tenant, it
being agreed that Landlord shall have no obligation to
relet or attempt to relet the Premises);
(3) plus any other costs or amounts necessary to compensate
Landlord for its damages.
13.202 Repossession and Re-Entry. Upon the occurrence of a default by
Tenant hereunder, Landlord may, without judicial process,
immediately terminate Tenant's right of possession of the Premises
(whereupon all obligations and liability of Landlord hereunder shall
terminate), but not terminate this Lease, and, without notice,
demand or liability, enter upon the Premises or any part thereof,
take absolute possession of the same, expel or remove Tenant and any
other person or entity who may be occupying the Premises and change
the locks. If Landlord terminates Tenant's possession of the
Premises under this subsection 13.202, (i) Landlord shall have no
obligation whatsoever to tender to Tenant a key for new locks
installed in the Premises, (ii) Tenant shall have no further right
to possession of the Premises and (iii) Landlord shall have no
obligation whatsoever to relet or attempt to relet the Premises.
Landlord may, however, at its sole option relet the Premises or
22
<PAGE> 32
any part thereof for such terms and such rents as Landlord may in
its sole discretion elect. If Landlord elects to relet the Premises,
rent received by Landlord from such reletting shall be applied
first, to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord (in such order as Landlord shall
designate), second, to the payment of any costs of such reletting,
including, without limitation, refurbishing costs, reasonable
attorneys' fees, advertising costs, brokerage fees and leasing
commissions and third, to the payment of Rent due and unpaid
hereunder (in such order as Landlord shall designate), and Tenant
shall satisfy and pay to Landlord any deficiency upon demand
therefor from time to time. Landlord shall not be responsible or
liable for any failure to relet the Premises or any part thereof or
for any failure to collect any rent due upon any such reletting. No
such re-entry or taking of possession of the Premises by Landlord
shall be construed as an election on Landlord's part to terminate
this Lease unless a written notice of such termination is given to
Tenant pursuant to subsection 13.201 above. If Landlord relets the
Premises, either before or after the termination of this Lease, all
such rentals received from such lease shall be and remain the
exclusive property of Landlord, and Tenant shall not be, at any
time, entitled to recover any such rental. Landlord may at any time
after a reletting elect to terminate this Lease.
13.203 Cure of Default. Upon the occurrence of a default hereunder by
Tenant, Landlord may, without judicial process and without having
any liability therefor, enter upon the Premises and do whatever
Tenant is obligated to do under the terms of this Lease and Tenant
agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's obligations
under this Lease, and Tenant further agrees that Landlord shall not
be liable for any damages resulting to Tenant from such action,
whether caused by the negligence of Landlord, its agents, employees,
contractors or otherwise.
13.204 Continuing Obligations. No repossession of or re-entering upon the
Premises or any part thereof pursuant to subsection 13.202 or 13.203
above or otherwise and no reletting of the Premises or any part
thereof pursuant to subsection 13.202 above shall relieve Tenant or
any Guarantor of its liabilities and obligations hereunder, all of
which shall survive such repossession or re-entering. In the event
of any such repossession of or re-entering upon the Premises or any
part thereof by reason of the occurrence of a default, Tenant will
continue to pay to Landlord Rent required to be paid by Tenant.
13.205 Cumulative Remedies. No right or remedy herein conferred upon or
reserved to Landlord is intended to be exclusive of any other right
or remedy set forth herein or otherwise available to Landlord at law
or in equity and each and every right and remedy shall be cumulative
and in addition to any other right or remedy given hereunder or now
or hereafter existing at law or in equity or by statute. In addition
to the other remedies provided in this Lease and without limiting
the preceding sentence, Landlord shall be entitled, to the extent
permitted by applicable law, to injunctive relief in case of the
violation, or attempted or threatened violation, of any of the
covenants, agreements, conditions or provisions of this Lease, or to
a decree compelling performance of any of the covenants, agreements,
conditions or provisions of this Lease, or to any other remedy
allowed to Landlord at law or in equity.
SECTION 13.3. DEFAULTS BY LANDLORD, Landlord shall be in default under this
Lease if and only if Landlord fails to perform any of its obligations hereunder
and said failure continues for a period of thirty (30) days after Tenant
delivers written notice thereof to Landlord and each mortgagee who has a lien
against any portion of the Property and whose name and address has been provided
to Tenant, provided that if such failure cannot reasonably be cured within said
thirty (30) day period, Landlord shall not be in default hereunder if the
curative action is commenced within said thirty (30) day period and is
thereafter diligently pursued until cured. In no event shall (i) Tenant claim a
constructive or actual eviction or that the Premises have become unsuitable
hereunder or (ii) a constructive or actual eviction or breach of any implied
warranty be deemed to have occurred under this Lease, prior to the expiration of
the notice and cure periods provided under this Section 13.3. Any notice of a
failure to perform by Landlord shall be sent to Landlord at the addresses and to
the attention of the parties set forth
23
<PAGE> 33
in the Basic Lease Provisions. Any notice of a failure to perform by Landlord
not sent to Landlord at all addresses and/or to the attention of all parties
required under this Section and to each mortgagee who is entitled to notice or
not sent in compliance with Article 14 below shall be of no force or effect.
SECTION 13.4 LANDLORD'S LIABILITY.
13.401 Tenant's Rights in Respect of Landlord Default. Tenant is granted no
contractual right of termination by this Lease, except to the extent
and only to the extent set forth in Sections 5.202, 7.1 and 8.2
above and Section 13.7 below. If Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out
of the right, title and interest of Landlord in the Property (as the
same may then be encumbered) and, subject to the rights of
mortgagees, any insurance carried in the name of Landlord and
Landlord shall not be liable for any deficiency. If Landlord is
found to be in default hereunder by reason of its failure to give a
consent that it is required to give hereunder, Tenant's sole remedy
will be an action for specific performance or injunction. The
foregoing sentence shall in no event be construed as mandatorily
requiring Landlord to give consents under this Lease. In no event
shall either Landlord or Tenant be liable to the other for
consequential or special damages by reason of a failure to perform
(or a default) by the respective party hereunder. In no event shall
Tenant have the right to levy execution against any property of
Landlord other than its interest in the Property as hereinbefore
expressly provided.
13.402 Certain Limitations on Landlord's Liability. Unless caused by
Landlord's gross negligence or willful misconduct and without
limiting the provisions of Section 7.4, Landlord shall not be liable
to Tenant for any claims, actions, demands, costs, expenses, damage
or liability of any kind (i) arising out of the use, occupancy or
enjoyment of the Premises by Tenant or any person therein or holding
under Tenant or by or through the acts or omissions of any of their
respective employees, officers, agents, invitees or contractors,
(ii) caused by or arising out of fire, explosion, falling sheetrock,
gas, electricity, water, rain, snow or dampness, or leaks in any
part of the Premises, (iii) caused by or arising out of damage to
the roof, pipes, appliances or plumbing works or any damage to or
malfunction of heating, ventilation or air conditioning equipment or
(iv) caused by Tenants or any persons either in the Premises or
elsewhere in the Building (other than Common Areas) or by occupants
of property adjacent to the Building or Common Areas or by the
public or by the construction of any private, public or quasi-public
work. In no event shall Landlord be liable to Tenant for any loss of
or damage to property of Tenant or of others located in the Premises
or the Building by reason of theft or burglary.
SECTION 13.5 WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. IT IS THE INTENT OF
LANDLORD AND TENANT TO WAIVE ALL OF THE PROVISIONS (OTHER THAN SECTION 17.555)
OF THE TEXAS DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SUBCHAPTER E
OF CHAPTER 17 OF THE TEXAS BUSINESS AND COMMERCE CODE (THE "DTPA") AS SUCH
PROVISIONS ARE OR MAY BE APPLICABLE TO THIS LEASE AND THE TRANSACTIONS EVIDENCED
HEREBY. Accordingly, Landlord and Tenant hereby represent and agree as follows:
(1) Tenant represents to Landlord that Tenant is not in a
significantly disparate bargaining position with respect to
this Lease and the transaction evidenced hereby.
(2) Tenant represents to Landlord that Tenant is represented by
legal counsel in connection with this Lease.
(3) Tenant represents to Landlord that this Lease does not involve
a purchase or lease of a family residence occupied or to be
occupied as Tenant's residence and that, with respect to this
Lease, Tenant is a business consumer as that term is used in
the DTPA (i.e., Tenant is an individual, partnership or
corporation who seeks or acquires by purchase or lease, any
goods or services for commercial or business use).
24
<PAGE> 34
(4) Landlord and Tenant agree that the total consideration paid or
to be paid by Tenant over the term of this Lease exceeds
$500,000.00, failing which this part (4) shall be deemed
deleted.
(5) Tenant represents to Landlord that Tenant has assets of $5
million or more according to the most recent financial
statement of Tenant prepared in accordance with generally
accepted accounting principles, failing which Landlord and
Tenant shall have their respective legal counsel sign this
Lease in the space provided on the signature page hereof.
Tenant further represents that it has knowledge and experience
in financial and business matters that enable it to evaluate
the merits and risks of this transaction.
(6) Landlord and Tenant hereby agree, for themselves, their
agents, property managers, brokers and contractors and their
respective heirs, personal representatives, successors and
assigns, that all of the provisions of the DTPA (except for
Section 17.555 thereof) which are or may be applicable to this
Lease and the transaction evidenced hereby are hereby waived,
including specifically, without limitation, all rights and
remedies resulting from or arising out of any and all acts or
practices of the other party or their agents, property
managers or brokers or their respective heirs, personal
representatives or assigns in connection with this Lease
and/or the transaction evidenced hereby, regardless of whether
such acts or practices occurred before or after the execution
of this Lease. The provisions of this Section shall survive
the execution and any termination of this Lease.
If part (4) above is deemed deleted, this Section 13.5 shall not be applicable
and shall be without force or effect.
SECTION 13.6 LANDLORD'S LIEN. Landlord expressly waives and relinquishes any
contractual or statutory rights to any lien against any of Tenant's personal
property.
SECTION 13.7 LEASE CANCELLATION OPTIONS.
13.701 Initial Cancellation Options. Tenant shall have two (2) options to
terminate this Lease, such termination to be effective at the
expiration of the twenty-fourth (24th) full calendar month following
the Commencement Date or the thirty-sixth (36th) full calendar month
following the Commencement Date, respectively (each a "Termination
Date") by providing written notice to Landlord no later than six (6)
full calendar months prior to the applicable Termination Date and by
paying to Landlord on or prior to the applicable Termination Date,
the Cancellation Payment. The term "Cancellation Payment" shall mean
an amount, as of the Termination Date, equal to Landlord's
unamortized leasing costs, which shall consist of the remaining book
balance of the sum of the following costs, based on straight line
depreciation over the initial Term using a 10% interest factor:
(i) the Finish Allowance provided for in Exhibit C: and
(ii) all amounts due to brokers or other third parties in
connection with the Lease
, all as more specifically shown on Exhibit F, attached hereto and
made a part hereof. Notwithstanding the foregoing, Tenant's right to
terminate the Lease may not be exercised unless (a) Landlord is
unable to accommodate Tenant's actual expansion requirements on
Floor 7 of the Building within one hundred eighty (180) days after
written notice from Tenant of its good faith actual expansion needs,
or (b) Tenant or any subsequent permitted third party nonaffiliated
assignee of Tenant's rights hereunder completely ceases doing
business in any form.
13.702 Additional Cancellation Option. In addition to the lease
cancellation options granted above, Tenant shall have a third option
to terminate the Lease at any time after the end of the second
annual
25
<PAGE> 35
anniversary of the Commencement Date and until six (6) months prior
to the expiration of the Initial Term, to be exercised in the manner
provided for in Section 13.701 above in the event that (a)
substantially all of the assets of Tenant are sold or 50 percent or
more of the voting stock of Tenant is sold or transferred, in each
instance as part of an arms length sale to a bonafide third party
that is unaffiliated with Tenant in any respect, and (b) thereafter,
Tenant's principal place of business operation shall be moved to a
location that is outside Harris County, Texas or any county
adjoining Harris County. In such event, and in addition to the
Cancellation Payment provided for in Section 13.701 above, Tenant
shall pay an additional payment ("Relocation Cancellation Payment")
equal to (6) months of Basic Rent as provided for in this Lease.
SECTION 13.8 SATELLITE DISH. Tenant may, at Tenant's sole cost and expense
(including any above Building standard utilities used therefor), construct,
install, operate and secure no more than one (1) satellite antenna on the roof
of the Building in an area designated by Landlord (the "Satellite") and the
necessary cabling from the Satellite to the Premises, all in accordance with
specifications approved by Landlord (the "Satellite System"). Landlord shall
charge Tenant for the lease of the roof space at the current rate generally
prevailing from time to time for other tenants in the Building. The Satellite
System shall be for Tenant's sole use and not for use by others. Landlord may
cause Tenant to relocate the Satellite on the roof of the Building from time to
time at Tenant's expense if required for maintenance purposes or if required by
law or upon request by Landlord because of any other cause beyond Landlord's
control. Tenant agrees to install, use, and maintain the Satellite System so as
not to interfere with other operations from the roof of the Building, including
existing satellite or antenna transmissions, and in full compliance with all
applicable laws including rules, regulations, and guidelines promulgated by the
Federal Communications Commission, and Tenant agrees to indemnify and hold
Landlord harmless from and against all costs (including attorneys' fees and
court costs), claims, liabilities or obligations arising from the placement,
construction or use of the Satellite System. Tenant shall maintain the Satellite
System in good condition and shall, at the end of the Term, remove the Satellite
System and all related improvements installed by Tenant and repair all damage to
the roof caused by such removal.
ARTICLE 14
NOTICES
Any notice or communication required or permitted in this Lease shall be given
in writing, sent by (1) personal delivery, (2) expedited delivery service with
proof of delivery, (3) United States mail, postage prepaid, registered or
certified mail, return receipt requested or (4) prepaid telegram (provided that
such telegram is confirmed by expedited delivery service or by mail in the
manner previously described), addressed as provided in Item 14 of the Basic
Lease Provisions and Section 13.3 above or to such other address or to the
attention of such other person as shall be designated from time to time in
writing by the applicable party and sent in accordance herewith. Notice also may
be given by telex or fax, provided each such transmission is confirmed (and such
confirmation is supported by documented evidence) as received and further
provided a telex or fax number, as the case may be, is set forth in Item 14 of
the Basic Lease Provisions. Any such notice or communication shall be deemed to
have been given either at the time of personal delivery or, in the case of
delivery service or mail, as of the date of first attempted delivery at the
address and in the manner provided herein, or in the case of telegram or telex
or fax, upon receipt.
ARTICLE 15
MISCELLANEOUS PROVISIONS
SECTION 15.1 BUILDING NAME AND ADDRESS. Tenant shall not, without the written
consent of Landlord, use the name of the Building for any purpose other than as
the address of the business to be conducted by Tenant in the Premises and in no
event shall Tenant acquire any rights in or to such names. Landlord shall have
the right at any time to change the name, number or designation by which the
Building is known.
SECTION 15.2 SIGNAGE. Tenant shall not inscribe, paint, affix or display any
signs, advertisements or notices on or in the Building, except for such tenant
identification information as Landlord permits to be included or shown on the
directory in the main lobby and adjacent to the access door or doors to the
Premises.
26
<PAGE> 36
SECTION 15.3 NO WAIVER. No waiver by Landlord or by Tenant of any provision of
this Lease shall be deemed to be a waiver by either party of any other provision
of this Lease. No waiver by Landlord of any breach by Tenant shall be deemed a
waiver of any subsequent breach by Tenant of the same or any other provision. No
waiver by Tenant of any breach by Landlord shall be deemed a waiver of any
subsequent breach by Landlord of the same or any other provision. The failure of
Landlord or Tenant to insist at any time upon the strict performance of any
covenant or agreement or to exercise any option, right, power or remedy
contained in this Lease shall not be construed as a waiver or a relinquishment
thereof for the future. 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. Tenant's consent to or approval of any act by Landlord requiring
Tenant's consent or approval shall not be deemed to render unnecessary the
obtaining of Tenant's consent to or approval of any subsequent act of Landlord.
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, unless done
in writing signed by Landlord, The delivery of the keys to any employee or agent
of Landlord shall not operate as a termination of this Lease or a surrender of
the 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. The payment of Rent by Tenant following a breach of this Lease by
Landlord shall not constitute a waiver by Tenant of any such breach or any other
breach. No waiver by Landlord or Tenant of any provision of this Lease shall be
deemed to have been made unless such waiver is expressly stated in writing
signed by the waiving party. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly installment of Rent due under this Lease shall be
deemed to be other than on account of the earliest Rent due hereunder, 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 Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy which may be available to
Landlord.
SECTION 15.4 APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas.
SECTION 15.5 COMMON AREAS. "Common Areas" will mean all areas, spaces,
facilities and equipment (whether or not located within the Building) made
available by Landlord for the common and joint use of Landlord, Tenant and
others designated by Landlord using or occupying space in the Building,
including but not limited to, tunnels, walkways, sidewalks and driveways
necessary for access to the Building, Building lobbies, landscaped areas, public
corridors, public rest rooms, Building stairs, elevators open to the public,
service elevators (provided that such service elevators shall be available only
for tenants of the Building and others designated by Landlord), drinking
fountains and other such facilities not part of space leased or held for lease
to tenants, and any such other areas and facilities, if any, as are designated
by Landlord from time to time as Common Areas. Common Areas shall not include
the Garage. "Service Corridors" shall mean all loading docks, loading areas and
all corridors that are not open to the public but which are available for use by
Tenant and others designated by Landlord. "Service Areas" will refer to areas,
spaces, facilities and equipment serving the Building (whether or not located
within the Building) but to which Tenant and other occupants of the Building
will not have access, including, but not limited to, mechanical, telephone,
electrical and similar rooms and air and water refrigeration equipment. Tenant
is hereby granted a nonexclusive right to use the Common Areas and Service
Corridors during the term of this Lease for their intended purposes, in common
with others designated by Landlord, subject to the terms and conditions of this
Lease, including, without limitation, the Rules and Regulations. The Building,
Common Areas, Service Corridors and Service Areas will be at all times under the
exclusive control, management and operation of the Landlord. Tenant agrees and
acknowledges that the Premises (whether consisting of less than one floor or
consisting of one or more full floors within the Building) do not include, and
Landlord hereby expressly reserves for its sole and exclusive use, any and all
mechanical, electrical, telephone and similar rooms, janitor closets, elevator,
pipe and other vertical shafts and ducts, flues, stairwells, any area above the
acoustical ceiling and any other areas not specifically shown on Exhibit A as
being part of the Premises.
SECTION 15.6 SUCCESSORS AND ASSIGNS. Subject to Article II 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.
27
<PAGE> 37
SECTION 15.7 BROKERS. Tenant warrants that it has had no dealings with any real
estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker named in Item 10 of the Basic Lease Provisions and
that it knows of no other real estate brokers or agents who are or might be
entitled to a commission in connection with this Lease. Tenant agrees to
indemnify and hold harmless Landlord from and against, and reimburse Landlord
for and with respect to, any liability or claim, whether meritorious or not,
arising in respect to brokers and/or agents not so named. Landlord has agreed to
pay the fees of the broker (but only the broker) named in Item 10 of the Basic
Lease Provisions in accordance with a separate written agreement with such
broker.
SECTION 15.8 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the application of such provisions to other persons or circumstances and
the remainder of this Lease shall not be affected thereby and shall be enforced
to the greatest extent permitted by law.
SECTION 15.9 EXAMINATION OF LEASE. Submission by Landlord of this instrument to
Tenant for examination or signature does not constitute a reservation of or
option for lease. This Lease will be effective as a lease only upon execution by
and delivery to both Landlord and Tenant.
SECTION 15.10 INTEREST ON TENANT'S OBLIGATIONS. Any amount due from Tenant to
Landlord which is not paid within thirty (30) days after the date due shall bear
interest at the lower of (i) eighteen percent (18%) per annum or (ii) the
highest rate from time to time allowed by applicable law, from the date such
payment is due until paid, but the payment of such interest shall not excuse or
cure the default.
SECTION 15.11 TIME. Time is of the essence in this Lease and in each and all of
the provisions hereof. Whenever a period of days is specified in this Lease,
such period shall refer to calendar days unless otherwise expressly stated in
this Lease.
SECTION 15.12 DEFINED TERMS AND MARGIN HEADINGS. Definitions of terms defined in
the singular or plural shall be equally applicable to the plural or singular, as
the case may be, unless otherwise indicated. If more than one person is named as
Tenant, the obligations of such persons are joint and several. The headings and
titles to the articles, sections and subsections of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part of this Lease.
SECTION 15.13 AUTHORITY OF TENANT. Tenant and each person signing this Lease on
behalf of Tenant represents to Landlord as follows: Tenant, if a corporation, is
duly incorporated and legally existing under the laws of the state of its
incorporation and is duly qualified to do business in the State of Texas.
Tenant, if a partnership or joint venture, is duly organized under the Texas
Uniform Partnership Act. Tenant, if a limited partnership, is duly organized
under the applicable limited partnership act of the State of Texas or, if
organized under the laws of a state other than Texas, is qualified under said
Texas limited partnership act. Tenant has all requisite power and all
governmental certificates of authority, licenses, permits, qualifications and
other documentation to lease the Premises and to carry on its business as now
conducted and as contemplated to be conducted. Each person signing on behalf of
Tenant is authorized to do so. The foregoing representations in this Section
15.13 shall also apply to any corporation, partnership, joint venture or limited
partnership which is a general partner or joint venturer of Tenant.
SECTION 15.14 FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord or Tenant, the party taking the action shall not
be liable or responsible for, and there shall be excluded from the computation
for 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 such party; provided, however, in no event shall the
foregoing apply to the financial obligations of either Landlord or Tenant to the
other under this Lease, including Tenant's obligation to pay Basic Annual Rent,
Additional Rent or any other amount payable to Landlord hereunder.
SECTION 15.15 RECORDING. This Lease shall not be recorded.
28
<PAGE> 38
SECTION 15.16 NO REPRESENTATIONS. LANDLORD AND LANDLORD'S AGENTS HAVE MADE NO
WARRANTIES, REPRESENTATIONS OR PROMISES (EXPRESS OR IMPLIED) WITH RESPECT TO THE
PREMISES, THE BUILDING OR ANY OTHER PART OF THE PROPERTY (INCLUDING, WITHOUT
LIMITATION, THE CONDITION, USE OR SUITABILITY OF THE PREMISES, THE BUILDING OR
THE PROPERTY), EXCEPT AS HEREIN EXPRESSLY SET FORTH AND NO RIGHTS, EASEMENTS OR
LICENSES ARE ACQUIRED BY TENANT BY IMPLICATION OR OTHERWISE EXCEPT AS EXPRESSLY
SET FORTH IN THE PROVISIONS OF THIS LEASE.
SECTION 15.17 ATTORNEYS' FEES. In the event of any legal action or proceeding
brought by either party against the other arising out of this Lease, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in such action (including, without limitation, all costs of
appeal) and such amount shall be included in any judgment rendered in such
proceeding.
SECTION 15.18 NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of
light, air or view by any structure which may be erected on the Property or
lands adjacent to the Property shall in no way affect this Lease or impose any
liability on Landlord (even if Landlord is the adjacent land owner).
SECTION 15.19 RELOCATION.
(a) Landlord shall have the right to relocate the Premises to
substantially identical space (as to tenant improvements), of
at least the same size insofar as square footage, and at the
same monthly rental as set out in the Lease, within the
Building upon giving Tenant one hundred twenty (120) days
prior written notice of such intention to relocate Tenant,
which notice shall set forth the relevant details with respect
to such new space in the Building ("Substituted Premises").
Effective on the date of such relocation, this lease shall be
amended via an amendment to same, to be executed by both
Landlord and Tenant, by deleting the description of the
original Premises and substituting therefor the description of
the Substituted Premises, it being understood and agreed that
all other terms and conditions of this Lease shall remain the
same. In no event shall the term for the Substituted Premises
commence prior to the date when the leasehold improvements in
the Substituted Premises are substantially completed by
Landlord and/or its contractors, at Landlord's sole cost and
expense, on Tenant's behalf. Anything in the foregoing
provisions of this Section 15.19 (a) to the contrary
notwithstanding, Landlord shall not have the right to relocate
the Premises if less than twelve (12) months remain in the
Term (except if Tenant shall have exercised its Renewal Option
pursuant to Rider 1) or in the Renewal Term, as the case may
be.
(b) Landlord shall pay for or otherwise reimburse Tenant for all
reasonable out-of-pocket expense incurred by Tenant pursuant
to the relocation to the Substituted Premises, including, but
not limited to, the following: (i) all reasonable costs and
expenses, including filing fees and building permits, of
reconstructing leasehold improvements in the Substituted
Premises to substantially the same condition and level of
improvements as existed in the Premises prior to such
relocation (i.e. to replicate the Premises); (ii) reasonable
moving costs insofar as furniture, fixtures and equipment,
filing cabinets and the contents thereof, supplies, telephone
and equipment (including disconnect and connect charges),
computer equipment, and all other property (including personal
property) of Tenant and its employees located in the Premises
(using a commercial mover reasonably approved by Tenant or if
Tenant elects to do the moving itself, Landlord will reimburse
Tenant for the reasonable costs it would have incurred had a
commercial mover acceptable to Landlord been hired on a
competitive basis; (iii) fiber network, and other
communications- and computer-related cabling and connections
setup charges; (iv) space planning/interior architecture and
engineering fees; (v) reasonable reprinting of stationary,
brochures and all other printed materials used by Tenant in
its business (on which the address of the Premises appears) of
the same quality and quantity as on hand immediately
29
<PAGE> 39
prior to Landlord's notice to Tenant of its exercising of this
relocation right; and (vi) reasonable costs of
change-of-address announcement cards, plus postage costs,
directly related to such change-of-address notification to
Tenant's clients and vendors.
(c) Landlord shall provide substantially the same expansion and
first offer rights in generally similar locations and
condition (including contiguity), relative to the existing
location of the Premises and the expansion and first offer
space, on the same terms and conditions as available to Tenant
pursuant to Riders 2 and 3; and Tenant's Renewal Option, as
set forth in Rider 1, shall remain in full force and effect.
Landlord agrees to use reasonable efforts to accommodate the
schedule upon which Tenant desires to be relocated so as to
avoid an unreasonable interruption of Tenant's operation of
its business.
SECTION 15.20 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold
harmless agreement contained herein shall survive the expiration or termination
of this Lease.
SECTION 15.21 ENTIRE AGREEMENT. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease and
no prior agreement, understanding or representation pertaining to any such
matter shall be effective for any purpose. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Lease, as of the date first written in this Lease.
LANDLORD
LASALLE PARTNERS MANAGEMENT LIMITED, solely in
its capacity agent for Fannin Street Limited
Partnership, a Delaware limited partnership
By: /s/ Bret E. Bunnett
------------------------------------------
Bret E. Bunnett
Senior Vice President
For purposes of Section 13.5 (e) TENANT
only, Tenant's attorney has
executed this Lease:
WOLF COMMUNICATIONS COMPANY
Tenant's attorney By: /s/ Mathew Wolf
------------------------------------------
[ILLEGIBLE] Name: MATHEW WOLF
- ------------------------------ ----------------------------------------
Title: PRESIDENT
---------------------------------------
<PAGE> 40
EXHIBIT A
FLOOR PLAN
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of ______________________, 1995. executed by and between LASALLE
PARTNERS MANAGEMENT LIMITED (in its capacity as agent for Fannin Street Limited
Partnership, a Delaware Limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas Corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree that the floor plans attached to this Exhibit are the floor plans
for the Premises.
[GRAPHIC OMITTED]
A-i
<PAGE> 41
EXHIBIT A-1
FLOOR PLAN
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of______________________, 1995, executed by and between LASALLE
PARTNERS MANAGEMENT LIMITED (in its capacity as agent for Fannin Street Limited
Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas Corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree that the floor plans attached to this Exhibit are the floor plans
for the Premises.
[GRAPHIC OMITTED]
A-ii
<PAGE> 42
EXHIBIT B
LAND LEGAL DESCRIPTION
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of ______________________, executed by and between LASALLE PARTNERS
MANAGEMENT LIMITED (in its capacity as agent for Fannin Street Limited
Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree that the metes and bounds legal description of the Land is as
follows:
A 1.4463 acre (63,000 square feet) tract in the J.S. Holman Survey, Abstract No.
323, being all of Block Two Hundred Ninety-Four (294), South Side of Buffalo
Bayou (S.S.B.B) of the City of Houston, Harris County, Texas, (being the
identical property constituting the entirety of Block Two Hundred Ninety-Four
(294), described as Parcel A" in that certain Deed of Trust and Security
Agreement dated as of September 29, 1981 and filed for record under Harris
County Clerk's File H-534676), being more particularly described by metes and
bounds as follows:
COMMENCING at the City of Houston Engineering Department survey control rod
number 43 located in the intersection of Caroline Street and Polk Street;
THENCE, North 55 deg 00 min 00 sec West, along the City of Houston Engineering
Department survey reference line in Polk Street, at a distance of 330.00 feet
crossing the San Jacinto Street City of Houston Engineering Department survey
reference line and continuing in all a distance of 370.00 feet to a point;
THENCE, South 35 deg 00 min 00 sec West, 40.00 feet to a nail set at the
intersection of the northwesterly right-of-way line of San Jacinto Street and
the southwesterly right-of-way line at Polk Street, the most easterly corner of
Block 294 and marking the POINT OF BEGINNING of the herein described tract;
THENCE, South 35 deg 00 sec 00 min West, along the northwesterly right-of-way
line of San Jacinto Street, a distance of 250.00 feet to a nail set for corner
at the northeasterly right-of-way line of Clay Avenue, marking the most
southerly corner of Block 294;
THENCE, North 55 deg 00 min 00 sec West, along the northeasterly right-of-way
line of Clay Avenue, a distance of 252.00 feet to an "x" cut set in the
southeasterly right-of-way line of Fannin Street, the most westerly corner of
Block 294;
THENCE, North 35 deg 00 min 00 sec East, along the southeasterly right-of-way
line of Fannin Street, a distance of 250.00 feet to an "X" cut set in the
southwesterly line of Polk Avenue, mark the most northerly corner of Block 294;
THENCE, South 55 deg 00 min 00 sec East, along the southwesterly line of Polk
Avenue, a distance of 252.00 feet to the POINT OF BEGINNING of the herein
described tract and containing 1.4463 acres (63,000 square feet) of land.
B-i
<PAGE> 43
EXHIBIT C
WORK LETTER
PLANS TO BE APPROVED
/FINISH ALLOWANCE
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of __________________, 1995 executed by and between LASALLE PARTNERS
MANAGEMENT LIMITED (in its capacity as agent for Fannin Street Limited
Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree as follows:
1. Plans.
1.1 Construction Plans. Tenant's architect shall prepare and deliver to
Landlord, within fourteen (14) calendar days after execution of the Lease,
construction plans (such construction plans, when approved, and all changes and
amendments thereto agreed to by Landlord and Tenant in writing, are herein
called the `Construction Plans") for all of Tenant's improvements in the
Premises, (all improvements required by the Construction Plans are herein called
"Tenant's Improvements"), including complete detail and finish drawings for
partitions, doors, reflected ceiling, telephone outlets, electrical switches and
outlets and building standard heating, ventilation and air conditioning
equipment and controls. Within five (5) business days after Construction Plans
are delivered to Landlord, Landlord shall approve (which approval shall not be
unreasonably withheld) or disapprove same in writing and if disapproved,
Landlord shall provide Tenant, Tenant's architect and Tenant's engineer specific
reasons for disapproval. Tenant shall promptly revise and redeliver the
Construction Plans for Landlord's review. The foregoing process shall continue
until the Construction Plans are approved by Landlord.
1.2 Changes to Approved Plans. If any re-drawing or re-drafting of the
Construction Plans is necessitated by Tenant's requested changes (all of which
shall be subject to Landlord's approval), the expense of any such re-drawing or
re-drafting required in connection therewith, Landlord's review of such
re-drawing or re-drafting, and the expense of any work and improvements
necessitated by such re-drawing or re-drafting will be charged to Tenant.
1.3 Coordination of Planners and Designers. It shall be Tenant's responsibility
to cause necessary coordination of its agents' efforts with Landlord's agents to
ensure that no delays are caused to either the planning or construction of the
Tenant's Improvements. Tenant shall reimburse Landlord the cost incurred for
Landlord's engineers to review the Construction Plans ("Construction Plans
Review Fee"). The Construction Plans Review Fee shall not exceed $3,840.00.
1.4 Compliance With Disability Acts. Tenant shall cause the construction of
Tenant's Improvements to be completed such that Tenant, the Premises and
Tenant's Improvements (as constructed) will be in compliance with the Disability
Acts. Tenant shall indemnify and hold harmless Landlord from and against, and
reimburse Landlord for and with respect to, any and all claims, liabilities and
expenses (including, without limitation reasonable attorneys' fees and expenses)
incurred by or asserted against Landlord by reason of or in connection with any
violation of the Disability Acts by Tenant and/or Tenant's Improvements or the
Premises not being in compliance with the Disability Acts. The foregoing
indemnity shall not include any claims or expenses arising out of the negligence
or gross negligence of Landlord or Landlord's employees, agents or contractors.
2. Construction and Costs of Tenant's Improvements.
2.1 Construction Obligation and Finish Allowance. Landlord shall provide Tenant
with an allowance of up to $16.00 per square foot of Agreed Rentable Area of the
Premises (the "Finish Allowance"), which allowance shall be disbursed by
Landlord, from time to time upon Landlord's receipt of satisfactory evidence of
appropriate expenditures for payment of the contract sum required to be paid to
the general contractor engaged to construct
C-i
<PAGE> 44
Tenant's Improvements (the "Contract Sum"). Any unused Finish Allowance may be
applied to future Tenant Improvements or refurbishments in the initial Premises
or additional space leased by Tenant during the Term. Tenant acknowledges that
demolition of existing improvements, addition or movement of lights,
refurbishment of the ceiling system, balancing of HVAC, movement and alteration
of the sprinkler system, and some secondary duct installation will be deducted
from the Finish Allowance. Landlord agrees to provide Tenant, in addition to the
Finish Allowance, building standard materials that include fifteen (15) building
standard doors, frames and hardware and building standard lighting at a rate of
one (1) fixture per eighty (80) rentable square foot leased. Tenant may
additionally utilize raised flooring panels and ceiling tile from space outside
of the Premises on the 7th Floor to replace panels/tiles in the Premises and may
utilize all existing improvements in the Premises.
2.2 Excess Costs. If the sum of the Permitted Costs exceeds the Finish
Allowance, then Tenant shall pay all such excess costs.
3. Tenant's Contractor.
(a) Notwithstanding anything in this Exhibit C to the contrary, Tenant
shall contract with Burr Computer Environments, Inc. (the "Tenant's
Contractor") to construct Tenant's Improvements. Tenant's Contractor
shall (and its contract shall so provide that it shall):
(i) be capable of working in harmony with the Landlord's space
planners, architects, engineers, contractors, workmen,
mechanics, or other agents or independent contractors in the
performance of their work ("Landlord's Agents") and shall
comply with such reasonable rules and regulations as may be
promulgated by Landlord;
(ii) maintain such payment and performance bonds and insurance in
force and effect as may be reasonably requested by Landlord or
as required by applicable law; and
(iii) use reasonable efforts to reach an understanding with
Landlord's Agents as to the conduct of their work, including
but not limited to those matters relating to hoisting,
Building systems, systems interfacing, clean-up, use of
temporary utilities, protection of installed materials or-
equipment, sanitary facilities, temporary heating, lighting
and cooling and access to the Premises (it being understood
that the Tenant's Contractor shall arrange with and pay to
Landlord's Agents an amount, if any, negotiated by such
parties in good faith, with respect to such functions and
services).
(b) Landlord's sole obligation with respect to construction of the
Tenant's Improvements shall be to deliver the Premises in its as-is
condition and contribute the Finish Allowance in accordance with
Section 2 of this Exhibit C.
(c) Tenant's Contractor shall use only subcontractors pre-approved by
Landlord for all mechanical, electrical, plumbing or fire protection
work within the Building. Landlord and Tenant agree that Fisk
Electric shall be the electrical subcontractor.
(d) The Construction Plans Review Fee shall be payable to Landlord in
consideration of Landlord's engineers (CHP & Associates) review of
Tenant's Construction Plans drawn by Tenant's engineers, and may be
offset against the Finish Allowance as invoices are received by
Landlord from CHP & Associates.
Prior to the Commencement Date, Tenant, Tenant's Contractor and other authorized
representatives of Tenant shall have the right to enter upon the Premises for
the purposes of preparing the Premises for construction and for construction of
Tenant's Improvements. Landlord shall not be liable for any injury, loss or
damage to any of Tenant's installations or decorations made prior to the
Commencement Date and not installed by Landlord. Tenant shall indemnify and hold
harmless Landlord and Landlord's Agents from and against and reimburse Landlord
for and with respect to, any and all costs, expenses, claims, liabilities and
causes of action arising out of or in
C-ii
<PAGE> 45
connection with work performed in the Premises by or on behalf of Tenant.
Landlord is not responsible for the function and maintenance of Tenant's
Improvements which are different than Landlord's standard improvements at the
Property or improvements, equipment, cabinets or fixtures not installed by
Landlord. Such entry by Tenant and the Tenant's Contractor pursuant to this
Section 3 shall be deemed to be under all of the terms, covenants, provisions
and conditions of the Lease except the covenant to pay Rent.
4. Delays. Delays in the completion of Construction Plans or completion of
construction of Tenant's Improvements or in obtaining a certificate of
occupancy, if required by the applicable governmental authority, caused by
Tenant, Tenant's Contractor (hereinafter defined) or any person, firm or
corporation employed by Tenant or Tenant's Contractor shall constitute "Tenant
Delay". If the completion of Tenant's Improvements are affected by any Tenant
Delay, then the date Substantial Completion shall be deemed to have occurred
shall be the date the Premises are Substantially Complete, but moved up by one
day for each day of Tenant Delay (by way of example, if the Premises would have
been Substantially Complete on December 1 but for three (3) days of Tenant
Delay, the date of Substantial Completion shall be deemed to have occurred on
November 28). If the completion of Tenant's Improvements are affected by any
delay other than Tenant Delay, then the date Substantial Completion shall be
deemed to have occurred shall be the date the Premises are Substantially
Complete, but moved back (i.e., extended) by one day for each day of such delay
(by way of example, if the Premises would have been Substantially Complete on
December 1 but for three days of delay that are not Tenant Delays, the date of
Substantial Completion shall be deemed to have occurred on December 4).
5. Substantial Completion and Punch List. The terms "Substantial Completion" and
"Substantially Complete," as applicable, shall mean when Tenant's Improvements
are sufficiently completed in accordance with the Construction Plans so that
Tenant can reasonably use the Premises for the Permitted Use (as described in
Item 11 of the Basic Lease Provisions). When Landlord considers Tenant's
Improvements to be Substantially Complete, Landlord will notify Tenant and
within two (2) business days thereafter, Landlord's representative and Tenant's
representative shall conduct a walk-through of the Premises and identify any
necessary touch-up work, repairs and minor completion items as are necessary for
final completion of Tenant's Improvements. Neither Landlord's representative nor
Tenant's representative shall unreasonably withhold his agreement on punch list
items. The Commencement Date set forth in No. 7 of the Basic Lease Provisions is
calculated based on Tenant substantially completing all of Tenant's Improvements
within ten (10) weeks after Landlord's approval of Construction Plans. The
Commencement Date shall be adjusted commensurately with adjustments in
Substantial Completion as set forth in Paragraph 4 above and shall occur on the
date of Substantial Completion whether or not occurring before or after the date
set forth in the Basic Lease Provisions.
6. Temporary Supply of Power. Prior to the Commencement Date and during
construction of Tenant's Improvements, Landlord shall supply temporary power,
HVAC, freight elevator and security during construction, at no additional charge
to Tenant so long as and to the extent that Tenant's usage is reasonable.
7. Special Improvements. Tenant shall have the right to include the following
improvements within Tenant's Improvements, provided the construction and
installation of same are performed by contractors acceptable to Landlord:
(a) modification of existing sprinkler system in Premises in a manner
acceptable to Landlord; and
(b) tie in by Tenant into the Building's security system in a manner
acceptable to Landlord.
8. Landlord's Work. Landlord's sole obligation shall be to construct, at
Landlord's expense, the Landlord's Work, as follows:
(i) All Labor, materials, equipment, services and other items
necessary to complete the multi-tenant corridor(s) and core
finishes, including the elevator lobby on Level 7, in a manner
consistent with the other low rise multi-tenant floors in the
Building.
C-iii
<PAGE> 46
(ii) All terminations and modifications necessary to existing fire
alarm system to accommodate the signals from the tenant system
requiring integration with the Building's system.
(iii) Terminations made at the electrical closet, transformers,
risers, conduits, feeders and switchboards necessary to
furnish the Premises with electrical power as outlined in
Paragraph 5.103 of this Lease.
9. Construction Representatives. Landlord's and Tenant's representatives for
coordination of construction and approval of change orders will be as follows,
provided that either party may change its representative upon written notice to
the other:
LANDLORD'S REPRESENTATIVE:
NAME Al Palamara
ADDRESS 1301 Fannin Street, Suite 2400
Houston, Texas 77002
PHONE 713-752-2900
TENANT'S REPRESENTATIVE:
NAME Buescher, Inc.
ADDRESS 1100 Louisiana
Suite 2750
Houston, Texas 77002-5216
PHONE (713) 659-3811
FACSIMILE (713) 659-3846
C-iv
<PAGE> 47
EXHIBIT D
ACCEPTANCE OF PREMISES MEMORANDUM
This Acceptance of Premises Memorandum is being executed pursuant to that
certain Lease Agreement (the "Lease") dated the _____ day of ____________, 1995,
between LASALLE PARTNERS MANAGEMENT LIMITED (in its capacity as agent for Fannin
Street Limited Partnership, a Delaware limited partnership) ("Landlord"), and
WOLF COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"), pursuant to which
Landlord leased to Tenant and Tenant leased from Landlord certain space in the
office building located at 1301 Fannin in Houston, Texas (the "Building").
Landlord and Tenant hereby agree that:
1. Except for the Punch List Items (as shown on the attached Punch List), all
work required under the terms of the Lease and the Work Letter attached
thereto has been completed.
2. The Premises are tenantable, Landlord has no further obligation for
construction, and Tenant acknowledges that the Building, the Premises and
Tenant's Improvements are satisfactory in all respects, except for the
Punch List Items and are suitable for the Permitted Use.
3. The Commencement Date of the Lease is the ________ day of _____________,
19__. If the date set forth in Item 7 of the Basic Lease Provisions is
different than the date set forth in the preceding sentence, then Item 7
of the Basic Lease Provisions is hereby amended to be the Commencement
Date set forth in the preceding sentence.
4. The Expiration Date of the Lease is the ______ day of __________, 19__. If
the date set forth in Item 8 of the Basic Lease Provisions is different
than the date set forth in the preceding sentence, then Item 8 of the
Basic Lease Provisions is hereby amended to be the Expiration Date set
forth in the preceding sentence.
5. Tenant acknowledges receipt of the current Rules and Regulations for the
Building.
6. Tenant represents to Landlord that Tenant has obtained a Certificate of
Occupancy covering the Premises.
7. All capitalized terms not defined herein shall have the meaning assigned
to them in the Lease.
Agreed and Executed this ______ day of ___________, 19__.
LANDLORD
LASALLE PARTNERS MANAGEMENT
LIMITED, solely in its
capacity as agent for Fannin
Street Limited Partnership, a
Delaware limited partnership
By:
---------------------------
Bret B. Bunnett,
Senior Vice President
D-i
<PAGE> 48
TENANT
------------------------------
By:
---------------------------
Name:
-------------------------
Title:
------------------------
D-ii
<PAGE> 49
(b) All directional signs and arrows must be observed.
(c) The speed limit shall be five (5) miles per hour.
(d) Parking is prohibited in areas not striped for parking, aisles,
areas where "no parking" signs are posted, in cross hatched areas
and in such other areas as may be designated by Landlord or
Landlord's agent(s) including, but not limited to, areas designated
as "Visitor Parking" or reserved spaces not rented under this
Exhibit.
(e) Every parker is required to park and lock his own car. All
responsibility for damage to cars or persons or loss of personal
possessions is assumed by the parker.
(f) Spaces which are designated for small, intermediate or full-sized
cars shall be so used. No intermediate or full-size cars shall be
parked in parking spaces limited to compact cars.
8. Default. Failure to promptly pay the parking rent required hereunder plus
all applicable taxes shall constitute a default under the Lease, and
Landlord may, at its option and in addition to all other remedies provided
for in the Lease, terminate Tenant's rights to use the Garage. Landlord
may refuse to permit any person who violates the rules to park in the
Garage and any violation of the rules shall subject the car to removal at
the car owner's expense. No such refusal or removal shall create any
liability on Landlord or be deemed to interfere with Tenant's right to
quiet possession of the Premises.
E-ii
<PAGE> 50
EXHIBIT F
<TABLE>
<CAPTION>
------------------------------------------------------
<S> <C> <C> <C>
Amortization Period 72 Monthly/RSF $ 0.39
Interest Rate 10.0% Annual/RSF $ 4.68
Principal Amount 261,074.21 RSF 12,312
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Lease Principal Term Monthly Interest Principle Cancellation
Month Amount (months) Payment Payment
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 261,074.21 72 4,796.65 -- 4,796.65 N/A
2 256,277.56 71 4,796.65 2,135.65 2,661.00 N/A
3 253,616.56 70 4,796.65 2,113.47 2,683.17 N/A
4 250,933.33 69 4,796.65 2,091.11 2,705.53 N/A
5 248,227.85 68 4,796.65 2,068.57 2,728.08 N/A
6 245,499.77 67 4,796.65 2,045.83 2,750.81 N/A
7 242,748.95 66 4,796.65 2,022.91 2,273.74 N/A
8 239,975.21 65 4,796.65 1,999.79 2,796.85 N/A
9 237,178.36 64 4,796.65 1,976.49 2,820.16 N/A
10 234,358.20 63 4,796.65 1,952.99 2,843.66 N/A
11 231,514.54 62 4,796.65 1,929.29 2,867.36 N/A
12 228,647.18 61 4,796.65 1,905.39 2,891.25 N/A
13 225,755.93 60 4,796.65 1,881.30 2,915.35 N/A
14 222,840.58 59 4,796.65 1,857.00 2,939.64 N/A
15 219,900.94 58 4,796.65 1,832.51 2,964.14 N/A
16 216,936.80 57 4,796.65 1,807.81 2,988.84 N/A
17 213,947.96 56 4,796.65 1,782.90 3,013.75 N/A
18 210,934.22 55 4,796.65 1,757.79 3,038.86 N/A
19 207,895.35 54 4,796.65 1,732.46 3,064.19 N/A
20 204,831.17 53 4,796.65 1,706.93 3,089.72 N/A
21 201,741.45 52 4,796.65 1,681.18 3,115.47 N/A
22 198,625.98 51 4,796.65 1,655.22 3,141.43 N/A
23 195,484.55 50 4,796.65 1,629.04 3,167.61 N/A
----------
24 192,316.94 49 4,796.65 1,602.64 3,194.01 189,122.94(1)
----------
25 189,122.94 48 4,796.65 1,576.02 3,220.62 185,902.32
26 185,902.32 47 4,796.65 1,549.19 3,247.46 182,654.86
27 182,654.86 46 4.796.65 1,522.12 3,274.52 179,380.33
28 179,380.33 45 4,796.65 1,494.84 3,301.81 176,078.52
29 176,078.52 44 4.796.65 1,467.32 3,329.33 172.749.20
30 172,749.20 43 4,796.65 1,439.58 3,357.07 169,392.13
31 169,392.13 42 4,796.65 1,411.60 3,385.05 166,007.08
32 166,007.08 41 4,796.65 1,383.39 3,413.25 162,593.83
</TABLE>
F-i
<PAGE> 51
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Lease Principal Term Monthly Interest Principle Cancellation
Month Amount (months) Payment Payment
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
33 162,593.83 40 4,796.65 1,354.95 3,441.70 159,152.13
34 159,152.13 39 4,796.65 1,326.27 3,470.38 155,681.75
35 155,681.75 38 4,796.65 1,297.35 3,499.30 152,182.46
----------
36 152,182.46 37 4,796.65 1,268.19 3,528.46 148,654.00(2)
----------
37 148,654.00 36 4,796.65 1,238.78 3,557.86 145,096.13
38 145,096.13 35 4,796.65 1,209.13 3,587.51 141,508.62
39 141,508.62 34 4,796.65 1,179.24 3,617.41 137,891.21
40 137,891.21 33 4,796.65 1,149,09 3,647.55 134,243.66
41 134,243.66 32 4,796.65 1,118.70 3,677.95 130,565.71
42 130,565.71 31 4,796.65 1,088.05 3,708.60 126,857.11
43 126,857.11 30 4,796.65 1,057.14 3,739.50 123,117.61
44 123,117.61 29 4,796.65 1,025.98 3,770.67 119,346.94
45 119,346.94 28 4,796.65 994.56 3,802.09 115,544.85
46 115,544.85 27 4,796.65 962.87 3,833.27 111,711.08
47 111,711.08 26 4,796.65 930.93 3,865.72 107,845.36
48 107,845.36 25 4,796.65 898.71 3,897.93 103,947.43
49 103,947.43 24 4,796.65 866.23 3,930.42 103,017.01
50 100,017.01 23 4,796.65 833.48 3,963.17 96,053.84
51 96,053.84 22 4,796.65 800.45 3,996.20 92,057.64
52 92,057.64 21 4,796.65 767.15 4,029.50 88,028.14
53 88,028.14 20 4,796.65 733.57 4,063.08 83,965.06
54 83,965.06 19 4,796.65 699.71 4,096.94 79,868.12
55 79,868.12 18 4,796.65 665.57 4,131.08 75,737.05
56 75,737.05 17 4,796.65 631.14 4,165.50 71,571.54
57 71,571.54 16 4,796.65 596.43 4,200.22 67,371.32
58 67,371.32 15 4,796.65 561.43 4,235.22 63,136.11
59 63,136.11 14 4,796.65 526.13 4,270.51 58,865.59
60 58,865.59 13 4,796.65 490.55 4,306.10 54,559.49
61 54,559.49 12 4,796.65 454.66 4,341.98 50,217.51
62 50,217.51 11 4,796.65 418.48 4,378.17 45,839.34
63 45,839.34 10 4,796.65 381.99 4,414.65 41,424.69
64 41,424.69 9 4,796.65 345.21 4,451.44 36,973.25
65 36,973.25 8 4,796.65 308.11 4,488.54 32,484.71
66 32,484.71 7 4,796.65 270.71 4,525.94 27,958.27
67 27,958.27 6 4,796.65 232.99 4,563.66 23,395.12
68 23,395.12 5 4,796.65 194.96 4,601.69 18,793.43
69 18,793.43 4 4,796.65 156.61 4,640.03 14,153.40
70 14,153.40 3 4,796.65 117.94 4,678.70 9,474.70
71 9,474.70 2 4,796.65 78.96 4,717.69 4,757.00
72 4,757.00 1 4,796.65 39.64 4,757.00 (0.00)
</TABLE>
- --------------------------------------------------------------------------------
(1) Cancellation Payment for Termination Date effective at the end of the 24th
month per Section 13.701.
(2) Cancellation Payment for Termination Date effective at the end of the 36th
month per Section 13.701.
<PAGE> 52
EXHIBIT G
EXCLUSIONS FROM OPERATING EXPENSES
(1) Costs of repairs, replacements or other work occasioned by fire,
windstorm or other casualty, or the exercise by governmental
authorities of the right of eminent domain, to the extent reimbursed
by insurance or condemnation proceeds.
(2) Leasing commissions, attorney's fees, costs, disbursements and other
expenses incurred by Landlord or its agents in connection with
negotiations for leases with tenants, other occupants or prospective
tenants or other occupants of the Building, and similar costs
incurred in connection with disputes with and/or enforcement of any
leases with tenants, other occupants, or prospective tenants or
other occupants of the Building.
(3) "Tenant allowances", "tenant concessions", workletters, and other
costs or expenses (including permit, license and inspection fees)
incurred in completing, fixturing, furnishing, renovating or
otherwise improving, decorating or redecorating space leased to
tenants or other occupants of the Building, or vacant, leasable
space in the Building (in either instance, excepting Common Areas),
including space planning/interior design fees for same.
(4) Depreciation and other "non-cash" expense items or amortization,
except for amortization charges as provided for in Section 2.202(d)
above.
(5) Costs of a capital nature, except as provided for in Section 2202(d)
above, including, but not limited to, capital additions, capital
improvements, capital alterations, capital replacements, capital
equipment and capital tools, and/or capital redesign, all in
accordance with generally accepted accounting principles,
consistently applied.
(6) Costs in connection with services (including electricity), items or
other benefits of a type which are not standard for the Building and
which are not available to Tenant without specific charge therefor,
but which are provided to another tenant or occupant of the
Building, whether or not such other tenant or occupant is
specifically charged therefor by Landlord.
(7) Services, items and benefits for which Tenant or any other tenant or
occupant of the Building specifically reimburses Landlord (other
than through its percentage share of Operating Expenses) or for
which Tenant or any other tenant or occupant of the Building wholly
pays third persons.
(8) Penalties or interest charged for (i) failure to pay equipment lease
payments, ad valorem taxes and/or special assessments before they
became delinquent or (ii) failure to promptly comply with laws
related to the Building, but, in either case, only if said penalties
or interest were not caused by Tenant.
(9) Costs directly resulting from the gross negligence or willful
misconduct of Landlord, its employees, agents and/or contractors.
(10) Payments in respect of overhead and/or profit to any Affiliate
(hereinafter defined) of Landlord, as a result of a non-competitive
selection process for services (other than the management fee) on or
to the Building and/or the Land, or for goods, supplies or
other materials, to the extent that the costs of such services,
goods, supplies and/or materials exceed the costs that would have
been paid had the services, goods, supplies or materials been
provided by parties unaffiliated with Landlord, of at least equal
skill, competence and experience.
(11) Payments of principal, finance charges or interest on debt or
amortization on any mortgage, deed of trust or other debt, and
rental payments (or increases in same) under any ground or
underlying
G-i
<PAGE> 53
lease or leases (except to the extent the same may be made to pay or
reimburse, or may be measured by, real estate taxes or insurance
premiums).
(12) Real estate taxes allocable to the leasehold improvements of other
tenants in the Building, to the extent separately assessed by the
taxing authorities.
(13) Costs associated with the operation of the entity which constitutes
Landlord, as distinguished from Landlord's operation of the
Building, such as general overhead and general administrative
expenses (individual, partnership or corporate, as the case may be),
which costs would not be chargeable to operating expenses of the
Building in accordance with generally accepted accounting
principles, consistently applied.
(14) Compensation paid to clerks, attendants or other persons in
commercial concessions (such as a snack bar, restaurant or
newsstand), if any, operated by Landlord or any subsidiary or
Affiliate of Landlord.
(15) Rentals and other related expenses, if any, incurred in leasing air
conditioning systems, elevators or other equipment ordinarily
considered to be of a capital nature, except equipment which is used
in providing janitorial services and which is not affixed to the
Building, and except as would be permitted under Section 2.02(d).
(16) Costs incurred in installing, operating, maintaining and owning any
specialty items or services not normally installed, operated and
maintained in buildings comparable to the Building and not necessary
for Landlord's operation, repair and maintenance of, and the
providing of required services for, the Building and/or any
associated parking facilities, such as for example, an observatory,
broadcasting facilities (other than the Building's music system, and
life support and security systems), luncheon club, athletic or
recreational club or helipad.
(17) Advertising and promotional expenses.
(18) Costs in connection with the ownership, operation and maintenance of
any off-site garage facilities associated with the Building, and
costs in connection with the operation and maintenance of any
parking facilities in the basement of the Building, in both cases
only to the extent offset by operating revenues from such
facilities.
(19) Costs or expenses for sculpture, paintings or other works of art,
including costs incurred with respect to the purchase, ownership,
leasing, showing, and promotion of same, but not including the costs
of cleaning same.
(20) Costs for which Landlord is compensated through or reimbursed by
insurance.
(21) Except as may be permitted under Section 2.02(d) above, costs of
correcting or repairing defects in the Building and/or any
associated parking facilities, and/or equipment or the replacement
of defective equipment, to the extent such costs are covered by
warranties of manufacturers, suppliers or contractors, or are
otherwise borne by parties other than Landlord.
(22) Contributions to reserve accounts designed to pay for Operating
Expenses attributable to periods subsequent to the calendar year for
which Operating Expenses are being determined;
(23) Contributions to charitable organizations.
(24) Costs incurred in removing the property of former tenants and/or
other occupants of the Building.
G-ii
<PAGE> 54
(25) Consulting costs and expense incurred by Landlord, except to the
extent same relate to the improved management or operation of the
Building.
(26) The costs of any "tap fees" or one-time lump sum sewer or water
connection fees for the Building.
(27) Costs or fees relating to the defense of Landlord's title to
or interest in the Building and/or the Land, or any part thereof.
(28) Compensation in the form of wages, salaries and such other
compensation and benefits, as well as any adjustments thereto, for
all executive employees and personnel of Landlord above the level of
the on-premises manager of the Building.
(29) An equitable allocation of the wages, salaries and other
compensation and benefits of Landlord's employees and personnel who
work on other projects, including, without limitation, those being
periodically developed, managed and/or operated by Landlord, in
addition to the Building and/or the Land, based on the extent to
which such parties are performing services other than for- the
Property.
(30) Federal, state, county, or municipal taxes on income, death taxes,
excess profit taxes, franchise taxes, or any taxes imposed or
measured on or by the income, gross receipts or revenue of Landlord
from the operation of the Building or imposed in connection with or
as a result of any change in the ownership of the Building and/or
the Land, except to the extent any of the foregoing are due in lieu
of ad valorem or real estate taxes or assessments.
(31) Taxes on Tenant's personal property and on the value of the
leasehold improvements in the Premises to the extent that the same
exceed "building standard" (as to quality but not quantity),
provided the amount of tax attributable thereto is expressly stated
and allocated by the respective taxing authority in its tax
statement to Landlord and is paid by Tenant.
(32) Any other expense which, under generally accepted accounting
principles, consistently applied, would not be considered to be a
normal maintenance or operating expense of the Property.
The term "Affiliate" shall mean and refer to any person or entity controlling,
controlled by, or under common control with another such person or entity.
"Control", as used herein, shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
controlled person or entity; the ownership, directly or indirectly, of at least
fifty-one percent (51%) of the voting securities of, or possession of the right
to vote, in the ordinary direction of its affairs, at least fifty-one percent
(51%) of the voting interest in, any person or entity shall be presumed to
constitute such control.
Landlord shall maintain complete and accurate records of all costs, expenses and
disbursements which shall be paid or incurred by Landlord, its employees, agents
and/or contractors, with respect to Operating Expenses, and Tenant, at its sole
cost and expense, and/or its authorized representatives, shall have the right to
inspect and/or audit Landlord's books and records relating solely to the
calculation of Operating Expenses under this Lease for the immediately prior
year for which additional rental payments shall become due by providing written
notice to Landlord within the period required by Section 2.203 hereof, any such
inspection and/or audit to be conducted at Landlord's office during normal
business hours; provided, however, Landlord agrees to reimburse Tenant for the
reasonable cost of any such inspection and/or audit conducted by or for it in
the event said inspection and/or audit shall prove that the operating expenses
for the period of time covered by such inspection and/or audit shall have been
overstated by five percent (5%) or more. Such audit may only be conducted by a
nationally recognized accounting firm reasonably acceptable to Landlord, and
shall be performed so as not to disturb Landlord's operations at the Building.
G-iii
<PAGE> 55
EXHIBIT H
CLEANING FREQUENCIES
Cleaning and janitorial services to be furnished shall include, but are not
limited to the following: GENERAL CLEANING will be performed nightly, Sunday
through Thursday, five (5) days per week, fifty-two (52) weeks per year.
SPECIFIC CLEANING will be performed according to the times and frequencies
listed below. Elevator and Public Area Shampooing, as well as Lobby
Refinishing/Resurfacing should be performed on Sunday when possible, to allow
maximum drying time with minimum traffic. COMPUTER AREAS will be cleaned five
(5) days each week.
A. GENERAL CLEANING - NIGHTLY
1. All carpeting will be vacuumed and spot cleaned as needed.
2. All trash receptacles will be emptied and trash removed to a
designated trash area.
3. All horizontal surfaces of desks, enclosures, and horizontal
surfaces of all other furniture, files, woodwork, etc., shall be
damp dusted with clean or treated cloth.
4. All desk accessories will be dusted and returned to their proper
place.
5. Drinking fountains will be cleaned and disinfected, and all exposed
metal shall be polished and kept free of foreign matter.
6. All hard surfaces including doors, walls, floors, ceramic tile,
etc., will be wiped or mopped clean where liquid and other foreign
materials have been spilled on the surface.
7. All interior doors and partition panels will be cleaned to remove
smudge marks, fingerprints and dust.
8. All glass doors, glass panels (including bright metal finishes and
handrails) will be cleaned, rubbed and polished. Partition glass
will be spot cleaned to remove smudges and fingerprints.
9. Cleaning personnel will work behind locked doors when possible, and
will close and lock all doors when cleaning is complete. All lights
are to be turned off in unoccupied tenant spaces immediately upon
arrival and after completion of work.
10. Dock/delivery areas will be policed to maintain a clean appearance,
hosed down weekly, and scrubbed as necessary.
B. FIRST FLOOR LOBBY
1. All granite areas will be swept, damp mopped and buffed nightly,
stripped and refinished quarterly.
2. Outside Entrances - All pavers and dock area will be policed daily,
scrubbed and hosed down weekly.
1
<PAGE> 56
C. DAILY RESTROOM CLEANING
1. All restroom fixtures including lavatories, toilet bowls and
urinals, will be scoured and disinfected and kept free of scale at
all times. All bright metal accessories, including hardware on
plumbing fixture, partitions and dispensing accessories shall be
cleaned and polished.
2. Sanitary napkin receptacles will be emptied, cleaned and
disinfected. All other receptacles will be emptied and damp dusted
on the inside.
3. Soap, towel and tissue dispensers will be filled nightly.
4. All mirrors will be cleaned and polished clear.
5. Restroom walls and partitions will be kept free of spots, smudges
and foreign matter.
6. Restroom floors will be cleaned and mopping and rinsing with a
disinfecting mopping solution.
D. WEEKLY GENERAL AND RESTROOM CLEANING
1. All vertical surfaces of desks, files and other furniture will be
damp dusted with clean or treated cloth.
2. All air supply and return grills will be thoroughly cleaned.
3. All restroom partitions will be washed with disinfecting solution
and a light coat of polish applied.
4. A minimum of two (2) gallons of fresh, clean water will be poured
into each restroom floor-drain twice weekly.
E. PERIODIC GENERAL CLEANING
1. Paneled walls will be dusted with a clean or treated cloth once each
month.
2. All ceiling recessed light fixture exteriors will be dusted
quarterly.
3. Draperies will be vacuumed quarterly.
4. All upholstery will be spot cleaned as needed or requested.
5. All flocked wall coverings in common areas of building will be
vacuumed monthly, and as necessary during any interior construction
or remodeling.
6. All vinyl wall coverings in common areas of building will be dusted
monthly and as necessary during any interior construction or
remodeling. Care shall be used in spot cleaning vinyl coverings.
2
<PAGE> 57
F. ELEVATOR CLEANING
1. Tiled floors will be swept and spray buffed nightly, scrubbed and
re-coated weekly. Strip and refinish quarterly.
2. Carpet floors will be vacuumed and spot cleaned nightly, and
shampooed weekly.
3. Exterior and interior doors and trim will be dusted nightly and
polished monthly.
4. Cabs will be dusted nightly.
5. Control and dispatch panels will be dusted and polished nightly.
6. Elevator thresholds will be cleaned and polished nightly.
G. ESCALATORS
1. Clean and polish treads nightly.
2. Clean traveling handrails nightly.
3. Wipe and polish all side panels nightly.
4. Remove gum or other stains, etc., nightly.
5. Clean plastic or glass section nightly.
H. FLOOR CLEANING
1. Hard Surfaces - V.A. Tile, Etc.
a. Public Areas - Sweep, wet mop and spray buff twice weekly,
scrub and refinish monthly, strip and refinish semi-annually.
b. Tenant Areas - Dust mop and damp mop nightly, spray buff
weekly, scrub and refinish monthly, strip and refinish
annually.
c. Restroom Floors - Strip and reseal monthly. Keep grout clean
at all times.
d. Scrub and polish door thresholds daily.
2. Concrete Floors and Janitorial Closets
a. Dust mop nightly, damp mop weekly, scrub and seal quarterly.
b. Police building stairwells nightly, dust mop nightly, damp mop
weekly, scrub and seal quarterly.
3
<PAGE> 58
I. CARPET CARE
1. Thorough vacuuming.
2. Correct spot removal.
3. Elevator lobbies and public corridors will be pile lifted weekly.
4. Anti-static electricity treatment.
5. Shampooing will be dictated largely by population or traffic
patterns in the public areas. The elevator lobbies and corridors
will require more frequent shampooing. Extraction method shall be
used for all areas. All carpeting shall be kept free of dirt, spots
and all unsightly conditions that can be removed by spot cleaning
and normal vacuuming.
J. COMPUTER AREA CLEANING
CARPETS
1. Cleaned and shampooed by Bonnet Method shampooing.
2. Spot cleaning will be performed by the Bonnet Method.
3. Anti-static treatment will be applied as requested.
K. GARAGE - FIVE (5) LEVELS PLUS GROUND LEVEL
1. Light fixtures in all elevator vestibules will be dusted as
necessary, but no less than one (1) time each week.
2. All tiled areas will be swept, damp mopped and spray buffed nightly,
scrub and refinish monthly, strip and refinish semi-annually.
The outlined specifications for work tasks and frequencies of such tasks listed
herein are intended as a framework for the cleaning operation of a first class
office building. Additional work will often be required and since it will
usually be minor in scope, it is intended that the vast majority of such extra
or additional work can and will be absorbed within the cleaning and maintenance
operation. When unscheduled work of a major proportion is required and requested
of the Contractor, the cost of such will be negotiated to provide a fair and
equitable arrangement for both parties.
4
<PAGE> 59
RIDER I
RENEWAL OPTION
SINGLE RENEWAL TERM
This Rider is attached to and a part of that certain Lease Agreement dated
as of _____________________, 1995, executed by and between LASALLE PARTNERS
MANAGEMENT LIMITED (in its capacity as agent for Fannin Street Limited
Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree as follows:
1. If, and only if, on the Expiration Date and the date Tenant notifies
Landlord of its renewal of the term of this Lease (as provided below), (i)
Tenant is not in default under this Lease, (ii) Tenant then occupies, and
the Premises then consist of, at least all the original Premises and (iii)
this Lease is in full force and effect, then Tenant (or any approved
Assignee, but not any subtenant of Tenant) shall have and may exercise an
option to renew this Lease for a contiguous portion of the Premises equal
to or exceeding 12,312 square feet (the "Renewal Space") for one (1)
additional term of five (5) years (the "Renewal Term") upon the sane terms
and conditions contained in this Lease with the exceptions that (x) this
Lease shall not be further available for renewal and (y) the rental for
the Renewal Term shall be the "Market Rental Rate", but in no event will
the Base Annual Rent for the Renewal Term be less than the Base Annual
Rent for the last twelve (12) calendar months of the initial term of the
Lease. If Tenant renews for less than all of the Premises, then the
configuration of the Renewal Space and the portion of the Premises not
renewed must be reasonably acceptable to Landlord.
2. The Market Rental Rate is hereby defined to mean the then prevailing fair
market rental rate in the Building determined on a "gross" lease basis as
of the exercise of the respective provision by Tenant, which a willing
tenant would pay and a willing landlord would accept for space of
comparable size and condition, taking into consideration all relevant
factors, including the following:
(1) use, location, size and/or floor level(s) of the space in question,
including view, elevator lobby exposure, etc.;
(2) tenant improvement or refurbishment allowance to be provided;
(3) abatement (including with respect to base rental, operating expenses
and real estate taxes, and parking charges);
(4) inclusion of parking charges in rental (or abatement thereof);
(5) lease takeovers/assumption;
(6) relocation/moving allowance;
(7) space planning/interior architecture/engineering allowance(s);
(8) refurbishment and repainting allowances;
(9) club membership;
(10) any other concessions or inducements;
(11) extent of services provided or to be provided (including overtime
cooling and heating, plus hourly charges therefor);
Rider 1-i
<PAGE> 60
(12) distinction between "gross" and "net" lease
(13) base year or dollar amount for escalation purposes (both operating
expenses and real estate taxes);
(14) any other adjustments (including by way of indexes) to base rental;
(15) credit standing and financial stature of the tenant;
(16) term of length of lease;
(17) the time the particular rental rate under consideration is to become
effective.
Landlord will take into consideration the tenant inducements offered in
the transactions considered by Landlord in determining the Market Rental
Rate.
3. If Tenant desires to renew this Lease, Tenant must notify Landlord in
writing of its intention to renew on or before the date which is at least
nine (9) months but no more than twelve (12) months prior to the
Expiration Date. If Tenant timely notifies Landlord of Tenant's exercise
of its right to renew, this Lease shall be extended as provided herein and
Landlord and Tenant shall enter into an amendment to this Lease to reflect
the extension of the term and changes in Rent in accordance with this
Rider. If Tenant fails to timely notify Landlord in writing of Tenant's
exercise of its right to renew, this Lease shall end on the Expiration
Date and Landlord shall have no further obligations or liability
hereunder.
4. The Renewal Space shall be delivered to Tenant in an "as is", broom-clean
condition. Landlord will, however, provide Tenant with a refurbishment
allowance in an amount not to exceed $5.00 per square foot of Rentable
Area within the Renewal Space. Such finish allowance shall be used to
refurbish improvements in the Renewal Space in accordance with plans
approved by Landlord. The refurbishment allowance shall be taken into
consideration in determining the Market Rental Rate for the renewal. Any
unused allowance shall, at Tenant's option, be applied to future leasehold
improvements or refurbishments in the Renewal Space.
Rider 1-ii
<PAGE> 61
RIDER 2
EXPANSION OPTION
This Rider is attached to and a part of that certain Lease Agreement dated
as of __________________, 1995, executed by and between LASALLE PARTNERS
MANAGEMENT LIMITED (in its capacity as agent for Fannin Street Limited
Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree as follows:
A. Subject to the remaining provisions of this Rider, Tenant shall have the
option and right (the "Expansion Option") during the first eighteen (18)
months following the Commencement Date, and provided that Tenant shall
deliver, six (6) months prior written notice of the exercise of the option
and right, to lease from Landlord all, but not less than all, of the area
of the Building more particularly described on Schedule A attached hereto
(the "Expansion Space"). The agreed rentable area of the Expansion Space
is 5,500 square feet, irrespective of whether the same should be more or
less as a result of minor variations resulting from actual construction of
improvements therein.
B. Expansion Space shall be delivered to Tenant (i) in an "as is" condition,
except for latent defects reported to Landlord within one hundred eighty
(180) days after delivery, and (ii) within one hundred eighty (180) days
after Landlord's receipt of the expansion notice from Tenant. The
Expansion Space will become part of the Premises and be leased to Tenant
on the same terms as the initial Premises, including Landlord's
obligations to furnish Tenant with the same finish allowance and
concessions as provided for the initial Premises, reduced, however, as
necessary to permit Landlord to fully amortize on a straight line basis
using a 10% interest factor the finish allowance and concessions over the
balance of the Term (not including renewal terms). Such finish allowance
shall be used to refurbish and/or construct improvements in the Expansion
Space. Within fifteen (15) days after delivering to Landlord the Expansion
Notice, Landlord and Tenant shall enter into a work letter in
substantially the form of Exhibit C attached to the Lease (including a
reasonable Construction Plans Review Fee), it being understood, however,
that such form shall be modified to reflect appropriate dates, and such
other changes as are necessary to reflect the agreement of the parties.
C. Basic Annual Rent for the Expansion Space will be equal to the product of
the Agreed Rentable Area per square foot rent applicable to the Premises
(at the time such Basic Annual Rent is calculated) under Item 3 of the
Basic Lease Provisions, multiplied by the agreed rentable area of the
Expansion Space. Basic Monthly Rent for the Expansion Space will be equal
to one-twelfth (1/12th) of the Basic Annual Rent for the Expansion Space.
Basic Annual Rent and Additional Rent for the Expansion Space shall
commence on the earlier to occur of (i) the earlier of Substantial
Completion or ten weeks after Landlord's delivery of the Expansion Space
to Tenant for construction of improvements (subject to extension for-
Force Majeure and subject to Landlord's not unreasonably delaying its
approval of Construction Plans, as provided in the Expansion Space work
letter) and (ii) the date that Tenant commences use of the applicable
Expansion Space. Upon such rent commencement date. (w) the Agreed Rentable
Area of the Premises shall be deemed increased by the agreed rentable area
for the Expansion Space, (x) the Basic Annual Rent for the Premises shall
be deemed increased by an amount equal to the Basic Annual Rent for the
Expansion Space, (y) Basic Monthly Rent for the Premises shall be deemed
increased to an amount equal to one twelfth (1/12th) of the Basic Annual
Rent for the Premises (as increased) and (z) Additional Rent for the
Premises shall be recalculated on the basis of the increased Agreed
Rentable Area of the Premises.
D. At such time as Basic Annual Rent commences with respect to any Expansion
Space, Landlord and Tenant will enter into an amendment to this Lease
accurately reflecting the addition of the Expansion Space to the Premises,
(ii) the increase in the Basic Annual Rent and Additional Rent payable
under this Lease, (iii) the increase in Tenant's Pro Rata Share Percentage
and (iv) such other amendments as are necessary.
Rider 2-i
<PAGE> 62
E. Landlord and Tenant shall promptly execute an Acceptance of Premises
Memorandum in substantially the form of Exhibit D attached to the Lease.
If Tenant occupies the Expansion Space without executing the Acceptance of
Premises Memorandum, Tenant shall be deemed to have accepted the Expansion
Space for all purposes.
F. Notwithstanding any provision or inference in this Rider to the contrary,
the Expansion Option shall expire and be of no further force or effect on
the earlier of (i) the expiration or earlier termination of the initial
term of this Lease, (ii) a default by Tenant under this Lease beyond any
applicable grace period or (iii) the eighteen month anniversary of the
Commencement Date. In the event Tenant has not exercised the Expansion
Option on or before the eighteen (18) month anniversary of the
Commencement Date, the Expansion Space shall revert to being controlled by
the Right of Opportunity and Offer set forth in Rider 3.
Rider 2-ii
<PAGE> 63
SCHEDULE A
[GRAPHIC OMITTED]
<PAGE> 64
RIDER 3
TENANT'S RIGHT OF OPPORTUNITY AND FIRST OFFER
This Rider is attached to and a part of that certain Lease Agreement dated
as of _____________, 1995, executed by and between LASALLE PARTNERS MANAGEMENT
LIMITED (in its capacity as agent for Fannin Street Limited Partnership, a
Delaware limited partnership), and WOLF COMMUNICATIONS COMPANY, a Texas
corporation ("Tenant"). Any capitalized term not defined herein shall have the
meaning assigned to it in the Lease. Landlord and Tenant agree as follows:
A. Prior to leasing to a third party any of the area described on Schedule A
attached to this Rider (the "Opportunity Expansion Space"), Landlord shall
deliver to Tenant a written statement ("Statement") setting forth that the
entire Opportunity Expansion Space, or named portion thereof, is or will
be available for direct lease and, in the case of space for which Landlord
has received an offer to lease from a bona ride prospective tenant (a
"Third Party Offer"), the name of such tenant. A prospective tenant shall
be considered bona fide when such prospective tenant has delivered to
Landlord a counter-proposal to lease the space, at which time Landlord
shall provide Tenant with the amount of space and the term (including
renewal terms) contained within the offer. Tenant shall have ten (10)
business days after receipt of the Statement in the case of a Third Parry
Offer, or twenty (20) business days otherwise, within which to notify
Landlord in writing that it desires to lease the entire applicable
Opportunity Expansion Space set forth in the Statement (each such written
notice is herein referred to as a "Notice"). Failure by Tenant to notify
Landlord within such applicable period shall be deemed an election by
Tenant not to lease the applicable Opportunity Expansion Space and
Landlord shall have the right to lease such space. If Landlord does not
lease such Opportunity Expansion Space within the later of (x) one hundred
twenty (120) days after Landlord's receipt of Tenant's Notice or (y)
termination of continuous good faith negotiations with the prospective
tenant, then Landlord will again comply with the provisions of this Rider
prior to leasing such space to any other third party. Tenant may at any
time during the Term express interest in any space which is available in
the Opportunity Expansion Space, and Landlord shall provide a Statement to
Tenant covering such space. If and when Tenant leases all Opportunity
Expansion Space (including any Expansion Space which may then be subject
to this Rider 3), Tenant's rights hereunder shall be extended to all space
on the 7th floor of the Building which is or may become available for
lease, subject to (a) prior rights of other tenants in the Building and
(b) renewals by tenants actually occupying space on the 7th floor whether
or not such renewals are set forth in their leases.
B. If Tenant exercises a right to take any Opportunity Expansion Space prior
to the eighteen (18) month anniversary of the Commencement Date, then such
Opportunity Expansion Space shall be provided upon the same terms as the
initial Premises, including Landlord's obligation to furnish the same
finish allowance and concessions as provided for the initial Premises,
reduced, however, as necessary to permit Landlord to fully amortize on a
straight line basis using a 10% interest factor the finish allowance and
concessions over the balance of the Term (not including any renewal term).
Thereafter, the Opportunity Expansion Space shall be leased to Tenant upon
all terms and conditions of this Lease with the following exceptions: (i)
all Opportunity Expansion Space shall be delivered to Tenant in "as is"
condition, except for latent defects reported to Landlord within one
hundred eighty (180) days after delivery; (ii) Basic Annual Rent for the
Opportunity Expansion Space will be the Market Rental Rate determined as
set forth in Rider 1; (iii) the Basic Monthly Rent for the agreed rentable
area of the Opportunity Expansion Space will be equal to one-twelfth
(1/12th) of the Basic Annual Rent for the Opportunity Expansion Space;
(iv) the Opportunity Expansion Space will be improved in accordance with
paragraph D of this Rider; (v) Tenant shall not be entitled to any
allowances or inducements with respect to the applicable Opportunity
Expansion Space; and (vi) Basic Annual Rent and Additional Rent with
respect to the applicable Opportunity Expansion Space shall commence on
the earlier to Occur of (x) the date that Tenant commences use of the
applicable Opportunity Expansion Space for any purpose or (y) the earlier
of Substantial Completion or ten (10) weeks from the date Landlord
delivers the Opportunity Expansion Space to Tenant for construction of
leasehold improvements (subject to extension for Force Majeure and
Landlord not unreasonably delaying its consent
Rider 3-i
<PAGE> 65
to the Construction Plans, as provided in the Opportunity Expansion Space
work letter). Upon such rent commencement date, (1) the Agreed Rentable
Area of the Premises shall be deemed increased by the agreed rentable area
of the Opportunity Expansion Space, (2) Basic Annual Rent for the Premises
shall be deemed increased by an amount equal to the Basic Annual Rent for
the Opportunity Expansion Space, (3) Basic Monthly Rent for the Premises
shall be deemed increased to an amount equal to one twelfth (1/12th) of
the Basic Annual Rent for the increased Premises and (4) Additional Rent
for the Premises shall be recalculated on the basis of the increased
Agreed Rentable Area of the Premises.
C. The failure of Tenant to exercise its rights to take Opportunity Expansion
Space in any given instance shall not prejudice its right to exercise its
rights to lease with respect to any other space or the same space after
the appropriate period, should all or any part of such space again become
available for direct lease or should Landlord again have a bona fide,
prospective tenant for such space.
D. Within fifteen (15) days after Landlord's receipt of a Notice, Tenant and
Landlord will enter into a work letter substantially in the form of
Exhibit C attached to the Lease (including a reasonable Construction Plans
Review Fee), provided that such form shall be amended to (i) set forth
appropriate dates, (ii) amend the finish allowance to be an amount
calculated in accordance with the other provision of this Rider 3 and
(iii) provide for such other matters as are necessary to reflect the
agreements of the parties with respect to the finish out of the applicable
Opportunity Expansion Space. Pursuant to the work letter, Tenant shall
construct or cause to be constructed improvements in the applicable
Opportunity Expansion Space in substantial accordance with construction
plans agreed to by Landlord and Tenant.
E. Landlord and Tenant shall promptly upon request of Landlord execute an
Acceptance of Premises Memorandum in substantially the form of Exhibit D
attached to the Lease. If Tenant occupies any Opportunity Expansion Space
without executing the Acceptance of Premises Memorandum, Tenant shall be
deemed to have accepted such Opportunity Expansion Space for all purposes.
F. Within fifteen (15) days after Landlord's receipt of a Notice, Landlord
and Tenant will enter into an amendment to this Lease accurately
reflecting (i) the addition of the applicable Opportunity Expansion Space
to the Premises, (ii) the increase in Basic Annual Rent and Additional
Rent payable under this Lease, (iii) the increase in Tenant's Pro Rata
Share Percentage and (iv) such other amendments as are necessary.
G. Notwithstanding any other provision or inference herein to the contrary,
Tenant's rights and Landlord's obligations under this Rider shall expire
and be of no further force or effect on the expiration or earlier
termination of the initial term of this Lease, or during the continuation
of a default by Tenant under this Lease.
Rider 3-ii
<PAGE> 66
SCHEDULE A
[GRAPHIC OMITTED]
<PAGE> 67
RIDER 4
RULES AND REGULATIONS
This Rider is attached to and a part of that certain Lease Agreement dated
as of ___________________________, 199__, executed by and between LASALLE
PARTNERS MANAGEMENT LIMITED (in its capacity as agent for Fannin Street Limited
Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree as follows:
Subject to the Lease, the following rules, regulations and standards shall be
observed by Tenant:
1. Except as expressly, permitted in the Lease, Tenant shall not use the
Premises, the Building or any other part of the Property to sell any items or
services at retail price or cost to the general public without prior written
approval of Landlord. The sale of services for stenography, typewriting,
blueprinting, duplicating and similar businesses shall not be conducted from or
within the Premises, the Building or any other part of the Property for the
service or accommodation of occupants of the Building or users of any other part
of the Property without the prior written consent of Landlord. Tenant shall not
conduct any auction on the Premises or any other part of the Property nor store
goods, wares or merchandise on the Premises (except for Tenant's own personal
use) or any other part of the Property.
2. Sidewalks, halls, doorways, vestibules, passageways, stairwells and other
similar areas shall not be obstructed or used by Tenant for a purpose other than
normal ingress and egress to and from the Premises and Building.
3. Fire arms, weapons, flammable, explosive or other hazardous liquids and
materials shall not be brought on the Premises or into the Building or on the
Property without the prior written consent of Landlord.
4. Except as expressly permitted in the Lease, Tenant shall not make any
alterations or improvements to the Premises without the prior written consent of
Landlord. All improvements and the methods of installing and constructing such
improvements must be approved in writing by Landlord prior to commencement of
installation and/or construction. Should Tenant require telegraphic, telephonic,
annunciator or other communication service, Landlord will direct the electrician
as to where and how wires are to be introduced and placed, and none shall be
introduced or placed except as Landlord shall direct. All contractors and
technicians performing work for Tenant within the Building shall be referred to
Landlord for approval by Landlord before performing any work, such approval not
to be unreasonably withheld, conditioned or delayed.
5. Movement into or out of the Building of freight, furniture, or office
equipment for dispatch or receipt by or on behalf of Tenant that requires
movement through public corridors or lobbies or entrances to the Building shall
be limited to the use of service elevators only and shall be done at hours and
in a manner approved in writing by Landlord for such purposes from time to time.
Only licensed commercial movers or Tenant's employees shall be used for the
purpose of moving freight, furniture or office equipment to and from the
Premises and Building. All hand trucks shall be equipped with rubber tires and
rubber side guards. Tenant shall be responsible for all damage to the Building
inflicted by Tenant's agents and employees in moving equipment or furniture into
or out of the Building.
6. Requests by Tenant for building services, maintenance or repair may be made
by telephone or in writing to the office of the Building manager.
7. Tenant shall not change locks or install additional locks on doors without
the prior written consent of Landlord, Tenant shall not make or cause to be made
duplicates of keys procured from Landlord. All keys to the Premises, and
combinations to vaults shall be surrendered to Landlord upon termination of
tenancy. Landlord will furnish Tenant, free of charge, two (2) keys for each
corridor door entering the Leased Premises. Additional keys
Rider 4-i
<PAGE> 68
will be furnished by the Landlord at a reasonable charge to the Tenant when
requested in writing by the Tenant. All such keys shall remain the property of
the Landlord.
8. Tenant shall give prompt notice to the office of the Building manager of any
damage to or defects in plumbing, electrical fixtures or heating and cooling
equipment. Liquids, or other materials or substances which may cause injury to
the plumbing, shall not be put into the lavatories, water closets or other
plumbing fixtures by Tenant, its agents, employees or invitees, and damages
resulting to such fixtures or appliances from misuse by Tenant or Tenant's
agents, employees or invitees shall be paid by Tenant, and Landlord shall not in
any case by liable therefor. The water closets and other water fixtures shall
not be used for any purpose other than those for which there were constructed
and any damage resulting to them from misuse by Tenant shall be borne by the
Tenant. Tenant shall not waste water by interfering with the faucets or
otherwise.
9. Except as expressly permitted in the Lease, no food shall be prepared in or
distributed from the Premises without the prior written approval of the Building
manager. Vending machines or dispensing machines of any kind will not be placed
in the Premises by Tenant unless prior written approval has been obtained from
Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed.
10. Landlord shall have the power to prescribe the weight and position of safes,
filing cabinets or other heavy equipment which may overstress any portion of the
floor. Any damage done to the Building by the improper placement of heavy items
which overstress the floor will be repaired at the sole expense of Tenant.
Tenant shall notify the Building manager when safes or other heavy equipment are
taken in or out of the Building, and the moving shall be done under the
supervision of the Building manager, after prior written approval from Landlord,
which approval shall not be unreasonably withheld, conditioned or delayed,
11. Trash shall not be swept or thrown into the corridors, halls, elevator
shafts or stairways. Trash shall only be disposed of in appropriate receptacles.
12. Tenant, its employees, or agents, or anyone else who desires to enter the
Building after normal working hours, will be required to identify themselves and
to sign in upon entry and sign out upon leaving, giving their location during
their stay and their time of arrival and departure. The Building will normally
be open for business from 7:00 a.m. until 6:00 p.m. Monday through Friday and
8:00 a.m. until 1:00 p.m. on Saturdays, the following holidays excepted: January
1st (New Year's Day); Last Monday in May (Memorial Day); July 4th (Independence
Day); First Monday in September (Labor Day); Fourth Thursday in November
(Thanksgiving Day); December 25th (Christmas Day) and any other day on which
tenants in other First Class Office Buildings are generally closed.
13. Tenant shall not install any solar screen material, window shades, blinds,
drapes, awnings, window ventilators, or other similar equipment and any window
treatment of any kind whatsoever, without Landlord's prior written consent.
Landlord will control all signage visible from the exterior of the Building or
Common Areas.
14. No sign, advertisement, notice or handbill shall be exhibited, distributed,
painted or affixed by Tenant, its employees or agents, on, about or from any
part of the Premises or any other part of the Property without the prior written
consent of Landlord. Landlord will provide and maintain a directory in the
Building and no other directory shall be permitted.
15. Tenant shall not permit any improper, objectionable or unpleasant noises or
odors to be emitted from the Premises.
16. Tenant shall keep all corridor doors, when not in use, closed.
17. Tenant shall at no time use, or permit the use of, the Premises or any
portion thereof as sleeping or lodging quarters.
18. Tenant shall not sell lottery tickets or conduct any other form of gambling
from or within the Premises or any other part of the Property.
Rider 4-ii
<PAGE> 69
19. Except for seeing eye dogs assisting the disabled, Tenant shall not keep any
animals or birds in or about the Premises or the Building.
20. Tenant shall comply with parking rules and regulations as may be posted and
distributed from time to time.
21. Landlord will not be responsible for personal property, equipment, money or
jewelry lost or stolen from the Premises.
22. Without in any way limiting any rights retained by Landlord under the Lease,
Landlord shall have the right to temporarily close lobby areas and other common
areas within the Building in order to complete any renovation or repairs of the
Building.
Landlord reserves the right to rescind any of these rules and regulations and to
make such other further reasonable rules and regulations as shall front time to
time be needed for the safety, protection, care and cleanliness of the Building
or any other portion of the Property, the operation of the Building, the
preservation of good order in the Building and on the Property, the orderly
management of the Building and/or the protection and comfort of the tenants and
their agents, employees and invitees, which rules and regulations shall be
applicable generally to all tenants in the Building and, when made and written
notice thereof is given to a tenant, shall be binding upon it in like manner as
if originally herein prescribed; provided, however, that no such rules and
regulations shall materially affect Tenant's ability to use the Premises for the
Permitted Use. These Rules and Regulations and no amendments hereto shall ever
be construed to create any obligation on Landlord. In the event of any conflict
between these Rules and Regulations and the Lease of which they are a part, the
Lease shall control.
Rider 4-iii
<PAGE> 70
Exhibit F-1
Initial Space
- --------------------------------------------------------------------------------
Amortization Period 72 Monthly/RSF $ 0.39
Interest Rate 10.0% Annual/RSF $ 4.68
Principal Amount (1) 261,074.21 RSF 12,312
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Lease Principal Remaining Monthly Interest Principle Cancellation
Month Amount Lease Months Payment Penalty
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/15/95 261,074.21 72 4,796.65 -- 4,796.65 n/a
9/15/95 256,277.56 71 4,796.65 2,135.65 2,661.00 n/a
10/15/95 253,616.56 70 4,796.65 2,113.47 2,683.17 n/a
11/15/95 250,933.38 69 4,796.65 2,091.11 2,705.53 n/a
12/15/95 248,227.85 68 4,796.65 2,068.57 2,728.08 n/a
1/15/96 245,499.77 67 4,796.65 2,045.83 2,750.81 n/a
2/15/96 242,748.95 66 4,796.65 2,022.91 2,773.74 n/a
3/15/96 239,975.21 65 4,796.65 1,999.79 2,796.85 n/a
4/15/96 237,178.36 64 4,796.65 1,976.49 2,820.16 n/a
5/15/96 234,358.20 63 4,796.65 1,952.99 2,843.66 n/a
6/15/96 231,514.54 62 4,796.65 1,929.29 2,867.36 n/a
7/15/96 228,647.18 61 4,796.65 1,905.39 2,891.25 n/a
8/15/96 225,755.93 60 4,796.65 1,881.30 2,915.35 n/a
9/15/96 222,840.58 59 4,796,65 1,857.00 2,939.64 n/a
10/15/96 219,900.94 58 4,796.65 1,832.51 2,964.14 n/a
11/15/96 216,936.80 57 4,796.65 1,807.81 2,988.84 n/a
12/15/96 213,947.96 56 4,796.65 1,782.90 3,013.75 n/a
1/15/97 210,934.22 55 4,796.65 1,757.79 3,038.86 n/a
2/15/97 207,895.35 54 4,796.65 1,732.46 3,064.19 n/a
3/15/97 204,831.17 53 4,796.65 1,706.93 3,089.72 n/a
4/15/97 201,741.45 52 4,796.65 1,681.18 3,115.47 n/a
5/15/97 198,625.98 51 4,796.65 1,655.22 3,141.43 n/a
6/15/97 195,484.55 50 4,796.65 1,629.04 3,167.61 n/a
------------
7/15/97 192,316.94 49 4,796.65 1,602.64 3,194.01 189,122.94 (2)
------------
8/15/97 189,122.94 45 4,796.65 1,576.02 3,220.62 185,902.32
9/15/97 185,902.32 47 4,796.65 1,549.19 3,247.46 182,654.86
10/15/97 182,654.86 46 4,796.65 1,522.12 3,274.52 179,380.33
11/15/97 179,380.33 45 4,796.65 1,494.84 3,301.81 176,078.52
12/15/97 176,078.52 44 4,796.65 1,467.32 3,329.33 172,749.20
1/15/98 172,749.20 43 4,796.65 1,439.58 3,357.07 169,392.13
2/15/98 169,392.13 42 4,796.65 1,411.60 3,385.05 166,007.08
3/15/98 166,007.08 41 4,796.65 1,383.39 3,413.25 162,593.83
4/15/98 162,593.13 40 4,796.65 1,354.95 3,441.70 159,152.13
5/15/98 159,152.83 39 4,796.65 1,326.27 3,470.38 155,681.75
6/15/98 155,681.75 33 4,796.65 1,297.35 3,499.30 152,182.46
------------
7/15/98 152,182.46 37 4,796.65 1,268.19 3,528.46 148,654.00 (3)
------------
8/15/98 148,654.00 36 4,796.65 1,238.78 3,557.86 145,096.13
9/15/98 145,096.13 35 4,796.65 1,209.13 3,587.51 141,508.62
10/15/98 141,508.62 34 4,796.65 1,179.24 3,617.41 137,891.21
11/15/98 137,891.21 33 4,796.65 1,149.09 3,647.55 134,243.66
12/15/98 134,243.66 32 4,796.65 1,118.70 3,677.95 130,565.71
1/15/99 130,565.71 31 4,796.65 1,088.05 3,708,60 126,857.11
2/15/99 126,857.11 30 4,796.65 1,057.14 3,739.50 123,117.61
3/15/99 123,117.61 29 4,796.65 1,025.98 3.770.67 119,346.94
4/15/99 119,346.94 28 4,796.65 994.56 3,802.09 115,544.85
5/15/99 115,544.85 27 4,796.65 962.87 3,833.77 111,711.08
6/15/99 111,711.08 26 4,796.65 930.93 3,865.72 107,845.36
7/15/99 107,845.36 25 4,796.65 898.71 3,897.93 103,947.43
</TABLE>
<PAGE> 71
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
8/15/99 103,947.43 24 4,796.65 866.23 3,930.42 100,017.01
9/15/99 100,017.01 23 4,796.65 833.48 3,963.17 96,053.84
10/15/99 96,053.84 22 4,796.65 800.45 3,996.20 92,057.64
11/15/99 92,057.64 21 4,796.65 767.15 4,029.50 88,028.14
12/15/99 88,028.14 20 4,796.65 733.57 4,063.08 83,965.06
1/15/00 83,965.06 19 4,796.65 693.71 4,096.94 79,868.12
2/15/00 79,868.12 18 4,796.65 665.57 4,131.08 75,737.05
3/15/00 75,737.05 17 4,796.65 631.14 4,165,50 71,571.54
4/15/00 71,571.54 16 4,796.65 596.43 4,200.22 67,371.32
5/15/00 67,371.32 15 4,796.65 561.43 4,235.22 63,136.11
6/15/00 63,136.11 14 4,796.65 526.13 4,270.51 58,865.59
7/15/00 58,865.59 13 4,796.65 490.55 4,306.10 54,559.49
8/15/00 54,559.49 12 4,796.65 454.66 4,341.98 50,217.51
9/15/00 50,217.51 11 4,796.65 418.48 4,378.17 45,839.34
10/15/00 45,839.34 10 4,796.65 381.99 4,414.65 41,424.69
11/15/00 41,424.69 9 4,796.65 345.21 4,451.44 n/a
12/15/00 36,973.25 8 4,796.65 308.11 4,488.54 n/a
1/15/01 32,484.71 7 4,796.65 270.71 4,525.94 n/a
2/15/01 27,958.77 6 4,796.65 232.99 4,563.66 n/a
3/15/01 23,395.12 5 4,796.65 194.96 4,601.69 n/a
4/15/01 18,793.43 4 4,796.65 156.61 4,640.03 n/a
5/15/01 14,153.40 3 4,796,65 117.94 4,678.70 n/a
6/15/01 9,474.70 2 4,796.65 78.96 4,717.69 n/a
7/15/01 4,757.00 1 4,796.65 39.64 4,757.00 n/a
</TABLE>
(1) Initial pricnipal far the initial premises of 12,312 square feet of Agreed
Rentable Area.
(2) Cancellation Payment for Termination Date effective at the end of the 24th
month. (i.e. 8/14/97)
(3) Cancellation Payment for Termination Date effective at the end of the 36th
month. (i.e. 1/14/98)
<PAGE> 72
Exhibit F-2
Initial Expansion Space
- --------------------------------------------------------------------------------
Amortization Period 65 Monthly/RSF $ 0.38
Interest Rate 10.0% Annual/RSF $ 4.57
Principal Amount (1) 210,393.00 RSF 10,948
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Lease Principal Remaining Monthly Interest Principle Cancellation
Month Amount Lease Months Payment Penalty
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/15/96 210,393.00 65 4,170.60 - 4,170.60 n/a
4/15/96 206,222.40 64 4,170.60 1,718.52 2,452.08 n/a
5/15/96 203,770.32 63 4,170.60 1,698.09 2,472.51 n/a
6/15/96 201,297.81 62 4,170.60 1,677.48 2,493.12 n/a
7/15/96 198,804.69 61 4,170.60 1,656.71 2,513.89 n/a
8/15/96 196,290.80 60 4,170.60 1,635.76 2,534.84 n/a
9/15/96 193,755.95 59 4,170.60 1,614.63 2,555.97 n/a
10/15/96 191,199.99 58 4,170.60 1,593.33 2,577.27 n/a
11/15/96 188,622.72 57 4,170.60 1,571.86 2,598.74 n/a
12/15/96 186,023.98 56 4,170.60 1,550.20 2,620.40 n/a
1/15/97 183,403.58 55 4,170.60 1,528.36 2,642.24 n/a
2/15/97 180,761.34 54 4,170.60 1,506.34 2,664.25 n/a
3/15/97 178,097.09 53 4,170.60 1,484.14 2,686.46 n/a
4/15/97 175,410.63 52 4,170.60 1,461.76 2,708.84 n/a
5/15/97 172,701.79 51 4,170.60 1,439.18 2,731.42 n/a
6/15/97 169,970.37 50 4.170.60 1,416.42 2,754.18 n/a
------------
7/15/97 167,216.19 49 4,170.60 1,393.47 2,777.13 164,439.06 (2)
------------
8/15/97 164,439.06 48 4,170.60 1,370.33 2,800.27 161,638.78
9/15/97 161,638.78 47 4,170.60 1,346.99 2,823.61 158,815.17
10/15/97 158,815.17 46 4,170.60 1,323.46 2,847.14 155,968.04
11/15/97 155,968.04 45 4,170.60 1,299.73 2,870.87 153,097.17
12/15/97 153,097.17 44 4,170.60 1,275.81 2,894.79 150,202.38
1/15/98 150,202.38 43 4,170.60 1,251.69 2,918.91 147,283.47
2/15/98 147,283.47 42 4,170.60 1,227.36 2,943.24 144,340.23
3/15/98 144,340.23 41 4,170.60 1,202.84 2,967.76 141,372.47
4/15/98 141,372.47 40 4,170.60 1,178.10 2,992.50 138,379.97
5/15/98 138,379.97 39 4,170.60 1,153.17 3,017.43 135,362.54
6/15/98 135,362.54 38 4,110.60 1,128.02 3,042.58 132,319.96
------------
7/15/98 132,319.96 37 4,170.60 1,102.67 3,067.93 129,252.03 (3)
------------
8/15/98 129,252.03 36 4,170.60 1,077.10 3,093.50 126,158.53
9/15/98 126,158.53 35 4,170.60 1,051.32 3,119.28 123,039.25
10/15/98 123,039.25 34 4,170.60 1,025.33 3,145.27 119,893.98
11/15/98 119,893.98 33 4,170.60 999.12 3,171.48 116,722.49
12/15/98 116,722.49 32 4,170.60 972.69 3,197.91 113,524.58
1/15/99 113,524.58 31 4,170.60 946.04 3,224.56 110,300.02
2/15/99 110,300.02 30 4,170.60 919.17 3,251.43 107,048.59
3/15/99 107,048.59 29 4,170.60 892.07 3,278.53 103,770.06
4/15/99 103,770.06 28 4,170.60 864.75 3,305.85 100,464.21
5/15/99 100,464.21 27 4,170.60 837.20 3,333.40 97,130.81
6/15/99 97,130.81 26 4,170,60 809.42 3,361.18 93,769.64
7/15/99 93,769.64 25 4,170.60 781.41 3,389.19 90,380.45
8/15/99 90,380.45 24 4,170.60 753.17 3,417.43 86,963.02
9/15/99 86,963.02 23 4,170.60 724.69 3,445.91 83,517.12
10/15/99 13,517.12 22 4,170.60 695.98 3,474.62 80,042.49
11/15/99 80,042.49 21 4,170.60 667.02 3,503.58 76,538.91
12/15/99 76,538.91 20 4,170.60 637.82 3,532.78 73,006.14
1/15/00 73,006.14 19 4,170.60 608.38 3,562.21 69,443.92
2/15/00 69,443.92 18 4,170.60 578.70 3.591,90 65,852.02
</TABLE>
<PAGE> 73
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
3/15/00 65,852.02 17 4,170.60 548.77 3,621.83 62,230.19
4/15/00 62,230.19 16 4,170.60 518.58 3,652.01 58,578.18
5/15/00 58,578.18 15 4.170.60 488.15 3,682.45 54,895.73
6/15/00 54,895.73 14 4,170.60 457.46 3,713.13 51,182.60
7/15/00 51,182.60 13 4,170.60 426.52 3,744.08 47,438.52
8/15/00 47,438.52 12 4,170.60 395.32 3,775.28 43,663.24
9/15/00 43,663.24 11 4,170.60 363.86 3,806.74 39,856.50
10/15/00 39,856.50 10 4,170.60 332.14 3,838.46 36,018.04
11/15/00 36,018.04 9 4,170.60 300.15 3,870.45 32,147.59
12/15/00 32,147.59 8 4,170.60 267.90 3,902.70 28,244.89
1/15/01 28,244.89 7 4,170.60 235.37 3,935.23 24,309.66
2/15/01 24,309.66 6 4,170.60 202.58 3,968.02 20,341.64
3/15/01 20,341.64 5 4,170.60 169.51 4,001.09 16,340.56
4/15/01 16,340.56 4 4,170.60 136.17 4,034.43 12,306.13
5/15/01 12,306.13 3 4,170.60 102.55 4,068.05 8,238.08
6/15/01 8,238.08 2 4,170.60 68.65 4,101.95 4,136.13
7/15/01 4,136.13 1 4,170.60 34.47 4,136.13 (0.00)
</TABLE>
(1) Additional principal of $158,019.12 added to the principal as a result of
the initial expansion of 10,948 square feet of Agreed Rentable Area.
(effective 3/15/96)
(2) Cancellation Payment for Termination Date effective at the end of the 24th
month. (i.e. 8/14/97)
(3) Cancellation Payment for Termination Date effective at the end of the 36th
month. (i.e. 8/14/98)
<PAGE> 74
Exhibit F-3
Second Expansion Space
- --------------------------------------------------------------------------------
Amortization Period 57 Monthly/RSF $ 0.37
Interest Rate 10.0% Annual/RSF $ 4.38
Principal Amount (1) 610,264.00 RSF 36,625
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Lease Principal Remaining Monthly Interest Principle Cancellation
Month Amount Lease Months Payment Penalty
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11/15/96 610,264.00 57 13,381.91 - 13,381.91
12/15/96 596,882.09 56 13,381.91 4,974.02 8,407.89 n/a
1/15/97 588,474.20 55 13,381.91 4,903.95 8,477.96 n/a
2/15/97 579,996.24 54 13,381.91 4,833.30 8,548.61 n/a
3/15/97 571,447.63 53 13,381.91 4,762.06 8,619.85 n/a
4/15/97 562,827.79 52 13,381.91 4,690.23 8,691.68 n/a
5/15/97 554,136.11 51 13,381.91 4,617.80 8,764.11 n/a
6/15/97 545,372.00 50 13,381.91 4,544.77 8,837.14 n/a
------------
7/15/97 536,534.86 49 13,381.91 4,471.12 8,910.79 527,624.07 (2)
------------
8/15/97 527,624.07 48 13,381.91 4,396.87 8,985.04 518,639.03
9/15/97 518,639.03 47 13,381.91 4,321.99 9,059.92 509,579.11
10/15/97 509,579.11 46 13,381.91 4,246.49 9,135.42 500,443.69
11/15/97 500,443.69 45 13,381.91 4,170.36 9,211.55 491,232.15
12/15/97 491,232.15 44 13,381.91 4,093.60 9,288.31 481,943.84
1/15/98 481,943.84 43 13,381.91 4,016.20 9,365.71 472,578.13
2/15/98 472,578.13 42 13,381.91 3,938.15 9,443.76 463,134.37
3/15/98 463,134.37 41 13,381.91 3,859.45 9,522.46 453,611.92
4/15/98 453,611.92 40 13,381.91 3,780.10 9,601.81 444,010.11
5/15/98 444,010.11 39 13,381.91 3,700.08 9,681.83 434,328.28
6/15/98 434,328.28 38 13,381.91 3,619.40 9,762.51 424,565.77
------------
7/15/98 424,565.77 37 13,381.91 3,538.05 9,843.86 414,721.91 (3)
------------
8/15/98 414,721.91 36 13,381.91 3,456.02 9,925.89 404,796.02
9/15/98 404,796.02 35 13,381.91 3,373.30 10,008.61 394,787.41
10/15/98 394,787.41 34 13,381.91 3,289.90 10,092.01 384,695.39
11/15/98 384,695.39 33 13,381.91 3,205.79 10,176.11 374,519.28
12/15/98 374,519.28 32 13,381.91 3,120.99 10,260.92 364,258.36
1/15/99 364,258.36 31 13,381.91 3,035.49 10,346.42 353,911.94
2/15/99 353,911.94 30 13,381.91 2,949.27 10,432.64 343,479.30
3/15199 343,479.30 29 13,381.91 2,862.33 10,519.58 332,959.71
4/15/99 332,959.71 28 13,381.91 2,774.66 10,607.25 322,352.47
5/15/99 322,352.47 27 13,381.91 2,686.27 10,695.64 311,656.83
6/15/99 311,656.83 26 13,381.91 2,597.14 10,784.77 300,872.06
7/15/99 300,872.06 25 13,381.91 2,507.27 10,874.64 289,997.42
8/15/99 289,997.42 24 13,381.91 2,416.65 10,965.26 279,032.15
9/15/99 279,032.15 23 13,381.91 2,325.27 11,056.64 267,975.51
10/15/99 267,975.51 22 13,381.91 2,233.13 11,148.78 256,826.73
11/15/99 256,826.73 21 13,381.91 2,140.22 11,241.69 245,585.05
12/15/99 245,585.05 20 13,381.91 2,046.54 11,335.37 234,249.68
1/15/00 234,249.68 19 13,381.91 1,952.08 11,429.83 222,819.85
2/15/00 222,819.85 18 13,381.91 1,856.83 11,525.08 211,294.77
3/15/00 211,294.77 17 13,381.91 1,760.79 11,621.12 199,673.65
4/15/00 199,673.65 16 13,381.91 1,663.95 11,717.96 187,955.69
5/15/00 187,955.69 15 13.381,91 1,566.30 11,815.61 176.140.08
6/15/00 176,140.08 14 13,381.91 1,467.83 11,914.08 164,226.00
7/15/00 164,226.00 13 13,381.91 1,368.55 12,013.36 152,212.64
8/15/00 152,212.64 12 13,381.91 1,268.44 12,113.47 140,099.17
9/15/00 140,099.17 11 13,381.91 1,167.49 12,214.42 127,884.76
10/15/00 127,884.76 10 13,381.91 1,065.71 12,316.20 115,568.55
</TABLE>
<PAGE> 75
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
11/15/00 115,568.55 9 13,381.91 963.07 12,418.84 103,149.71
12/15/00 103,149.71 8 13,381.91 859.58 12,522.33 90.627,39
1/15/01 90,627.39 7 13,381.91 755.23 12,626.68 78,000.70
2/15/01 78,000.70 6 13,381.91 650.01 12,731,90 65,268.80
3/15/01 65,268.80 5 13,381.91 543.91 12,838.00 52,430.80
4/15/01 52,430.80 4 13,381.91 436.92 12,944.99 39,485.81
5/15/01 39,485.81 3 13,381.91 329.05 13,052.86 26,432.95
6/15/01 26,432.95 2 13,381.91 220.27 13,161.63 13,271.32
7/15/01 13,271.32 1 13,381.91 110.59 13,271.22 (0.00)
</TABLE>
(1) Additional Pprincipal of $610,264.00 added to the principal as a result of
the Second Expansion Space of 36,625 square feet of Agreed Rentable Area.
(effective 12/15/96)
(2) Cancellation Payment for Termination Date effective at the end of the 24th
month. (i.e. 8/14/97)
(3) Cancellation Payment for Termination Date effective at the end of the 36th
month. (i.e. 8/14/98)
<PAGE> 1
Exhibit 10.22
FIRST AMENDMENT TO
STANDARD LEASE AGREEMENT
THIS FIRST AMENDMENT TO STANDARD LEASE AGREEMENT (this "Amendment") is
made by and between LASALLE PARTNERS MANAGEMENT LIMITED (in its capacity as
agent for Fannin Street Limited Partnership, a Delaware limited partnership)
("Landlord") and WOLF COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"),
effective this the 18th day of January, 1996 ("Effective Date").
W I T N E S S E T H
WHEREAS, Landlord and Tenant have entered into that certain Standard Lease
Agreement dated June 11, 1995 ("Lease"), for the lease of approximately 12,312
square feet of Agreed Rentable Area (the "Initial Space") located on Floor 7 at
the 1301 Fannin Street Building ("Building") (the land on which the Building is
located is more particularly described in Exhibit "B" attached to the Lease),
all in accordance with the terms, conditions, covenants and obligations
contained in the Lease and the exhibits and riders attached to the Lease; and
WHEREAS, beginning on the Effective Date, Tenant desires to expand the
Initial Space to include approximately 10,948 square feet of Agreed Rentable
Area located on the 7th Floor of the Building, as shown on the attached Exhibit
"A" (the "Initial Expansion Space").
NOW, THEREFORE, in and for the premises contained in this Amendment and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Landlord and Tenant agrees to amend the Lease as follows:
1. Item 2 of the Basic Lease Provisions is amended to reflect the addition of
the Initial Expansion Space to the Premises, and the Agreed Rentable Area
of the Premises beginning on the Effective Date shall read as follows:
Agreed Rentable Area: 23,260 square feat.
However, Tenant shall initially occupy only 6570 square feet of the
Initial Expansion Space. An additional 2189 square feet of Rentable Area
shall be added on the three (3) month anniversary of the Commencement Date
for the Initial Expansion Space and an additional 2189 square feet of
Rentable Area shall be added on the six (6) month anniversary of the
Commencement Date for the Initial Expansion Space.
2. Basic Rent for the Initial Expansion Space shall be as follows:
<TABLE>
<CAPTION>
Rate Per Square Basic Basic
Rental Foot of Agreed Annual Monthly
Period Rentable Area Rent Rent
------ ------------- ---- ----
<S> <C> <C> <C>
Months 1-3 $ 15.00 $ 98,550.00 $ 8,212.50
Months 4-6 $ 15.00 $ 131,385.00 $ 10,948.75
Months 7-expiration $ 15.00 $ 164,220.00 $ 13,685.00
of Initial Term
</TABLE>
A "Lease Month" shall mean any calendar month during the Term of this
Lease. The amounts set forth above have been determined based on Tenant's
staged occupancy of the Initial Expansion Space.
<PAGE> 2
3. Item 4 of the Basic Lease Provisions is amended to reflect the addition of
the Initial Expansion Space and shall read as follow:
Tenant's Pro Rata Share Percentage: 2.966% (the Agreed Rentable Area of
the Premises divided by the Agreed Rentable Area of the Building,
expressed in a percentage).
4. The Initial Expansion Space shall become a part of the leased premises in
accordance with Rider 3 to the Lease and shall be governed by the
provisions or the Lease, except for the following matters:
(a) Tenant has as of the date hereof submitted to Landlord an additional
Security Deposit in the amount of $209,983.05 as contemplated by, and
which is to be held and renewed in accordance with, Article 3 of the
Lease.
(b) The Lease Cancellation Options contained in Section 13.701 shall apply
with respect to the entire Premises measured from the original
Commencement Date. However, the Cancellation Payment shall be increased to
reflect the increased unamortized leasing costs attributable to the
Initial Expansion Space: and at the time Tenant executes the Acceptance of
Premises Memorandum with respect to the Initial Expansion Space, Tenant
and Landlord agree to replace the existing Exhibit F to the Lease with a
revised Exhibit F reflecting such increase in the Cancellation Payment.
(c) The leasehold improvements in the Initial Expansion Space shall be
constructed in accordance with the Work Letter attached as Exhibit C to
the Lease, except as follows:
(i) The time frame for delivery of Construction Plans in Section 1.1
of Exhibit C shall run from the Effective Date and not the execution
of the Lease.
(ii) The Finish Allowance and other concessions for the Initial
Expansion Space shall be reduced in accordance with Rider 3 to the
Lease to $14.44 per square foot of Rentable Area within the Initial
Expansion Space. The foregoing amount is calculated based on a March
16, 1996 Commencement Date. Such amount shall be adjusted if the
Commencement Date for the Initial Expansion Space is other than
March 16, 1996, by using the following formula:
Finish Allowance = (remaining months of term / 72) x $16 per square foot
(iii) Landlord shall have no obligation to construct the Landlord's
Work act forth in Section 8(i), because that work has been
completed and accepted by Tenant.
5. Rider 2 shall be deleted from the Lease in its entirety.
6. The Opportunity Expansion Space and Tenant's rights under Rider 3 to the
Lease are expanded to cover all space on the 7th floor in accordance with
the terms of Paragraph A of Rider 3, subject to (a) prior rights of other
tenants in the Building and (b) renewals by tenants actually occupying
space on the 7th floor, whether or not such renewals are set forth in
their leases. As of the Effective Date, the only existing lease to which
Tenant takes subject is the lease with MCI Metro Access Transmission
Services, Inc. as shown on the attached Exhibit "B".
7. All capitalized terms used herein and not otherwise defined herein shall
have the meaning given to such terms in the Lease. Unless specifically
modified by the foregoing provisions, all of the terms and conditions of
the Lease shall remain unchanged and in full force and effect, it being
the intent of the parties to add the Initial Expansion Space to the
Premises.
<PAGE> 3
EXECUTED EFFECTIVE as of the Effective Date.
LANDLORD: TENANT:
LASALLE PARTNERS MANAGEMENT WOLF COMMUNICATIONS COMPANY
LIMITED, solely in its capacity as
agent for Fannin Stress Limited
Partnership, a Delaware limited By: /s/ Mathew Wolf
partnership ---------------------------
Printed Name: Mathew Wolf
-----------------
By: /s/ Bret E. Bunnett Title: President
------------------------------ ------------------------
Bret E. Bunnett,
Senior Vice President
<PAGE> 4
EXHIBIT A
FLOOR PLAN
This Exhibit is attached to and a part of that certain First Amendment to
Standard Lease Agreement dated as of ___ January, 1996, executed by and between
LASALLE PARTNERS MANAGEMENT LIMITED (in its capacity as agent for Fannin Street
Limited Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease, Landlord and
Tenant agree that the floor plans attached to this Exhibit are the floor plans
for the Premises.
[GRAPHIC OMITTED]
<PAGE> 5
EXHIBIT B
FLOOR PLAN
This Exhibit is attached to and a part of that certain First Amendment to
Standard Lease Agreement dated as of ___ January, 1996, executed by and between
LASALLE PARTNERS MANAGEMENT LIMITED (in its capacity as agent for Fannin Street
Limited Partnership, a Delaware limited partnership) ("Landlord"), and WOLF
COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"). Any capitalized term not
defined herein shall have the meaning assigned to it in the Lease. Landlord and
Tenant agree that the floor plans attached to this Exhibit are the floor plans
for the Premises.
[GRAPHIC OMITTED]
<PAGE> 1
Exhibit 10.23
SECOND AMENDMENT TO
STANDARD LEASE AGREEMENT
THIS SECOND AMENDMENT TO STANDARD LEASE AGREEMENT (this "Amendment") is
made by and between LASALLE PARTNERS MANAGEMENT LIMITED (in its capacity as
agent for Fannin Street Limited Partnership, a Delaware limited partnership)
("Landlord") and WOLF COMMUNICATIONS COMPANY, a Texas corporation ("Tenant"),
effective this the 8th day of August, 1996.
W I T N E S S E T H
WHEREAS, Landlord and Tenant have entered Into that certain Standard Lease
Agreement dated June 11, 1995, as amended by First Amendment to Standard Lease
Agreement dated effective January 18, 1996 (as amended to date, the "Lease"),
for the lease of approximately 23,260 square feet of Agreed Rentable Area
comprised of the Initial Space (12,312 square feet of Agreed Rentable Area) and
the Initial Expansion Space (10,948 square feet of Agreed Rentable Area) located
on Floor 7 of the 1301 Fannin Street Building ("Building") (the land on which
the Building is located is more particularly described in Exhibit "B" attached
to the Lease), all in accordance with the terms, conditions, covenants and
obligations contained in the Lease and the exhibits and riders attached to the
Lease: and
WHEREAS, beginning on December 1, 1996 (the "Effective Date"), Tenant
desires to expand the Premises to include approximately 36,625 square feet of
Agreed Rentable Area located on the 7th Floor of the Building, as shown on the
attached Exhibit "A" (the "Second Expansion Space").
NOW, THEREFORE, in and for the premises contained in this Amendment and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Landlord and Tenant agree to amend the Lease as follows:
1. Item 2 of the Basic Lease Provisions is amended to reflect the addition of
the Second Expansion Space to the Premises, and the Agreed Rentable Area
of the Premises beginning on the Effective Date shall read as follows:
Agreed Rentable Area: 59,885 square feet.
2. Basic Rent for the Second Expansion Space shall be as follows:
<TABLE>
<CAPTION>
Rate Per Square Basic Basic
Rental Foot of Agreed Annual Monthly
Period Rentable Area Rent Rent
------ ------------- ---- ----
<S> <C> <C> <C>
Months 1-3 $ 15.00 $ 329,625.00 $ 27,468.75
Months 4-6 $ 15.00 $ 439,500.00 $ 36,625.00
Months 7-expiration $ 15.00 $ 549,375.00 $ 45,781.25
of Initial Term
</TABLE>
The rental periods referenced above shall be calculated from the Effective
Date.
3. Item 4 of the Basic Lease Provisions is amended to reflect the addition of
the Second Expansion Space and shall read as follows:
Tenant's Pro Rata Share Percentage: 7.64% (the Agreed Rentable Area of the
Premises divided by the Agreed Rentable Area of the Building, expressed in
a percentage).
<PAGE> 2
4. The Second Expansion Space shall become a part of the Premises in
accordance with Rider 3 to the Lease and shall be governed by the
provisions of the Lease, except for the following matters:
(a) Tenant has as of the date hereof submitted to Landlord an additional
Security Deposit in the amount of $6l0,264.00 as contemplated by, and
which is to be held and renewed in accordance with, Article 3 of the
Lease.
(b) The Lease Cancellation Option contained in Section 13.701(a) shall be
terminated and shall no longer be of any force and effect by virtue of
Tenant having leased all available space on floor 7 of the Building,
However, for purposes of Section 13.701(b) and 13.702, the Cancellation
Payment referenced in Section 13.70: shall be increased to reflect the
increased unamortized leasing costs attributable to the Second Expansion
Space: and at the time Tenant executes the Acceptance of Premises
Memorandum with respect to the Second Expansion Space, Tenant and Landlord
agree to replace the existing Exhibit F to the Lease with a revised
Exhibit F reflecting such increase in the Cancellation Payment.
(c) The leasehold improvements in the Second Expansion Space shall be
constructed in accordance with the Work Letter attached as Exhibit C to
the Lease, except as follows:
(i) The time frame for delivery of Construction Plans in Section 1.1
of Exhibit C shall run from the Effective Date and not the date of
execution of the Lease.
(ii) The Finish Allowance and other concessions for the Second
Expansion Space shall be reduced in accordance with Rider 3 to the
Lease to $12.56 per square foot of Rentable Area within the Second
Expansion Space.
(iii) Landlord shall have no obligation to construct the Landlord's
Work set forth in Section 8(i), because that work has been completed
and accepted by Tenant.
5. Tenant having leased all remaining available space on floor 7 of the
Building, the Opportunity Expansion Space and Tenant's rights under Rider
3 to the Lease are modified to cover all space on the 18th floor in
accordance with the terms of Paragraph A of Rider 3, subject to (a) prior
rights of other tenants in the Building and (b) renewals by tenants
actually occupying space on the 18th floor, whether or not such renewals
are set forth in their leases. Consequently, Schedule A of Rider 3 to the
Lease is deleted and the term "Opportunity Expansion Space" shall be
deemed to refer to the entire 18th floor of the Building. As of the
Effective Date, the only existing lease to which Tenant takes subject is
the lease with Exxon Corporation.
6. Section 5.103(c) of the Lease is amended to reflect that Landlord shall
now furnish UPS power to meet Tenant's loads in an amount not to exceed
250 KVA: and the total power requirements for all equipment in the
Premises, whether non-emergency or emergency, shall not exceed 500 KVA.
7. All capitalized terms used herein and not otherwise defined herein shall
have the meaning given to such terms in the Lease. Unless specifically
modified by the foregoing provisions, all of the terms and conditions of
the Lease shall remain unchanged and in full force and effect, it being
the intent of the parties to add the Second Expansion Space to the
Premises.
<PAGE> 3
EXECUTED EFFECTIVE as of the day first set forth above,
LANDLORD: TENANT:
LASALLE PARTNERS MANAGEMENT WOLF COMMUNICATIONS COMPANY
LIMITED, solely in its capacity as
agent for Fannin Street Limited
Partnership, a Delaware Limited By: /s/ Mathew Wolf
Partnership ------------------------------
Printed Name: Mathew Wolf
By: /s/ Phyllis H. Owen Title: President
------------------------------
Phyllis H. Owen
Executive Vice President
By: /s/ Albert J. Palamara
------------------------------
Albert J. Palamara
Vice President
<PAGE> 4
[GRAPHIC OMITTED] 1301 FANNIN STREET
LaSalle Partners
Management Limited
The Wingfield/Sears Group, Inc.
Architects Interior Designers
April 12, 1992
EXHIBIT A
Second Expansion Space
36,625 Rentable Square Feet
<PAGE> 1
Exhibit 21.1
Subsidiaries
1. Interliant of Texas, Inc.
2. B.N. Technology, Inc. dba ICOM.
3. Net Daemons Associates, Inc.
4. Digiweb, Inc.
5. Telephonetics, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 15, 1999, except for the last paragraph of Note 12, as to which the
date is March 10, 1999, with respect to the consolidated financial statements of
Sage Networks, Inc. as of December 31, 1997 and 1998, and for the period
December 8, 1997 (inception) to December 31, 1997 and the year ended December
31, 1998, in the Registration Statement on Form S-1 and related Prospectus of
Interliant, Inc. (formerly Sage Networks, Inc.) for the registration of shares
of its common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 26, 1999, except for Note 11, as to which the date is March 10, 1999,
with respect to the financial statements of Interliant, Inc., included in the
Registration Statement on Form S-1 and related Prospectus of Interliant, Inc.
(formerly Sage Networks, Inc.) for the registration of shares of its common
stock.
ERNST & YOUNG LLP
Houston, Texas
March 11, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 13, 1998, relating
to the financial statements of Tri Star Web Creations, Inc.; our report dated
September 4, 1998 relating to the consolidated financial statements of Gen
International, Inc. and our report dated January 24, 1999 relating to the
financial statements of Digiweb, Inc., which reports appear in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Urbach Kahn & Werlin PC
New York, New York
March 11, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
in the Prospectus constituting part of this Registration Statement on Form S-1
of our report dated March 19, 1998, relating to the financial statements of
Clever Computers, Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
BSC&E
Atlanta, Georgia
March 9, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report, which includes an explanatory
paragraph regarding basis of presentation, dated August 18, 1998, relating to
the financial statements of HostAmerica, a division of HomeCom Communications,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
in the Prospectus constituting part of this Registration Statement on Form S-1
of our report dated September 11, 1998, relating to the financial statements of
B.N. Technology, Inc. dba Internet Communications, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Frankel, Lodgen, Golditch, Sardi &
Howard
Encino, California
March 11, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated January 15, 1999, relating to the
combined financial statements of Telephonetics International, Inc. and
Affiliate, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Miami, Florida
March 12, 1999
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement of Sage Networks, Inc.
on Form S-1 of our report dated February 2, 1999 (February 17, 1999 as to Note
10) relating to the financial statements of Net Daemons Associates, Inc.
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
March 11, 1999
