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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________.
COMMISSION FILE NUMBER 000-26153
HIGH SPEED ACCESS CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 61-1324009
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
4100 East Mississippi Avenue
Denver, Colorado 80246
(Address of principal executive offices, including zip code)
303/256-2000
(Registrant's telephone number, including area code)
FORMER NAME, FORMER ADDRESS, AND FORMER YEAR, IF CHANGED SINCE LAST
REPORT:
NOT APPLICABLE
- - - - - - -
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Common Stock outstanding as of November 5, 1999...54,184,191
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Index
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations for the
three-months ended September 30, 1999 and 1998, (Unaudited),
the nine-months ended September 30, 1999 (Unaudited), and the
period April 3, 1998 (Inception) through September 30, 1998
(Unaudited)
Condensed Consolidated Statements of Cash Flows for the
nine-months ended September 30, 1999 (Unaudited) and the
period April 3, 1998 (Inception) through September 30, 1998
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures
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ITEM I - FINANCIAL INFORMATION
Part 1 - Financial Statements
HIGH SPEED ACCESS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62,741 $ 17,888
Short term investments 136,365 --
Accounts receivable, net of allowance for doubtful accounts of $54
and $13 as of September 30, 1999 and December 31, 1998, respectively 236 83
Prepaid expenses and other current assets 3,627 123
--------- ---------
Total current assets 202,969 18,094
Property, equipment and improvements, net 29,105 5,807
Intangible assets, net 3,562 3,603
Deferred distribution agreement costs, net 4,268 --
Other non-current assets 477 --
--------- ---------
Total assets $ 240,381 $ 27,504
========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 7,945 $ 2,741
Accrued compensation and related expenses 1,949 744
Other current liabilities 2,674 395
Long-term debt, current portion 699 8
Capital lease obligations, current portion 1,890 44
--------- ---------
Total current liabilities 15,157 3,932
Long-term debt 2,243 530
Capital lease obligations 4,433 219
--------- ---------
Total liabilities 21,833 4,681
--------- ---------
Commitments and contingencies
Mandatorily redeemable convertible preferred stock:
Series A, $.01 par value, 0 and 5,000,000 shares designated, issued and
outstanding at September 30, 1999 (unaudited) and December 31, 1998, respectively -- 47,050
Series B, $.01 par value, 0 and 10,000,000 shares designated, issued and
outstanding at September 30, 1999 (unaudited) and December 31, 1998, respectively -- 102,200
Series C, $.01 par value, 5,000,000 shares designated, no shares issued
and outstanding (unaudited) -- --
--------- ---------
Total mandatorily redeemable convertible preferred stock -- 149,250
--------- ---------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 20,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $.01 par value, 400,000,000 shares authorized, 54,168,691
issued and outstanding - September 30, 1999 (unaudited); 6,200,000 shares
authorized, issued and outstanding - December 31, 1998 542 62
Class A common stock, 100,000,000 shares authorized -
September 30, 1999 (unaudited); none issued and outstanding -- --
Additional paid-in-capital 618,229 4,237
Deferred compensation (306) (84)
Accumulated deficit (399,450) (130,642)
Accumulated other comprehensive loss (467) --
--------- ---------
Total stockholders' equity (deficit) 218,548 (126,427)
--------- ---------
Total liabilities, mandatorily redeemable convertible preferred
stock and stockholders' equity (deficit) $ 240,381 $ 27,504
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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HIGH SPEED ACCESS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED APRIL 3, 1998
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, (INCEPTION) TO
1999 1998 1999 SEPTEMBER 30, 1998
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Net Revenue $ 1,070 $ 101 $ 2,010 $ 192
Costs and expenses:
Operating 7,194 673 13,344 934
Engineering 2,547 705 6,103 1,103
Sales and Marketing 5,126 1,434 10,783 2,091
General and Administrative 3,019 784 6,666 1,348
Non-cash compensation expense from stock options 18 -- 2,698 --
Amortization of distribution agreement costs 193 -- 3,498 --
------------ ------------ ------------ ------------
Total costs and expenses 18,097 3,596 43,092 5,476
------------ ------------ ------------ ------------
Loss from operations (17,027) (3,495) (41,082) (5,284)
Interest income 2,824 9 3,684 10
Interest expense (122) (20) (216) (25)
------------ ------------ ------------ ------------
Net loss (14,325) (3,506) (37,614) (5,299)
Mandatorily redeemable convertible preferred stock dividends -- (85) (1,122) (109)
Accretion of redemption value of mandatorily redeemable
convertible preferred stock -- (7,500) (229,148) (7,500)
------------ ------------ ------------ ------------
Net loss available to common stockholders $ (14,325) $ (11,091) $ (267,884) $ (12,908)
============ ============ ============ ============
Basic and diluted net loss available to common
stockholders per share $ (0.26) $ (1.79) $ (10.10) $ (2.08)
============ ============ ============ ============
Weighted average shares used in computation of basic and diluted
net loss available to common stockholders per share 54,141,481 6,200,000 26,526,365 6,200,000
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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HIGH SPEED ACCESS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS APRIL 3, 1998
ENDED (INCEPTION) TO
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (37,614) $ (5,299)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization 4,073 733
Non-cash compensation expense from stock options 2,698 --
Amortization of distribution agreement costs 3,498
Changes in operating assets and liabilities excluding the effects of
acquisitions:
Accounts receivable (153) 7
Prepaid expenses and other current assets (3,540) (765)
Other non-current assets (477) --
Accounts payable 436 1,472
Accrued compensation and related expenses 1,205 193
Other current liabilities 2,279 127
-------------- --------------
Net cash used in operating activities (27,595) (3,532)
-------------- --------------
INVESTING ACTIVITIES
Purchase of short-term investments (231,732) --
Sales and maturities of short-term investments 94,900 --
Purchase of property, equipment and improvements, net of leases (15,895) (2,898)
Cash acquired in the purchase of CATV and HSAN -- 907
Purchase of customer base (491) --
-------------- --------------
Net cash used in investing activities (153,218) (1,991)
-------------- --------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 197,754 --
Net proceeds from issuance of mandatorily redeemable convertible
preferred stock 24,987 6,000
Payments on capital lease obligations (226) --
Proceeds from long-term debt 2,639 --
Payments on long-term debt (234) (67)
Proceeds from options exercised by management 746 --
-------------- --------------
Net cash provided by financing activities 225,666 5,933
-------------- --------------
Net change in cash and cash equivalents 44,853 410
Cash and cash equivalents, beginning of period 17,888 --
-------------- --------------
Cash and cash equivalents, end of period $ 62,741 $ 410
============== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and employee stock options in connection with the
purchase of CATV and HSAN $ -- $ 3,215
Equipment acquired under capital leases $ 6,286 $ 200
Issuance of note payable as consideration for advance from related party $ -- $ 650
Property and equipment purchases payable $ 4,769 $ 1,261
Distribution of Darwin Networks, Inc. subsidiary to shareholders $ 923 $ --
Warrants issued in connection with acquisitions $ 208 $ --
Warrants issued in connection with Microsoft Corp. agreements $ 3,235 $ --
Warrants earned in connection with distribution agreements $ 4,530 $ --
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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ITEM 1 - NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements included
herein reflect all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management are necessary to fairly present High Speed
Access Corp.'s (hereinafter referred to as the Company, we, us, or our)
financial position, results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally included in
audited financial information prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. The results of operations for
the periods ended September 30, 1999 are not necessarily indicative of the
results to be expected for any subsequent quarter or for the entire fiscal year
ending December 31, 1999. These financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1998, which are included in the Company's Registration Statement on
Form S-1 (File No. 333-74667) which was declared effective by the Securities and
Exchange Commission on June 3, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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 results of operations during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - STOCKHOLDERS' EQUITY
Series C Preferred Stock
In April 1999, the Company received $25 million in cash proceeds from
the sale of 5,000,000 shares of Series C mandatorily redeemable convertible
preferred stock to Vulcan Ventures Incorporated ("Vulcan").
Recapitalization
In May 1999, the Company completed a 1.55 for 1 split of its common
stock. This stock split resulted in a corresponding change in the conversion
rate for all shares of the Company's Series A, B and C mandatorily redeemable
convertible preferred stock ("Preferred Stock") such that each share of
Preferred Stock was convertible into 1.55 shares of common stock after the
split. In addition, certain outstanding warrants, if earned, may be exercised to
acquire 1.55 shares of stock after the split. The accompanying financial
statements have been restated for all periods presented to reflect the effects
of the stock split.
Also, the Board of Directors of the Company authorized 100 million
shares of Class A common stock and increased the number of shares of the
Company's $.01 par value common stock authorized to 400 million shares.
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Initial Public Offering and Conversion of Preferred Stock
In June 1999, the Company sold 14,950,000 shares of its common stock in
an initial public offering (the "Offering"), including the underwriters'
over-allotment option, which generated proceeds of $179.3 million, net of the
underwriters' discount and other offering costs. Concurrently with the Offering,
the Company registered and sold 618,557 shares, 82,474 shares, and 824,742
shares of common stock to Cisco Systems, Inc. ("Cisco"), Com21, Inc. ("Com21")
and Microsoft Corp. ("Microsoft"), respectively, under stock purchase agreements
which generated $18.5 million.
Upon the closing of the Offering, all 20,000,000 shares of the
Preferred Stock outstanding at the time of the Offering were converted into an
aggregate of 31,000,000 shares of common stock. In addition, unpaid accumulated
dividends on the Preferred Stock of $1.5 million were paid by the issuance of
115,887 shares of common stock. Prior to the conversion of the Preferred Stock,
the Company had charged accumulated deficit to increase the carrying value of
the shares of each series of Preferred Stock to its estimated redemption value
at the time of the Offering of $13 per share. During the nine-month period ended
September 30, 1999, the Company recorded $229.1 million, and during the three
month period ended September 30, 1998 and the period April 3, 1998 (Inception)
through September 30, 1998 ("Inception Period"), the Company recorded $7.5
million related to this charge. In addition, the Company accrued dividends on
the Preferred Stock of $85,000 for the three-month period ended September 30,
1998, $1.1 million for the nine-month period ended September 30, 1999, and
$109,000 for the Inception Period. There was no expense of this nature during
the three-months ended September 30, 1999.
Distribution to Stockholders of Darwin Networks, Inc.
In March 1999, the Company transferred to Darwin Networks, Inc., a
newly created Delaware corporation, all of the assets used in the Company's
digital subscriber line service, which had a net book value of approximately
$330,000, in exchange for 100% of the outstanding Darwin common stock. These
assets consisted primarily of computer equipment and furniture and fixtures. In
March 1999, the Company distributed all of the outstanding Darwin common stock
to the Company's common and preferred stockholders. This distribution has been
recorded as a net reduction of stockholders equity in the accompanying condensed
consolidated financial statements. In connection with the asset transfer, the
Company entered into a services agreement with Darwin pursuant to which it
provided various financial, accounting and other professional staff services to
Darwin and will be compensated for its costs at fair market value. The Company
loaned Darwin $500,000 under a note payable which has subsequently been
collected. In connection with this note, Darwin issued to the Company a warrant
to purchase 1,000,000 shares of Darwin common stock at an exercise price of
$5.00 per share, which the Company has valued at $7,000. Subsequently, Darwin
executed a stock split under which the warrant split to 5,000,000 shares at
$1.00 per share. Expenses related to the Darwin service line approximated
$175,000 in 1998 and $302,000 for the three months ended March 31, 1999. No
revenue was realized in 1998 or 1999 associated with Darwin.
NOTE 3 - NET LOSS PER SHARE
The Company computes net loss per share under the provisions of SFAS
No. 128 "Earnings per Share" (SFAS 128) and SEC Staff Accounting Bulletin No. 98
(SAB 98). Under the provisions of SFAS 128 and SAB 98, basic and diluted net
loss per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of common
stock outstanding during the period. The calculation of diluted net loss per
share excludes potential common shares if the effect is antidilutive.
Basic and diluted net loss available to common stockholders per share
for the three months ended September 30, 1999 and 1998 were $.26 and $1.79 based
on weighted average shares outstanding of 54,141,481 and 6,200,000,
respectively. For the nine months ended September 30, 1999 and the period
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April 3, 1998 (Inception) through September 30, 1998, basic and diluted net loss
available to common stockholders per share was $10.10 and $2.08 based on
weighted average shares outstanding of 26,526,365 and 6,200,000, respectively.
Diluted earnings per share is determined in the same manner as basic
earnings per share except that the number of shares is increased assuming
exercise of dilutive stock options and warrants using the treasury stock method
and assuming conversion of the Company's Preferred Stock. In addition, income or
loss is adjusted for dividends and other transactions relating to preferred
shares for which conversion is assumed. The diluted earnings per share amount
equals basic earnings per share because the Company has a net loss, thus the
impact of the assumed exercise of the stock options and the assumed preferred
stock conversion is antidilutive. Options and issued warrants to purchase
2,578,083 shares of common stock at September 30, 1999 (unaudited), were
excluded from the calculation above because they are antidilutive.
In addition, there is a potential to issue additional warrants pursuant
to the agreements set forth in Note 6. These potential warrants have been
excluded from the calculation above because they are not currently measurable
and would be antidilutive. In the future, the Company also may issue additional
stock or warrants to purchase its common stock in connection with its efforts to
expand the distribution of its services. Stockholders could face additional
dilution from these possible future transactions.
NOTE 4 - COMPREHENSIVE LOSS
The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, issued by the Financial Accounting Standard
Board in June 1997. Comprehensive loss, comprised of net loss applicable to
common stockholders and net unrealized losses on investments totaled $14,792,000
and $268,351,000 for the three and nine months ended September 30, 1999,
respectively. Comprehensive loss equaled net loss applicable to common
stockholders for the three months ended September 30, 1998 and the Inception
Period.
NOTE 5 - INVESTMENTS
The Company invests certain of its excess cash in debt instruments of
the U.S. Government, its agencies, and of high quality corporate issuers. All
highly liquid instruments with an original maturity of three months or less are
considered cash equivalents; those with original maturities greater than three
months are considered short-term investments. The investment policy of the
Company precludes investments in financial instruments with maturities greater
than 12 months. The Company has adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115") and, accordingly, classifies investment securities as
available-for-sale. Unrealized holding losses were $467,000 at September 30,
1999.
NOTE 6 - DISTRIBUTION AGREEMENTS
General
As an inducement to certain cable partners to commit systems to the
Company, the Company issues warrants to purchase its common stock in connection
with network service agreements and other agreements, collectively referred to
as distribution agreements.
The Company values warrants and options to purchase its common stock
using an accepted options pricing model based on the value of the stock when the
warrants and options are earned. The Company recognizes an addition to equity
for the fair value of any warrants issued, and recognizes the
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related expense over the term of the agreement with the cable system to which
the warrants relate, generally four to five years, in accordance with Emerging
Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are
Issued to other than Employees for Acquiring or in Conjunction with Selling,
Goods or Services.
Classic Cable
In July 1999, the Company executed a series of agreements with Classic
Cable, Inc. ("Classic"). The Company issued warrants to purchase up to 600,000
shares of the Company's common stock at a purchase price of $13.00 per share.
The warrants are earned and exercisable generally at the rate of one share of
common stock per home passed in systems committed subject to certain minimum
homes passed criteria. The term "homes passed" refers to the number of homes
that potentially can be served by a cable system. The warrants may be earned by
Classic on or before December 31, 2003. The warrants must be exercised within
three years of the date earned.
As of September 30, 1999, Classic has earned warrants to purchase
76,095 shares of common stock under these agreements. Deferred distribution
agreement costs of $1.9 million were recorded in connection with the warrants
during the three and nine-months ended September 30, 1999. Amortization of
distribution agreement costs of $65,000 was recognized in the statement of
operations for the same period. Additional deferred distribution agreement costs
may be recorded and amortized in future periods should Classic earn the right to
purchase additional shares based on the number of homes passed committed to the
Company.
Cable Management Associates
In July 1999, the Company executed a series of agreements with ETAN
Industries Inc. d/b/a Cable Management Associates ("CMA"). The Company issued
warrants to purchase up to 200,000 shares of the Company's common stock at a
purchase price of $13.00 per share. The warrants are earned and exercisable
generally at the rate of one share of common stock for each home passed in
systems committed to the Company by CMA subject to certain minimum homes passed
criteria. The warrants may be earned by CMA on or before December 31, 2002. The
warrants must be exercised on or before December 31, 2002.
As of September 30, 1999, CMA has earned warrants to purchase 44,911
shares of common stock under these agreements. Deferred distribution agreement
costs of $1.8 million were recorded in conjunction with the warrants during the
three and nine-months ended September 30, 1999. Amortization of distribution
agreement costs of $81,000 was recognized in the statement of operations for the
same periods. Additional deferred distribution agreement costs may be recorded
and amortized in future periods should CMA earn the right to purchase additional
shares based on the number of homes passed committed to the Company.
Vulcan Ventures Incorporated
In November 1998, the Company entered into a series of agreements with
Vulcan, in which the Company issued shares of Preferred Stock to Vulcan and
entered into agreements under which it will provide Internet access services to
customers in certain cable systems controlled by Vulcan.
These agreements included a systems access and investment agreement
with Vulcan and its affiliate Charter Communications ("Charter"), a programming
content agreement with Vulcan, and a related network services agreement with
Charter. Under these agreements, Charter committed to provide the Company
exclusive access to at least 750,000 homes passed. Charter has an equity
incentive to
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provide us additional homes passed, although it is not obligated to do so. Under
the agreements, we agreed to pay Charter 50% of our gross revenues for cable
modem access services, 15% of our gross revenues for dial up access services,
and 50% of our gross revenues for all other optional services. In addition, if
we sell equipment to a subscriber, we agreed to pay Charter 50% of the gross
profit we receive from the sale. If Charter sells equipment to a subscriber,
Charter keeps 100% of the gross revenues from the sale. We also agreed that
Charter's share of gross revenues will not be less than that paid to other cable
operators to whom we provide services. Charter can terminate the agreement,
remove a particular agreement or terminate exclusivity rights, on a
system-by-system basis, if the Company fails to meet performance benchmarks or
otherwise breaches our agreement, including our agreement to provide content
designated by Vulcan. The performance benchmarks include requiring us to achieve
minimum penetration rates, to add equipment or bandwidth capacity when Internet
data traffic on a system reaches set levels, to maintain a designated response
rate at our call center and resolve a designated percentage of all non-cable
plant related trouble calls within specific time frames, and to provide monthly
reports to Charter tracking our compliance with these requirements. Charter can
also terminate this agreement, for any reason, as long as it purchases the
associated cable headend equipment and modems at book value and pays the Company
a termination fee based on the net present value of revenues the Company
otherwise would earn for the remaining term of the agreement from end users
subscribing to the Company's services as of the termination date. During the
term of the agreements, the Company has agreed not to compete with Charter in
any market in which it owns or operates a cable system and will not deploy
Worldgate, Web TV(R) or various other digital TV products in the market areas of
any committed system or in areas in which Charter operates a cable system. The
agreements will continue until the Company ceases to provide services to an end
user residing in a home passed in a committed system.
As an inducement to Vulcan to cause Charter to commit additional
systems to the Company, we granted Vulcan warrants to purchase up to 7,750,000
shares of the Company's common stock at a purchase price of $3.23 per share.
Vulcan subsequently assigned the warrants to Charter. The warrants are
exercisable by Charter at the rate of 1.55 shares of common stock for each home
passed committed to the Company by Charter in excess of 750,000. 3,875,000
warrants may be earned by Charter on or before July 31, 2001 and must be
exercised on or before July 31, 2002 or these warrants will expire. 3,875,000
warrants may be earned by Charter on or before July 31, 2003 and must be
exercised on or before July 31, 2004 or these warrants will expire. The warrants
may be forfeited in certain circumstances, generally if the number of homes
passed in a committed system is reduced.
In May 1999, Charter and the Company entered into a limited service
agreement which reduced the number of warrants issued per home passed in
exchange for a reduction in the revenue share per end user and a more beneficial
cost sharing arrangement for the Company in certain specified cable systems.
Under the terms of this limited service agreement, Charter will earn only 1
warrant per every three homes passed if it commits systems totaling less than 1
million homes passed, and 1 warrant for every 2 homes passed if the systems
total 1 million or more homes passed.
As of September 30, 1999, Charter has earned 77,738 warrants under
these agreements. Deferred distribution agreement costs of $96,000 and $780,000
were recorded in conjunction with these warrants for the three-month and
nine-month periods ended September 30, 1999. Amortization of distribution
agreement costs of $47,200 and $117,000 was recognized in the statement of
operations for the same periods, respectively. Additional deferred distribution
agreement costs may be recorded and amortized in future periods should Charter
earn the right to purchase additional common shares based on the number of homes
passed committed to the Company.
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Microsoft Corp.
Microsoft purchased $10.0 million of the Company's common stock
concurrently with the Offering at the offering price net of the underwriting
discount. At the time of the Offering, the Company also had a non-binding letter
of intent with Microsoft covering a number of potential areas of strategic
relationship.
Pursuant to the non-binding letter of intent and subsequent letter
agreement entered into in June 1999, the Company granted Microsoft warrants to
purchase 387,500 shares of common stock at an exercise price of $16.25 per
share. Under the terms of these agreements, Microsoft has agreed, among other
things, to introduce the benefits of the Company's services to Comcast Corp., a
multiple system cable operator. The warrants also provide Microsoft the right to
purchase one share of common stock for each 10 homes passed over 2,500,000 that
are committed by Comcast Corp. to the Company by May 1, 2002.
The Company recorded charges to earnings of $3.2 million during the
nine months ended September 30, 1999 related to the issuance of these warrants
based on the fair value of the shares at the time of grant. Additional expense
may also be recognized in future periods should Microsoft earn the right to
purchase additional common shares based on the number of homes passed committed
to the Company by Comcast Corp.
Road Runner Agreement
In July 1999, the Company entered into an agreement with ServiceCo LLC,
the entity that provides Road Runner's cable Internet access and content
aggregation services. The agreement establishes general terms and conditions
under which Road Runner may, if it wishes, engage the Company as a subcontractor
to provide all or some of the Company's network integration services to cable
operators who contract with Road Runner to deploy Road Runner-branded Internet
content and access services. The agreement also grants ServiceCo LLC a warrant
to purchase one share of common stock at a price of $5 per share for each home
passed, up to a maximum of 5 million homes, in those systems where ServiceCo LLC
engages the Company to serve as a subcontractor of services.
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
In July 1999, the Company entered into a commitment for a $5.0 million
loan facility. This loan facility is unused as of September 30, 1999. The terms
of the loan facility provide for interest at the rate of the 3-year U.S.
Treasury Note yield plus 9.76%, 36 equal monthly payments and a balloon payment
of 5.0% of the original loan balance in the 37th month and collateral of the
headend, data center and other field equipment of the Company.
In April 1999, the Company entered into a $3.0 million loan facility of
which $2.6 million has been drawn down at September 30, 1999. The terms of the
master loan agreement provide for interest at the rate of the 3-year U.S.
Treasury Note yield plus 9.76%, 36 equal monthly payments and a balloon payment
of 12.5% of the original loan balance in the 37th month and collateral of the
headend, data center and other field equipment of the Company. These terms are
effective on the date of, and applied separately to, each draw down on the total
loan facility.
In May 1999, the Company entered into a $3.0 million capital lease
facility, subsequently increased to $20.0 million, with Cisco Systems to provide
operating equipment. Financing of approximately $6.3 million had been obtained
under this agreement at September 30, 1999. The minimum lease payments for
outstanding obligations at September 30, 1999 are $514,000, $2.5 million,
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$2.5 million and $1.9 million for the periods ended December 31, 1999, 2000,
2001 and 2002, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is not a party to any material legal proceedings. In the
opinion of management, the amount of ultimate liability with respect to any
known actions will not materially affect the financial position, results of
operations or cash flows of the Company.
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivatives and
Hedging Activities (SFAS 133), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. SFAS 133, as amended by SFAS 137, is effective for the
Company's year ending December 31, 2001. As the Company does not currently
engage in or plan to engage in derivatives, or hedging transactions there will
be no impact on the Company's results of operations, financial position or cash
flows upon the adoption of SFAS 133.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions, involve risks
and uncertainties, and actual events or results may differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below under the heading
"Risk Factors" as well as those discussed in other filings with the Securities
and Exchange Commission, including the Company's registration statement on Form
S-1 declared effective on June 3, 1999 and form of final prospectus under Rule
424(e) filed on June 7, 1999.
OVERVIEW
High Speed Access Corp. (hereinafter referred to as the Company, we,
us, or our) is a leading provider of high speed Internet access via cable modem
to residential and commercial end users in exurban areas. In our full turnkey
solution, we generate revenue primarily from the monthly fees we receive from
end users for our cable modem-based Internet access service and for the
traditional dial-up services we offer as part of our end user acquisition
strategy. We report these revenues net of the percentage split we pay to our
cable partners. For promotional purposes, we often provide new end users with 30
days of free Internet access when they subscribe to our services. As a result,
our revenue does not reflect new end users until the end of the promotional
period. We also receive revenues from renting cable modems to end users.
Although we also earn revenues from the one-time fees we charge for the
installation of the cable modem at the end user's home or business, we
frequently waive this fee.
We also offer to our cable partners a partial turnkey solution. In a
partial turnkey solution, we deliver fewer services and incur lower costs than a
full turnkey solution but will also earn a smaller percentage of the
subscription revenue or a fixed fee on a per subscriber basis. Our cable
partners will bill the end user and remit to us our percentage of the revenue or
the fixed fee. During the quarter ended September 30, 1999, we initiated partial
turnkey services in four cable systems. We anticipate that partial turnkey
solutions will become a more significant part of our business mix.
We also provide certain services, primarily engineering services
related to design and installation of data network hardware and software
necessary to offer internet service via cable modems, on a fee for service
basis.
Our revenue from dial up services currently is a significant part of
our total revenue. However, we expect this business mix to shift over time as
our dial-up end users migrate to high speed Internet access and as end users
generally become aware of the benefits of high speed Internet access. Moreover,
although we expect cable modem rentals to be a significant part of our revenue
during the next few years, we expect our cable modem rental income to decline as
cable modems become commercially available at lower costs through retail stores
and as they become standard features of personal computers. However, we will
save the cost of purchasing and installing cable modems for end users. In the
future we expect to earn revenues from the local content we provide and, subject
to our agreement with Vulcan Ventures Incorporated ("Vulcan"), from additional
services such as Internet telephony.
Our expenses consist of the following:
o Operating costs, which consist primarily of salaries for help desk and
network operations center employees; telecommunications expenses,
including charges for Internet backbone and telecommunications
circuitry; allocated cost of facilities; costs of installing cable
modems for our end users; and depreciation and maintenance of
equipment. In one-way cable systems, where the end user transmits data
back to the cable headend via a standard telephone line, we must
support the telephone return path from the local telephone company's
central office to the cable headend. Accordingly, we incur greater
telecommunications costs in a one-way system than we incur in a
two-way system. Consequently, the rate at which our cable partners
upgrade their systems to two-way capability will affect our operating
margins. We expect our operating costs to grow significantly as we
roll out services in new systems. Many of our operating costs are
relatively fixed in the short term. However, as we add new end users
we will be able to spread these costs over a larger revenue base, and,
accordingly, decrease our costs per subscriber and improve our
operating margins.
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o Engineering expenses, which consist primarily of salaries and related
costs for network design and installation of the telecommunications
and data network hardware and software; system testing and project
management expenses; allocated cost of facilities; and depreciation
and maintenance on the equipment used in our engineering processes. We
expect our engineering expenses to grow significantly as we introduce
our services in new markets and expand our network.
o Sales and marketing expenses, which consist primarily of salaries,
commissions and related personnel expenses and costs associated with
the development of sales and marketing materials, database market
analytics, direct mail and telemarketing. We expect that our sales and
marketing expenses will increase significantly as we pursue our growth
strategy.
o General and administrative expenses, which consist primarily of
salaries for our executive, administrative, finance and human resource
personnel; amortization of goodwill; and fees for professional
services. We expect to hire additional support personnel and to incur
other additional expenses associated with being a public company,
including costs of directors' and officers' insurance and increased
legal and accounting fees.
o Non-cash compensation expense from stock options, which equals the
excess of the fair market value of our stock at the time of grant over
the exercise price of the stock options granted to employees and
directors amortized over the vesting period.
o Amortization of distribution agreement costs, which relates to
warrants issued to cable and strategic partners in connection with
network services and other distribution related agreements,
collectively referred to as distribution agreements. We measure the
cost of warrants issued to cable and strategic partners based on the
fair values of the warrants when earned by those partners. Because the
fair value of the warrant is dependent to a large extent on the price
of our common stock, the cost of warrants earned in the future may
vary significantly. Costs of warrants granted in connection with
distribution agreements are amortized over the term of the underlying
agreement. Warrants not directly associated with long-term
distribution agreements are expensed as earned.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED), THE THREE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED),
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND FOR
THE PERIOD APRIL 3, 1998 (INCEPTION) TO SEPTEMBER 30, 1998 (UNAUDITED)
On April 3, 1998, we acquired CATV.net, Inc. and High Speed Access
Network, Inc. in a transaction recorded under the purchase method of accounting.
We had no operations prior to these acquisitions. Accordingly, the following
discussion reflects our results of operations since April 3, 1998.
Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future due to a variety
of factors, many of which are outside our control. In addition, the results of
any quarter do not indicate the results to be expected for a full fiscal year.
As a result of the foregoing factors, our annual or quarterly results of
operations may be below the expectations of public market analysts or investors,
in which case the market price of the common stock could be materially and
adversely affected.
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Revenues. Net revenue consists primarily of net monthly subscription
fees for cable modem based and traditional dial-up Internet services, cable
modem rental income, fees for engineering services provided to cable partners
and installation fees and other up front fees from end users. Total net revenue
for the three months ended September 30, 1999 was $1.1 million, an increase of
$1.0 million over net revenues of $101,000 for the three months ended September
30, 1998. Net revenue for the nine months ended September 30, 1999 was $2.0
million, an increase of $1.8 million over net revenue of $0.2 million for the
period April 3, 1998 (Inception) through September 30, 1998 ("Inception
Period"). For the three months ended September 30, 1999 and 1998, cable modem
based subscription fees contributed approximately 41% and 46% of our net
revenues, traditional dial up service fees contributed 30% and 32%, cable modem
rental fees contributed 19% and 7%, engineering services provided to cable
partners contributed 7% and 0%, and installation and other up front fees from
end users contributed 3% and 15%, respectively. For the nine months ended
September 30, 1999 and the Inception Period, cable modem based subscription fees
contributed approximately 41% and 38% of our net revenue, traditional dial-up
fees contributed approximately 35% and 41%, cable modem rental fees contributed
17% and 6%, engineering services provided to cable partners contributed 4% and
0%, and installation and other up front fees from end users contributed 3% and
15%, respectively.
Costs and Expenses
Operating. Operating costs for the three months ended September 30,
1999 were $7.2 million, an increase of $6.5 million over operating costs of $0.7
million for the three months ended September 30, 1998. Operating costs were
$13.3 million for the nine months ended September 30, 1999, an increase of $12.4
million over $0.9 million for the Inception Period. The increase in operating
costs resulted primarily from an increase in personnel and personnel related
costs for additional staff in our network operations centers, help desk and
field technical support departments, an increase in telecommunications expense
from the rollout of our service to new markets and larger subscriber base and
depreciation of capital equipment from the expansion of our network and the
installation of cable modems for a growing subscriber base.
Engineering. Engineering expenses for the three months ended September
30, 1999 were $2.6 million, an increase of $1.9 million over engineering
expenses of $0.7 million for the three months ended September 30, 1998.
Engineering costs were $6.1 million for the nine months ended September 30,
1999, an increase of $5.0 million over $1.1 million for the Inception Period.
The increase in engineering expenses resulted from personnel and personnel
related costs for additional technical staff to support the installation of
cable headend hardware and software in our cable partners' systems, continued
network design, system testing, and project management as we evaluated new
equipment and possible new product offerings.
Sales and Marketing. Sales and marketing expenses for the three months
ended September 30, 1999 were $5.1 million, an increase of $3.7 million over
sales and marketing expenses of $1.4 million for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, sales and
marketing expenses were $10.8 million, an increase of $8.7 million over $2.1
million for the Inception Period. The increase in sales and marketing expenses
resulted primarily from an increase in personnel and personnel related cost to
expand our residential and commercial end user sales force, new cable partner
sales force and telemarketing sales force, as well as an increase in direct
marketing and advertising expenses.
General and Administrative. General and administrative expenses were
$3.0 million for the three months ended September 30, 1999, an increase of $2.2
million over general and administrative expenses of $0.8 million for the three
months ended September 30, 1998. General and administrative expenses for the
three months ended September 30, 1999 and 1998 also included amortization of
intangible assets of $268,000 and $216,000, respectively. General and
administrative expenses were $6.7 million for the nine months ended September
30, 1999, an increase of $5.4 million over general and administrative expenses
of $1.3 million for the Inception Period, including amortization of intangible
assets of $740,000 and $432,000,
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respectively, related to the acquisitions mentioned above. Amortization of
intangible assets relates primarily to the acquisitions of CATV.net, Inc. and
High Speed Access Network, Inc. The increase in general and administrative
expenses resulted from additional personnel costs as we hired personnel to
implement procedures and controls to support our planned expansion and to
administer finance, legal and human resource functions.
Non-cash Compensation Expense from Stock Options. Non-cash compensation
expense from stock options for the three months and nine months ended September
30, 1999 was $18,000 and $2.7 million, respectively. This expense is principally
related to 227,695 options issued under the 1998 Stock Option Plan that vested
upon execution of the Initial Public Offering ("the Offering"). There was no
expense of this nature during the three months ended September 30, 1998 or the
Inception Period. Non-cash compensation expense represents the excess of the
fair market value of our common stock over the exercise price of the stock
options granted. The remaining amount of deferred compensation expense will be
recognized over the vesting period of the options.
Amortization of Distribution Agreement Costs. Amortization of
distribution agreement costs for the three months ended September 30, 1999 was
$193,000. There were no expenses of this nature during the three months ended
September 30, 1998 or the Inception Period. Amortization of distribution
agreement costs for the nine months ended September 30, 1999 was $3.5 million,
of which $3.2 million related to the issuance of 387,500 warrants issued under
the terms of a non-binding letter of intent and subsequent letter agreement with
Microsoft Corp. ("Microsoft"). The remaining amount reflects the amortization of
the value of 77,738, 76,095, and 44,911 warrants earned by Charter
Communications ("Charter"), Classic Cable Inc. ("Classic") and ETAN Industries
Inc. d/b/a Cable Management Associates ("CMA"), respectively, under distribution
agreements for commitments of homes passed to us. We may incur additional
material non-cash charges related to further issuance of stock warrants to our
cable and strategic partners in the future. The Company will recognize an
addition to equity for the fair value of any warrants issued, and recognize the
related expense over the term of the service agreement with the cable or
strategic partner to which the warrants relate. The amount of any such charges
is not determinable until such warrants are earned. The use of warrants in these
and similar transactions may increase the volatility of our earnings in the
future.
Interest Income. Interest income was $2.8 million for the three months
ended September 30, 1999, compared to interest income of $9,000 for the three
months ended September 30, 1998. Interest income was $3.7 million for the nine
months ended September 30, 1999, compared to interest income of $10,000 for the
Inception Period. The primary reason for the increase in interest income relates
to interest on the net proceeds of our initial public offering ("Offering").
Interest income represents interest earned on cash, cash equivalents and short
term investments.
Interest Expense. Interest expense was $122,000 for the three months
ended September 30, 1999, an increase of $102,000 over interest expense of
$20,000 for the three months ended September 30, 1998. Interest expense was
$216,000 for the nine months ended September 30, 1999, an increase of $191,000
over interest expense of $25,000 for the Inception Period. Interest expense
represents interest payable by the company on long-term debt and capital lease
obligations.
Income Taxes. At September 30, 1999, we had accumulated net operating
loss carryforwards for federal and state tax purposes of approximately $45.7
million, which will expire at various times beginning in 2018. At September 30,
1999, we had a net deferred tax asset of $15.5 million relating principally to
our accumulated net operating losses. Our ability to realize the value of our
deferred tax asset depends on our future earnings, if any, the timing and amount
of which are uncertain. We have recorded a valuation allowance for the entire
net deferred tax asset as a result of those uncertainties. Accordingly, we did
not record any income tax benefit for net losses incurred for the three months
ended September 30, 1999, 1998, the nine months ended September 30, 1999 or the
Inception Period.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had cash and cash equivalents of $62.7
million, and short term investments of $136.4 million, compared with $17.9
million of cash and cash equivalents at December 31, 1998. We had significant
negative cash flows from operating activities for the nine months ended
September 30, 1999. Cash used in operating activities was $27.6 million for the
nine months ended September 30, 1999 caused primarily by a net loss of $37.6
million and an increase in current and non-current assets of $4.2 million,
offset by non-cash expenses of $10.3 million and increases in accounts payable,
accrued expenses and other current liabilities of $3.9 million.
Cash used in investing activities was $153.2 million for the nine
months ended September 30, 1999, the result of short term investments of $231.7
million, offset by sales and maturities of short term investments of $94.9
million, and capital expenditures of $15.9 million. The principal capital
expenditures incurred during this period were for the purchase of headend data
network hardware and software, billing and customer care systems, cable modems
and central network hardware and software, reflecting our expansion into new
markets.
Cash provided by financing activities for the nine months ended
September 30, 1999 was $225.7 million comprised primarily of $179.3 million in
net proceeds from the Offering, $18.5 million in proceeds from the concurrent
offering to Cisco, Com21 and Microsoft, $25.0 million in net proceeds from the
issuance of mandatorily redeemable convertible preferred stock, and $2.6 million
in proceeds from long-term debt.
We expect to experience substantial negative cash flow from operating
activities and negative cash flow from investing activities for at least the
next several years due to continued deployment of our services into new markets
and the enhancement of our network and operations. Our future cash requirements
will depend on a number of factors including:
o The pace of the rollout of our service to our cable partners,
including the impact of substantial capital expenditures and related
operating expenses;
o The rate at which we enter into contracts with cable operators for
additional systems;
o The rate at which end users subscribe to our services;
o Changes in revenue splits with our cable partners;
o Price competition in the Internet and cable industries;
o The mix of services offered by us including whether we provide our
services on a full or partial turnkey basis;
o Capital expenditures and costs related to infrastructure expansion;
o The rate at which our cable partners convert their systems from
one-way to two-way systems;
o End user turnover rates;
o Our ability to protect our systems from telecommunications failures,
power loss and software-related system failures;
o Changes in our operating expenses including, in particular, personnel
expenses;
o The introduction of new products or services by us or our competitors;
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o Our ability to enter into strategic alliances with content providers;
and
o Economic conditions specific to the Internet and cable industries, as
well as general economic and market conditions.
We expect to incur approximately $10.0 million of additional capital
expenditures funded through a combination of capital lease financing and cash
on-hand, for the remainder of 1999 principally related to the installation of
headend data network hardware and software, cable modems, central network
hardware and software, and a billing and customer care system. Actual capital
expenditures will be significantly affected by the rate at which end users
subscribe for our cable modem Internet access services, which requires us to
purchase a cable modem for each new end user, as well as by the pace of the roll
out of our systems, which requires us to purchase headend data network hardware
and software.
Investment Portfolio. Cash equivalents are highly liquid investments
with insignificant interest rate risk and original maturities of 90 days or less
and are stated at amounts that approximate fair value based on quoted market
prices. Cash equivalents consist principally of investments in interest-bearing
Money Market accounts with financial institutions and highly liquid investment
grade debt securities of corporations and the U.S. Government. We include in
cash and cash equivalents all short-term, highly liquid investments that mature
within 90 days of their original issue date.
Short term investments are classified as available-for-sale under Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS No. 115"). Short term investments are
principally comprised of investments in highly liquid debt securities of
corporations and the U.S. Government. The Company recognizes changes in the fair
market value of securities held for short term investment as an equal adjustment
to the carrying value and equity. We do not expect any material loss with
respect to our investment portfolio. In addition, we do not use derivative
financial instruments in our investment portfolio.
We believe our current cash, cash equivalents and short term
investments, together with the proceeds from $8.0 million in loan facilities
entered into during 1999, and a $20.0 million capital lease facility entered
into during the year, as well as additional loan and lease facilities, will be
sufficient to meet our working capital requirements, including operating losses,
and capital expenditure requirements for the next 15 months, assuming we achieve
our business plan. There can be no assurance that we will be able to raise
additional capital, should that become necessary, on terms acceptable to us or
at all. The sale of additional equity or convertible debt securities may result
in additional dilution to our stockholders. If financing is not available at
terms acceptable to us, management has the intent and the ability to reduce
expenditures so as to delay the need for additional financing.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivatives and
Hedging Activities (SFAS 133), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. SFAS 133, as amended by SFAS 137, is effective for our
fiscal year ending December 31, 2001. As we do not currently engage or plan to
engage in derivatives or hedging transactions there will be no impact on our
results of operations, financial position or cash flows upon the adoption of
SFAS 133.
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YEAR 2000 COMPLIANCE
We may realize exposure and risk if the systems upon which we are
dependent to conduct our operations are not Year 2000 compliant. Should any of
our "date dependent" equipment, circuits or software fail as a result, our
services could be severely affected. Our potential areas of exposure include
information technology, including computers and software that we purchase or
licenses from third parties, and non-information technology, such as telephone
systems and other equipment that we acquire and use internally. Other potential
areas of exposure include the systems of business partners upon whom our
services are dependent, including our cable partners and their RF-cable TV
plants, and Internet backbone providers and telephone companies.
We engaged a third party consultant to perform a Year 2000 assessment
study. The planning, inventory, business impact analysis, and contingency
planning portions of our Year 2000 assessment project are complete.
o We have completed the discreet testing of all our internal PC-based
software applications and other local area computer networks, and
identified only minor issues that have been remediated by routine software
& hardware upgrades. Additionally, we expect to commence the integrated
system-wide testing of all our software and hardware applications on
November 15, 1999, and expect to complete this testing by November 30,
1999. To the extent this integrated systems-level testing reveals any
remaining Year 2000 compliance anomalies, we expect to resolve them
primarily through software upgrades or hardware replacement and re-testing
of the affected systems by December 31, 1999.
o We continue to seek verification from our cable affiliates that the cable
plants over which our service operates are Year 2000 compliant. Our major
cable partner, Charter Communications, Inc., has indicated that it expects
to complete its Year 2000 testing and remediation efforts by November 5,
1999. Our other cable partners are in various states of Year 2000 readiness
and planning, but we believe the risk posed to our services by our cable
partners' head end equipment to be slight. To the extent our cable partners
are not presently compliant, we are asking them to provide us with a
description of their plans to become so. We are also assessing the possible
impact on our business and the nature of our electronic interdependencies
with those non-Year 2000 compliant cable affiliates, and expect to take
appropriate remediation action to the extent possible.
o Our efforts to verify that the business operations of the vendors and
suppliers upon which we rely are year 2000 compliant are complete. We have
not terminated any vendor relationships because of Year 2000 compliance
issues, and to date, all of the vendors and suppliers that we consider
vital to our operations have issued letters of Year 2000 compliant status
to us.
o We have completed the preparation of specific contingency plans to deal
with the worst-case scenario that might occur if the technologies we are
dependent upon are not Year 2000 compliant and fail to operate effective.
This includes our plan to add extra staffing to our customer service
centers and data network operating centers on the evening of December 31,
1999 through the morning of January 1, 2000 to address any Year 2000 issues
or failures that may occur.
Although we believe that we can quickly address any difficulties that
may arise, in the event that our Web-hosting servers and network facilities are
not Year 2000 compliant, all or portions of our Internet access services,
including our web sites, could be unavailable to deliver services to our cable
affiliates and customers. Moreover, if our present efforts to address our
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potential Year 2000 compliance issues are not successful, or if our cable
partners, vendors, and other third parties with which we conduct business do not
successfully address these issues, our business and financial results could be
materially and adversely affected. This in turn could expose us to claims and
liabilities of unknown and potentially material proportions.
We have expended approximately $335,000 through September 30, 1999 on
our Year 200 compliance efforts. None of this amount has been capitalized. We
estimate that our total cost to develop and implement our Year 2000 compliance
assessment plan will not exceed $500,000, which will be funded from cash on
hand.
RISK FACTORS
You should carefully consider the following factors and other
information in this Form 10-Q and other filings we make with the Securities and
Exchange Commission before trading in our common stock. If any of the following
risks actually occur, our business and financial results could be materially and
adversely affected. In that case, the trading price of our common stock could
decline and you could lose all or part of your investment.
RISKS RELATED TO OUR OPERATIONS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
Our predecessor companies began offering services to cable operators in
October 1997. We have recognized limited revenues since our inception. In
addition, our senior management team and other employees have worked together at
our company for only a short period of time. Consequently, we have a limited
operating history upon which our business can be evaluated.
WE HAVE NOT BEEN PROFITABLE AND EXPECT FUTURE LOSSES.
Since our founding, we have not been profitable. We have incurred
substantial costs to create and introduce our broadband Internet access
services, to operate these services, and to grow our business. We incurred net
losses of approximately $45.7 million from April 3, 1998 (Inception) through
September 30, 1999. Our limited operating history and our ambitious growth plans
make predicting our operating results, including operating expenses, difficult.
We expect to incur substantial losses and experience substantial
negative cash flows from operations for at least the next several years as we
expand our business. The principal costs of expanding our business will include:
o Substantial direct and indirect selling, marketing and promotional
costs;
o System operational expenses, including the lease of our Internet
backbone, which has a traffic capacity in excess of our current needs;
o Costs incurred in connection with higher staffing levels to meet our
growth;
o The acquisition and installation of the equipment, software and
telecommunications circuits necessary to enable our cable partners to
offer our services; and
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o Costs in connection with acquisitions, divestitures, business
alliances or changing technologies.
If any of these costs or expenses is not accompanied by an increase in
revenues, then our business and financial results could be materially and
adversely affected.
WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS MODEL IS UNPROVEN AND MAY
CHANGE
Our success depends on continued growth in the use of the Internet and
high speed access services. Although Internet usage and popularity have grown
rapidly, we cannot be certain that this growth will continue in its present
form, or at all. Critical issues concerning the increased use of the
Internet--including security, reliability, cost, ease of access and quality of
service--remain unresolved and are likely to affect the development of the
market for our services. Relatively few companies currently offer cable-based
Internet access, and we do not believe any of those has been profitable.
Moreover, many industry analysts believe that Internet access providers will
become increasingly reliant upon revenues from content due to competitive
pressures to provide low cost or even free Internet access.
The success of our business ultimately will depend upon the acceptance
of our services by end users, who in our comprehensive turnkey service will
purchase or rent a cable modem from us and pay both monthly service and
installation fees. We have launched full operations in only 55 cable systems and
we have approximately 9,300 residential cable modem end users. In the quarter
ended September 30, 1999, we initiated partial turnkey services in four systems.
In our partial turnkey solution, we deliver fewer services and incur lower costs
than in a full turnkey solution but will also earn a smaller percentage of the
subscription revenue or a fixed fee on a per subscriber basis. We anticipate
that partial turnkey services will become a more significant part of our
business mix. If partial turnkey services become a larger portion of our
business mix, this will affect our future revenues and profitability per
subscriber.
Although our primary service offering is high bandwidth Internet
access, we currently derive a substantial portion of our revenues from standard
dial-up Internet access, which we offer as a feeder for our high speed
offerings. We cannot predict whether demand for our high speed Internet access
services will develop, particularly at the volume or prices we need to become
profitable. Additionally, we cannot predict whether partial turnkey services
will become an increasingly important part of our business.
OUR ABILITY TO ATTRACT AND RETAIN END USERS DEPENDS ON MANY FACTORS WE CANNOT
CONTROL.
Our ability to increase the number of our end users, and our ability to
retain end users, will depend on a number of factors, many of which are beyond
our control. These factors include:
o Our ability to enter into and retain agreements with cable operators;
o The speed at which we are able to deploy our services, particularly if
we cannot obtain on a timely basis the telecommunications circuitry
necessary to connect our cable headend equipment to our Internet
backbone;
o Our success in marketing our service to new and existing end users;
o Competition, including new entrants advertising free or lower priced
Internet access and/or alternative access technologies;
o Whether our cable partners maintain their cable systems or upgrade
their systems from one-way to two-way service;
o The quality of the customer and technical support we provide; and
o The quality of the content we offer.
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In addition, our service is currently priced at a premium to many other
online services and many end users may not be willing to pay a premium for our
service. Because of these factors, our actual revenues or the rate at which we
will add new end users may differ from past increases, the forecasts of industry
analysts, or a level that meets the expectations of investors.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY BE
BELOW THE EXPECTATIONS OF ANALYSTS AND INVESTORS.
Our revenues and expenses, and in particular our quarterly revenues,
expenses and operating results have varied in the past and may fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. These factors include:
o The pace of the rollout of our service to our cable partners,
including the impact of substantial capital expenditures and related
operating expenses;
o The rate at which we enter into contracts with cable operators for
additional systems;
o The rate at which end users subscribe to our services and the rate at
which these customers are installed and provisioned for service;
o Changes in revenue splits with our cable partners;
o Price competition in the Internet and cable industries;
o The extent to which we provide partial, rather than full turnkey
access;
o Capital expenditures and costs related to infrastructure expansion;
o The rate at which our cable partners convert their systems from
one-way to two-way systems;
o End user turnover rates;
o Our ability to protect our systems from telecommunications failures,
power loss and software-related system failures;
o Changes in our operating expenses including, in particular, personnel
expenses;
o The introduction of new products or services by us or our competitors;
o Our ability to enter into strategic alliances with content providers;
and
o Economic conditions specific to the Internet and cable industries, as
well as general economic and market conditions.
In addition, our operating expenses are based on our expectations of
the future demand for our services and are relatively fixed in the short term.
We may be unable to adjust spending quickly enough to offset any unexpected
demand shortfall. A shortfall in revenues in relation to our expenses could have
a material and adverse effect on our business and financial results.
The quarter-to-quarter comparisons of our results of operations should
not be relied upon as an indication of future performance. It is possible that
in some future periods our results of operations may
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be below the expectations of public market analysts and investors. In that
event, the price of our common stock is likely to fall.
WE MAY NOT BE ABLE TO ESTABLISH OR MAINTAIN ACCEPTABLE RELATIONSHIPS WITH CABLE
OPERATORS.
Our success depends, in part, on our ability to gain access to cable
customers. We gain that access through our agreements with cable operators.
There can be no assurance that we will be able to establish or maintain
relationships with cable operators. Even if we are able to establish and
maintain those relationships, there can be no assurance that we will be able to
do so on terms favorable to us or in the quantities we need to become
profitable. In addition, our failure to form partnerships with a large number of
cable operators as quickly as possible permits other cable-based broadband
service providers to enter into exclusive agreements and effectively exclude us
from the systems covered by those agreements. Furthermore, in order to rapidly
deploy our services within a market, we typically begin installation of our
equipment and related telecommunications circuits prior to the execution of
final documentation. If we are unable to finalize our contractual relationship
with a cable operator, if the exclusive relationship between us and our cable
partners, or between our cable partners and their cable customers, is impaired,
or if we do not become affiliated with a sufficient number of cable operators,
our business and financial results could be materially and adversely affected.
OUR LARGEST CABLE PARTNER CAN TERMINATE ITS CONTRACT WITH US.
Our largest cable partner is Charter Communications. Charter is an
affiliate of Vulcan, which owns 37.2% of our outstanding common stock as of
September 30, 1999. Charter has provided us exclusive access to at least 750,000
homes passed. Charter has equity incentives to provide us additional homes
passed, although it is not obligated to do so. If Charter were to commit more
homes passed to our services, Charter could ask us to deploy many or possibly
even all of those homes passed on a partial turnkey basis. In a partial turnkey
solution, we deliver fewer services and incur lower costs than in full turnkey
solutions, but will also earn a smaller percentage of the subscription revenue.
Under our network service agreement, Charter can also terminate our
exclusivity rights, on a system-by-system basis, if we fail to meet performance
benchmarks or otherwise breach our agreement, including our commitment to
provide content designated by Vulcan. Moreover, Charter can terminate our
agreement, for any reason, as long as it purchases the associated cable headend
equipment and modems at book value and pays us a termination fee based on the
net present value of the revenues we otherwise would earn for the remaining term
of the agreement from those end users subscribing to our services as of the date
of termination. There can be no assurances we will meet the benchmarks related
to our customer penetration rates or that Charter will not decide to terminate
our agreement for any other reason. If Charter were to terminate this agreement,
in whole or for any material system, our business and financial results would be
materially and adversely affected.
OUR AGREEMENTS WITH VULCAN VENTURES COULD CONSTRAIN OUR ABILITY TO GENERATE
REVENUES FROM PROVIDING CONTENT AND FUTURE SERVICES OUR END USERS MAY DEMAND.
Under our programming content agreement with Vulcan, Vulcan has the
right to require us to carry, on an exclusive basis in all cable systems we
serve, content it designates. Vulcan content may include start-up and related
web pages, electronic programming guides, other multimedia information and
telephony services. We will not share in any revenues Vulcan may earn through
the content or telephony services it provides. We must provide all equipment
necessary for the delivery of Vulcan content, although Vulcan will reimburse us
for any costs we incur in excess of $3,000 per cable headend. Vulcan cannot
charge us for any Vulcan content through November 25, 2008; after that date we
will be obligated to pay Vulcan for this content at the lowest fee charged to
any Internet service provider who subscribes to Vulcan content.
Vulcan has the right to prohibit us from providing content or telephony
services that compete with Vulcan content in Vulcan's discretion and can require
us to remove competing content. Many industry analysts believe that Internet
access will become increasingly reliant upon revenues from content
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due to competitive pressures to provide low cost or even free Internet access.
If Vulcan were to require us to remove our content or substitute its telephony
services for any we might provide, we could lose a source of additional revenues
and might not recover all related costs of providing our content or telephony
services. Vulcan's ability to prohibit us from providing content and telephony
services means that Vulcan's interests are not necessarily aligned with those of
our other stockholders.
OUR AGREEMENT WITH ROAD RUNNER MAY NOT BENEFIT US.
Under our agreement with ServiceCo LLC, the entity that provides Road
Runner's cable Internet access and content aggregation services, we will provide
our services as a Road Runner subcontractor to cable operators that we and Road
Runner jointly designate to receive our services. We can offer no assurances
that Road Runner will agree to designate any cable operator systems to receive
our services, and thus our agreement with Road Runner may be of no material
benefit to us. In addition, we may not be able to meet the system deployment
schedule proposed by Road Runner. Moreover, while we expect that only a portion
of the homes under the agreement will be deployed on a partial turnkey basis,
Road Runner could ask us to deploy more partial turnkey homes than we
anticipate. In a partial turnkey solution, we deliver fewer services and incur
lower costs than in a full turnkey solution, but will also earn a smaller
percentage of the subscription revenue. Since the agreement provides that Road
Runner will earn one warrant per home passed in cable systems designated to
receive service regardless of whether we deploy a partial or full turnkey
solution, our stockholders could suffer dilution in exchange for potentially
less profitable homes.
INVESTORS MAY SUFFER SUBSTANTIAL DILUTION FROM OTHER TRANSACTIONS.
As an inducement to cause Charter to commit additional systems to us,
we have granted Charter warrants to purchase up to 7,750,000 shares of our
common stock at an exercise price of $3.23 per share. These warrants become
exercisable at the rate of 1.55 shares for each home passed committed to us by
Charter in excess of 750,000. To the extent that Charter becomes eligible to
exercise all or a significant portion of these warrants, our stockholders will
experience substantial dilution. In addition, we have granted Microsoft a
warrant to purchase 387,500 shares of our common stock at an exercise price of
$16.25, with additional warrants issuable for homes passed above 2,500,000 homes
passed committed to us by Comcast. Our agreement with ServiceCo LLC provides for
granting of warrants to purchase one share of our common stock at a price of $5
per share up to a maximum of 5 million shares. We have issued and may in the
future issue additional stock or warrants to purchase our common stock in
connection with our efforts to expand the distribution of our services.
Stockholders could face additional dilution from these possible future
transactions.
DARWIN, OUR FORMER DIGITAL SUBSCRIBER LINE TECHNOLOGY DIVISION, AND OUR
PRINCIPAL STOCKHOLDERS ARE NOT RESTRICTED FROM PROVIDING COMPETING HIGH SPEED
INTERNET ACCESS SERVICES.
In March 1999, we transferred all of the assets used in our digital
subscriber line technology division to Darwin Networks, Inc., a newly-formed
subsidiary, and distributed all of the Darwin common stock to our current
stockholders. Darwin's digital subscriber line technology is an alternative
method of providing high speed Internet access to end users using the telephone
infrastructure. Although Darwin is at an early stage of its development, if
Darwin were to deploy this technology successfully in future partnerships with
wireline telephone providers in markets where we provide our high speed Internet
access, Darwin could become one of our competitors. Neither Darwin nor our
principal stockholders, including Vulcan, will be restricted from providing
competing high speed digital subscriber line Internet access.
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ONE-WAY CABLE SYSTEMS INCREASE OUR OPERATING COSTS AND MAY NOT PROVIDE THE
QUALITY NECESSARY TO ATTRACT CUSTOMERS.
Although our service can operate in one-way cable systems, where data
can be transmitted at high speeds from the cable headend to the end user, the
end user in a one-way system can only transmit data back to the cable headend
via a standard phone line. Because we must support the telephone return
component of the system, we incur higher operating costs in one-way systems.
Presently only one-third of the systems where we are or will soon operate our
services are two-way systems. Over time, however, we expect most, if not all, of
our cable partners to upgrade and or rebuild their plants to provide increased
bandwidth and two-way capabilities. We believe faster uploads and the
elimination of phone line return costs make our service more valuable and may
lead to higher customer penetration rates, which in turn benefits the cable
operator through higher revenue. However, upgrading a cable system can be
expensive and time-consuming for the cable operator. Moreover, we do not require
our cable partners to make these upgrades and they have no legal obligation to
do so. Consequently, if our cable partners do not upgrade to two-way capability
at the rate we anticipate, our financial results may be negatively affected.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH PLANS.
To manage our anticipated growth, we must continue to implement and
improve our operational, financial and management information systems; hire,
train and retain additional qualified personnel; continue to expand and upgrade
core technologies; and effectively manage our relationships with our end users,
suppliers and other third parties. Our expansion could place a significant
strain on our services and support operations, sales and administrative
personnel, and other resources. In fact, our predecessor companies had
inadequate accounting controls and procedures in place. While we believe that we
generally have adequate controls and procedures in place for our current
operations, our billing software is not adequate to meet our growth plans. We
are in the process of replacing our billing software with an integrated billing
and customer care software system that we believe is capable of meeting our
planned future needs. We could also experience difficulties meeting demand for
our products and services. Additionally, if we are unable to provide training
and support for our products, the implementation process will be longer and
customer satisfaction may be lower. Our growth plan may include acquisitions. If
we acquire a company, we could have difficulty assimilating its operations, or
assimilating and retaining its key personnel. In addition if the demand for our
service exceeds our ability to provide our services on a timely basis, we may
lose customers. There can be no assurance that our systems, procedures or
controls will be adequate to support our operations or that our management will
be capable of exploiting fully the market for our products and services. The
failure to manage our growth effectively could have a material adverse effect on
our business and financial results.
THE MARKET FOR INTERNET SERVICES IS HIGHLY COMPETITIVE.
We face competition from many competitors with significantly greater
financial, sales and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established relationships
with advertisers, content and application providers and/or other strategic
partners than we have. We expect the level of this competition to intensify in
the future. We face competition from other cable modem service providers for
partnerships with cable operators and from providers of other types of data and
Internet services for end users. Due to this intense competition, there may be a
time-limited market opportunity for our cable-based high speed access services.
There can be no assurance that we will be successful in achieving widespread
acceptance of our services before competitors offer services similar to our
current offerings, which might preclude or delay purchasing decisions by
potential customers.
Our competitors in the cable-based Internet access market are those
companies that have developed their own cable-based services and market those
services to cable system operators. Other competitors in the cable-based
Internet access market are those companies seeking to establish
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distribution arrangements with cable system operators in exurban markets and/or
provide one-way system capability. In addition, other cable system operators
have launched their own cable-based Internet services that could limit the
market for our services. Widespread commercial acceptance of any of these
competitors' products could significantly reduce the potential customer base for
our services, which could have a material adverse effect on our business and
financial results.
We also compete with traditional Internet service providers and other
competing broadband technologies including ISDNs, DSLs, wireless and satellite
data services. Moreover, our competitors include long distance inter-exchange
carriers, regional Bell operating companies and other local exchange carriers.
Many of these carriers are offering diversified packages of telecommunications
services, including Internet access, and could bundle these services together,
putting us at a competitive disadvantage. Widespread commercial acceptance of
any of these competing technologies or competitors' products could significantly
reduce the potential customer base for our services, which could have a material
adverse effect on our business and financial results.
OUR ABILITY TO INCREASE THE CAPACITY AND MAINTAIN THE SPEED OF OUR NETWORK IS
UNPROVEN.
We may not be able to increase the transmission capacity of our network
to meet expected end user levels while maintaining superior performance. While
peak downstream data transmission speeds across the cable infrastructure
approach 10 Mbps in each 6 megahertz (Mhz) channel, actual downstream data
transmission speeds are likely to be significantly slower, depending on a
variety of factors, including bandwidth capacity constraints between the cable
headend and the Internet backbone, the type and location of content, Internet
traffic, the number of active end users on a given cable network node, the
number of 6 Mhz channels allocated to us by our cable partner, the capabilities
of the cable modems used and the service quality of the cable operators'
facilities. The actual data delivery speed that an end user realizes also will
depend on the end user's hardware, operating system and software configurations.
There can be no assurance that we will be able to achieve or maintain a speed of
data transmission sufficiently high to enable us to attract and retain our
planned number of end users, especially as the number of the end users grows.
Because end users will share the available capacity on a cable network node, we
may underestimate the capacity we need to provide in order to maintain peak
transmission speeds. A perceived or actual failure to achieve or maintain
sufficiently high speed data transmission could significantly reduce end user
demand for our services or increase costs associated with customer complaints
and have a material adverse effect on our business and financial results.
OUR NETWORK MAY BE VULNERABLE TO SECURITY RISKS.
Despite our implementation of industry-standard security measures, the
cable networks over which we operate may be vulnerable to unauthorized access,
computer viruses and other disruptive problems. Internet and online service
providers in the past have experienced, and in the future may experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users. Because the cable infrastructure is a shared medium, it is
inherently more vulnerable to security risks than dedicated telephony
technologies such as digital subscriber lines. Moreover, we have no control over
the security measures that our cable partners and end users adopt. Unauthorized
access could also potentially jeopardize the security of confidential
information stored in the computer systems maintained by us and our end users.
These events may result in liability to us or harm to our end users. Eliminating
computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to our end users, which could have
a material adverse effect on our business and financial results. In addition,
the threat of these and other security risks may deter potential end users from
purchasing our services, which could have a material adverse effect on our
business and financial results.
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WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
The development of our business may require significant additional
capital in the future to fund our operations, to finance the substantial
investments in equipment and corporate infrastructure needed for our planned
expansion, to enhance and expand the range of services we offer and to respond
to competitive pressures and perceived opportunities, such as investment,
acquisition and international expansion activities. To date, our cash flow from
operations has been insufficient to cover our expenses and capital needs. We
believe our current cash, cash equivalents and short term investments, together
with the proceeds from $8.0 million loan facilities entered into during 1999,
and a $20.0 million capital lease financing facility entered into during 1999,
as well as additional loan and lease financing facilities will be sufficient to
meet our working capital requirements, including operating losses, and capital
expenditure requirements for the next 15 months, assuming we achieve our
business plan. There can be no assurance that additional financing will be
available on terms favorable to us, or at all. Charter can require any lender
with liens on our equipment placed in Charter head ends to deliver to Charter a
non-disturbance agreement as a condition to such financings. We can offer no
assurance that we will be able to obtain secured equipment financing for Charter
systems subject to such a condition or that a potential lender will be able to
negotiate acceptable terms of non-disturbance with Charter. If adequate funds
are not available on acceptable terms, we may be forced to curtail or cease our
operations. Moreover, even if we are able to continue our operations, the
failure to obtain additional financing could have a material and adverse effect
on our business and financial results and we may need to delay the deployment of
our services. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
WE FACE RISKS FROM POTENTIAL YEAR 2000 PROBLEMS.
We engaged a third-party consultant to complete a Year 2000 assessment
study. The third-party consultant identified only minor issues that have been
remediated by routine upgrades, patches and replacements. We are continuing to
seek verification from our cable partners that they are Year 2000 compliant. To
the extent that our cable affiliates fail to provide certification that they are
Year 2000 compliant by November 1999, we will reassess the possible impact on
our business and the nature of our interdependencies at that time, and take
appropriate remediation action to the extent possible. Our inability to correct
a significant Year 2000 problem, if one exists, could result in an interruption
in, or a failure of, certain of our normal business activities and operations.
In addition, a significant Year 2000 problem concerning our high speed access
services could cause our users to consider seeking alternate providers of
Internet access. Any significant Year 2000 problem could require us to incur
significant unanticipated expenses to remedy these problems and could divert
management's time and attention, either of which could have a material adverse
effect on our business, results of operation and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance" for information on our state of readiness,
potential risks and contingency plans regarding the Year 2000 issue.
WE MAY BECOME SUBJECT TO RISKS OF INTERNATIONAL OPERATIONS.
We are currently at the early stages of evaluating international
expansion opportunities. If we expand internationally, we would become subject
to the risks of conducting business internationally, including:
o Foreign currency fluctuations, which could result in reduced revenues
or increased operating expenses;
o Inability to locate qualified local partners and suppliers;
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o The burdens of complying with a variety of foreign laws and trade
standards;
o Tariffs and trade barriers;
o Difficulty in accounts receivable collection;
o Potentially longer payment cycles;
o Foreign taxes;
o Unexpected changes in regulatory requirements including the regulation
of Internet access; and
o Uncertainty regarding liability for information retrieved and
replicated in foreign countries.
If we expand internationally, we will also be subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships. There can be no assurance that the risks
associated with our proposed international operations will not materially and
adversely affect our business and financial results.
RISKS RELATED TO THE MARKET FOR HIGH SPEED INTERNET ACCESS
OUR CABLE PARTNERS COULD SELL THEIR SYSTEMS OR BE ACQUIRED.
In recent years, the cable television industry has undergone
substantial consolidation. If one of our cable partners is acquired by a cable
operator that already has a relationship with one of our competitors or that
does not enter into a contract with us, we could lose the ability to offer our
cable modem access services in the systems formerly served by our cable partner,
which could have a material and adverse effect on our business and financial
results. Many of the cable operators with whom we have contracts operate
multiple systems, thus increasing the risk to us if they are acquired. Moreover,
it is common in the cable industry for operators to swap systems, which could
cause us to lose our contract for a swapped system. Even though many of our
contracts obligate our cable partners to pay us a termination fee if they sell
their system to another operator who does not assume our contract, the potential
termination fee may not be adequate to ensure that the successor operator
assumes our contract, or to compensate us fully for the loss of future business
in that system.
OUR CABLE PARTNERS COULD LOSE THEIR FRANCHISES.
Cable television companies operate under franchises granted by local or
state authorities that are subject to renewal and renegotiation from time to
time. A franchise is generally granted for a fixed term ranging from five to 15
years, although in many cases the franchise is terminable if the franchisee
fails to comply with the material provisions of its franchise agreement. No
assurance can be given that the cable operators that have contracts with us will
be able to retain or renew their franchises. The non-renewal or termination of
any of these franchises would result in the termination of our contract with the
applicable cable operator.
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OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND OUR SERVICES COULD
BECOME OBSOLETE OR FAIL TO GAIN MARKET ACCEPTANCE.
The market for our services is characterized by rapid technological
advances, evolving industry standards, changes in end user requirements and
frequent new service introductions and enhancements. For example, the North
American cable industry has adopted a set of interface specifications, known as
"DOCSIS," for hardware and software to support cable-based data delivery using
cable modems. Our ability to adapt to rapidly changing technology and industry
standards, such as DOCSIS, and to develop and introduce new and enhanced
products and service offerings will be significant factors in maintaining or
improving our competitive position and our prospects for growth. If technologies
or standards applicable to our services become obsolete or fail to gain
widespread consumer acceptance, then our business and financial results will be
materially and adversely affected.
We currently anticipate that we will use a significant portion of our
working capital to acquire headend, cable modem and other related capital
equipment. The technology underlying that equipment is continuing to evolve. It
is possible that the equipment we acquire could become obsolete prior to the
time we would otherwise intend to replace it, which could have a material
adverse effect on our business and financial results.
WE DEPEND ON A DATA TRANSMISSION INFRASTRUCTURE LARGELY MAINTAINED BY THIRD
PARTIES OR SUBJECT TO DISRUPTION BY EVENTS OUTSIDE OUR CONTROL.
Our success will depend upon the capacity, reliability and security of
the infrastructure used to carry data between our end users and the Internet. A
significant portion of that infrastructure is owned by third parties.
Accordingly, we have no control over its quality and maintenance. For example,
we rely on our cable partners to maintain their cable infrastructures. We also
rely on other third parties to provide a connection from the cable
infrastructure to the Internet. Currently, we have transit agreements with
UUNet, a division of MCI WorldCom, and others to support the exchange of traffic
between our data servers, the cable infrastructure and the Internet. Our
operations also depend on our ability to avoid damages from fires, earthquakes,
floods, power losses, telecommunications failures, network software flaws,
transmission cable cuts, Year 2000 problems and similar events. The occurrence
of any of these events could interrupt our services. The failure of the Internet
backbone, our servers, or any other link in the delivery chain, whether from
operational disruption, natural disaster or otherwise, resulting in an
interruption in our operations could have a material adverse effect on our
business and financial results.
WE MAY BE HELD LIABLE FOR DEFAMATORY OR INDECENT CONTENT, AS WELL AS INFORMATION
RETRIEVED OR REPLICATED.
In part, our business involves supplying information and entertainment
to customers over the cable systems of our cable system partners. Accordingly we
face the same types of risks that apply to all businesses that publish or
distribute information, such as potential liability for defamation, libel,
invasion of privacy and similar claims, as well as copyright or trademark
infringement and similar claims. A number of third parties have claimed that
they hold patents covering various forms of online transactions or online
technologies. In addition, our errors and omissions and liability insurance may
not cover potential patent or copyright infringement claims and may not
adequately indemnify us for any liability that may be imposed.
The law relating to the liability of Internet and online service
providers for information carried or disseminated through their networks is
unsettled. There are some federal laws regarding the distribution of obscene or
indecent material over the Internet under which we are subject to potential
liability. These risks are mitigated by two federal laws. One, passed in 1996,
immunizes Internet service providers from liability for defamation and similar
claims for materials the Internet service provider did not create, but merely
distributed. The other, passed in 1998, creates a "safe harbor" from copyright
infringement liability for Internet service providers who comply with its
requirements, which we intend to do. These
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laws apply only in the United States; if we expand our operations to other
countries, our potential liability under the laws of those countries could be
greater.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION.
The part of our business that involves installing and maintaining the
equipment used by cable systems to transmit high-speed data in a
computer-accessible format is not regulated, but cable businesses are. Changes
in cable regulations, as they relate to our service, could negatively affect our
business in several ways. First, cable operators usually classify our service as
a "cable service." If our service is not considered a cable service, some cable
franchising authorities, in most cases usually cities or counties, might claim
that our cable partners need a separate franchise to offer it. This franchise
may not be obtainable on reasonable terms, or at all. In the alternative, even
if the service is treated as cable service, local franchising authorities may
seek to impose "non-discrimination" or "open access" obligations on our cable
partners as a condition of franchise transfer or renewal. Also, even if our
service is not considered a cable service, it might be treated as a
"telecommunications service," which could subject our cable partners, and
possibly us, to federal and state regulation as "telecommunications carriers."
This could negatively affect our business in various ways. For example, if we or
our cable partners were either classified as telecommunications common carriers,
or otherwise subject to common carrier-like access and non-discrimination
requirements in the provision of our Internet over cable service, we or they
could potentially be subject to government-regulated terms, conditions and
prices for Internet connection services, as well as become obligated to make
contributions to the universal service support fund. Subject to our agreement
with Charter, we may also provide Internet telephony services over cable plant,
and this service may be regulated in the future as a common carrier
telecommunications service. Moreover, we or our cable partners might then have
to get a "telecommunications franchise" from some localities, which might not be
available on reasonable terms, or at all. In addition, our contracts with our
cable partners make us the exclusive supplier of high-speed data on the cable
systems where our service is offered. Firms such as America Online and large
telephone companies are seeking to have regulators ban such exclusive
arrangements. If such arrangements are banned, we could face additional
competition from other Internet access providers using the cable system to
connect to their customers, which could have a material adverse effect on our
business and financial results. Finally, any future regulatory decisions that
make DSL technology services easier for competing telephone companies to deploy
over normal telephone lines, and less expensive for customers to buy, could
negatively affect our business.
WE DEPEND ON OUR KEY PERSONNEL AND MAY HAVE DIFFICULTY ATTRACTING AND RETAINING
THE SKILLED EMPLOYEES WE NEED TO EXECUTE OUR GROWTH PLAN.
Our future success depends on the continued service of our key
personnel, especially our President, Chief Operating Officer, Chief Strategy
Officer and Chief Technology Officer. We do not carry key person life insurance
on most of our personnel. Given our early stage and plans for rapid expansion,
the loss of the services of any of our executive officers or the loss of the
services of other key employees could have a material adverse effect on our
business and financial results. Our future success also depends on our ability
to attract, retain and motivate highly skilled employees, particularly
engineering and technical personnel. Competition for employees in our industry
is intense. We may not be able to retain our key employees or attract,
assimilate or retain other highly qualified employees in the future. From time
to time we have experienced, and we expect to continue to experience in the
future, difficulty in hiring and retaining highly skilled employees.
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RISK RELATED TO TRADING IN OUR STOCK
BECAUSE OF OUR RELATIONSHIP WITH VULCAN VENTURES, NEW INVESTORS WILL HAVE LITTLE
INFLUENCE OVER MANAGEMENT DECISIONS.
Vulcan owns 37.4% of our outstanding stock. Vulcan's affiliate, Charter
Communications, also has warrants to purchase up to an additional 7.75 million
shares of our common stock, which become exercisable at the rate of 1.55 shares
per home passed committed to us by Charter, in excess of 750,000. Accordingly,
Vulcan will be able to significantly influence and possibly exercise control
over most matters requiring approval by our stockholders, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control. In addition, conflicts of interest may arise as a consequence
of Vulcan's control relationship with us, including:
o Conflicts between Vulcan, as our controlling stockholder, and our
other stockholders, whose interests may differ with respect to, among
other things, our strategic direction or significant corporate
transactions,
o conflicts related to corporate opportunities that could be pursued by
us, on the one hand, or by Vulcan, on the other hand, or
o conflicts related to existing or new contractual relationships between
us, on the one hand, and Vulcan and its other affiliates, on the other
hand.
In particular, Vulcan is affiliated with Charter, currently our largest cable
partner. Additionally, Vulcan has the exclusive right to provide or designate
the first page our end users see when they log on to our service and, if it
provides that first page, will be entitled to all of the related revenues.
Moreover, Vulcan can prohibit us from providing content that competes with
content it chooses to provide, and can prohibit us from providing telephony
service if it chooses to provide those services.
THE FUTURE SALE OF SHARES MAY HURT OUR MARKET PRICE.
A substantial number of shares of our common stock are available for
resale. If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could fall. These sales also
might make it more difficult for us to sell equity securities in the future at
times and prices that we deem appropriate.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK; OUR STOCK PRICE IS LIKELY
TO BE HIGHLY VOLATILE.
Prior to our initial public offering in June 1999, there was no public
market for our common stock. We cannot predict the extent to which investor
interest in us will lead to the development of an active trading market in our
stock or how liquid that market might become. The stock market has experienced
extreme price and volume fluctuations. In particular, the market prices of the
securities of Internet-related companies have been especially volatile. In the
past, companies that have experienced volatility in the market price of their
stock have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs and a diversion of our management's attention and resources.
WE HAVE ANTI-TAKEOVER PROVISIONS.
Certain provisions of our certificate of incorporation, our bylaws and
Delaware law, in addition to the concentration of ownership in Vulcan, could
make it difficult for a third party to acquire us, even if doing so might be
beneficial to our other stockholders.
28
<PAGE> 32
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
29
<PAGE> 33
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
None.
Item 2 - Changes in Securities and Use of Proceeds.
a. From July 1, 1999 through September 30, 1999, we issued an aggregate
of 30,689 shares to employees upon the exercise of options to purchase our
common stock with exercise prices ranging from $0.65 to $3.23, all of which
were paid in cash. The issuances of these securities were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act.
In August, 1999, we issued an aggregate of 20,150 shares of common
stock to Mr. Marvin Anglin upon exercise of a warrant with an exercise price of
$13.00 per share, which was paid in cash. The warrant was originally issued in
connection with the Company's acquisition of Atlanta Online, Inc. in March,
1999. The issuance of such securities was deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Act as a
transaction by an issuer not involving any public offering. The sale was made
without general solicitation or advertising and the purchaser had access to all
relevant information necessary to evaluate the investment and represented to the
Company that the shares were being acquired for investment.
b. On June 4, 1999, the Company consummated its initial public offering
(the "Offering") of its common stock, par value $.01 per share (the "Common
Stock"). The registration statement relating to this Offering (File No.
333-74667) was declared effective on June 3, 1999.
During the three months ended September 30, 1999, we did not incur any
additional expenses with respect to the Offering.
The proceeds are invested in short-term investments consisting mostly
of debt instruments of the U.S. government, its agencies, and of high quality
corporate issuers as of September 30, 1999.
Item 3 - Defaults upon Senior Securities.
None.
Item 4 - Submission of Matters to a Vote of Security Holders.
None.
Item 5 - Other Information.
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
See attached exhibit index.
(b) Reports on Form 8-K
No such reports were filed during the quarter ended
September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HIGH SPEED ACCESS CORP.
Date By
------------------ --------------------------------
Title President
Date By
------------------ --------------------------------
Title Chief Financial Officer
30
<PAGE> 34
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- ------- -------------
<S> <C>
10.1 Securities Purchase Warrant dated June 3, 1999 between Classic Cable, Inc. and High Speed
Access Corp.
10.2 Securities Purchase Warrant dated June 4, 1999 between ETAN Industries, Inc. and High
Speed Access Corp.
10.3 Cherry Creek Plaza Office Building Lease dated May 18, 1999 between Plaza II, Ltd. and
High Speed Access Corp.
10.4 Deed of Lease dated August 20, 1999 between Realty Associates Fund III, LP and High Speed
Access Corp.
10.5 Sublease dated August 20, 1999 between R Squared Distributing of Colorado and High Speed
Access Corp.
27. Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
THIS WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY
PUBLIC OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), OR THE LAWS OF ANY STATE. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT, THE LAWS OF ANY
APPLICABLE STATE, THE PROVISIONS OF THIS WARRANT, OR THE RECEIPT BY THE
ISSUER OF AN OPINION OF COUNSEL, WHICH SHALL BE REASONABLY SATISFACTORY TO
THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
JUNE 3, 1999
SECURITIES PURCHASE WARRANT
to Subscribe for and Purchase Common Stock
of
HIGH SPEED ACCESS CORP.
Void If Not Exercised During The Exercise Period Described Herein
Warrant No. R-_____
1. Grant of Warrant; Conditional Exercise. THIS CERTIFIES that, for
value received, CLASSIC CABLE, INC., a Delaware corporation, or its permitted
assigns (the "Holder"), is entitled, subject to the terms and conditions
hereinafter set forth, to earn on or prior to December 31, 2003, and purchase
from High Speed Access Corp., a Delaware corporation (hereinafter called the
"Company"), during the Exercise Period, not more than Six Hundred Thousand
(600,000), fully paid, nonassessable shares of Common Stock, $0.01 par value, of
the Company (the "Maximum Number of Warrant Shares") at the price equal to the
Exercise Price (defined below). This Securities Purchase Warrant ("Warrant") is
issued pursuant to the terms and conditions of, and is qualified by and subject
to, Sections 1.14, 2.1 and 5 of a certain Systems Access Agreement (defined
below), which is incorporated herein by reference. This Warrant may not be
exercised unless accompanied by a signed Subscription Form in the form attached
hereto as Exhibit A.
2. Definitions. Unless otherwise defined herein, as used in this
Securities Purchase Warrant, the following terms shall have the meanings
ascribed to them as follows:
(a) "Affiliate" means, with respect to the Holder, any entity or
person controlled, directly or indirectly, by Classic Communications, Inc. (the
"Operator"). As used in the foregoing sentence, "controlled" means (i) with
respect to any entity, the ability to exercise voting power with respect to at
least 50% of the outstanding voting securities of such entity.
1
<PAGE> 2
(b) "Attainment Measures" shall have the meaning given to it in
Section 2.3 of the System Access Agreement.
(c) "Cable System" shall have the meaning given it in Section 1.2 of
the Systems Access Agreement.
(d) "Common Stock" means the shares of common stock of $.01 par
value that the Company is authorized to issue in accordance with its Amended
Certificate of Incorporation, and all securities into which such Common Stock is
exchanged or converted.
(e) "Company" means High Speed Access Corp., a Delaware corporation,
or such successor company as may result from any merger or other business
combination or reorganization of High Speed Access Corp.
(f) "Committed System" shall have the meaning given it in Section
1.3 of the Systems Access Agreement.
(g) "Effective Date" means the earlier of 180 days from the date the
Attainment Measures have been met by Holder or the date of Full HSAC Services
Rollout/Partial HSAC Services (as defined in the System Access Agreement) which
shall cause Warrant Shares to become automatically issuable in accordance with
the provisions hereof and the Systems Access Agreement, and which shall in no
event be later than December 31, 2003.
(h) "Exercise Period" means, with respect to any Warrant Share,
subject to any extension or extensions of the period pursuant to Section 7(c),
the period beginning on the Effective Date of this the applicable Warrant Share
and ending three (3) years from the applicable Warrant Share Effective Date.
(i) "Exercise Price" means Thirteen Dollars ($13.00) per Warrant
Share (adjusted if appropriate pursuant to Sections 6 or 7).
(j) "Holder" means Classic Cable, Inc., a Delaware corporation, or
any other Person to whom this Warrant is transferred in accordance with Section
5 hereof.
(k) "Homes Passed" shall have the meaning given it in Section 1.11
of the Systems Access Agreement.
(l) "Network Services Agreement" means the Network Services
Agreement dated June 3, 1999, between the Company and Classic Cable, Inc.
(m) "Office" means the Company's office at 4100 East Mississippi
Ave., Denver, CO 802221000 W. Ormsby Ave, Suite 210, Louisville, KY 40210,
[John, or such other office as the Company may designate by written notice to
the Holder.
2
<PAGE> 3
(n) "Person" means any person, firm, Company, or other entity.
(o) "Receipt" means a written receipt, deliverable by the Company to
the Holder pursuant to Section 4, (a) acknowledging the Company's receipt of the
Exercise Price and the Holder's timely and proper exercise of this Warrant, and
(b) obligating the Company to issue a Stock Certificate to the Holder within 30
working days after this Warrant's surrender to the Company.
(p) [Left Intentionally Blank]
(q) "Secretary" means John G. Hundley or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Assistant Secretary of the Company.
(r) "Securities Laws" means the Securities Act of 1933, as amended,
or the securities laws of any state, or any similar successor federal or state
statutes and rules and regulations thereunder, all as the same shall be in
effect from time to time.
(s) "Stock Certificate" means an appropriate certificate issued in
the Holder's name representing the Subscribed Shares.
(t) "Subscribed Shares" means, collectively, the number of whole
Warrant Shares that the Holder designates on the Subscription Form as Warrant
Shares that the Holder wishes to purchase upon this Warrant's surrender to the
Company, which shall not exceed 600,000 shares of Common Stock (adjusted, if
appropriate, pursuant to Sections 6).
(u) "Subscription Form" means the subscription form attached as
Exhibit A to this Warrant.
(v) "Systems Access Agreement" means a certain Systems Access
Agreement dated June 3, 1999, between the Company and Classic Cable, Inc.
(w) "Warrant" means this Securities Purchase Warrant.
(x) "Warrant Period" means the period beginning on the date hereof
and ending on the last date of the Exercise Period.
(y) "Warrant Shares" means, collectively, the minimum and maximum
number of shares of Common Stock that this Warrant entitles the Holder to
subscribe for and receive upon the Holder's exercise of this Warrant in
accordance with Section 3, or, as appropriate if the context requires, these
same shares of Common Stock as they may be issued and outstanding in the hands
of the Holder after exercise of this Warrant.
3
<PAGE> 4
3. Exercise of Warrant.
(a) This Warrant entitles the Holder to earn, from time-to-time and
upon the terms and conditions set forth in this Warrant but in no event later
than the Effective Date, and purchase during the Exercise Period, Subscribed
Shares in any amount equal to the number of Homes Passed (but not more than
600,000) in Cable Systems which the Operator has designated as Committed Systems
(on a one (1) Warrant Share per each Home Passed basis or one (1) Warrant Share
per every three (3) Home Passed basis, as the case may be), in accordance with
Section 5.1 of the Systems Access Agreement; provided that:
(1) the number of Subscribed Shares issuable under
this Warrant, to the extent of the Committed Systems designated under
Sections 2.1, and 2.2 and 2.3 of the Systems Access Agreement, will be
cancelled and deemed forfeited by Holder (or its permitted transferee)
in the event any Operator withdraws a Committed Systems under the
Network Agreement for any reason other than pursuant to Section 13 of
the Network Services Agreement, except to the extent Holder or such
Operator replaces the Homes Passed in such withdrawn Committed System
with Homes Passed in another Committed System(s)or additional Committed
Systems on 60-month terms, and provided, that six (6) months following
the date the Attainment Measures have been met by Holder, or six (6)
months following the date Operator withdraws, swaps or sells any
Committed Systems that are not replaced with Committed Systems with an
equal or greater number of homes passed, and again on December 31, 2003
(and at any time thereafter when there are withdrawals, additions or
replacements of Committed Systems), the parties shall effect a
reconciliation of the total number of Homes Passed in the Committed
System under the Systems Access Agreement, and the number of Warrant
Shares. If such reconciliation reveals that the total number of Homes
Passed in a Committed System under the Systems Access Agreement is
different than the total number of all outstanding Warrant Shares
Holder earned related to a Committed System, then the number of Warrant
Shares for that Committed System issuable hereunder will be adjusted
upward or downward, as the case may be. If the number of unexercised
Warrants then held by Holder is insufficient to cover any shortfall,
then Holder (or its permitted transferee) shall return to HSAC a number
of Warrant Shares necessary to meet such shortfall, net of the exercise
price.
(2) at no time may the number of such Subscribed
Shares/Warrant Shares exceed, in the aggregate, the Maximum Number of
Warrant Shares.
(b) To exercise this Warrant an authorized officer of Holder (or its
permitted transferee) shall, during the Exercise Period, on the day the Holder
wishes to exercise this Warrant (the "Exercise Date"):
(1) Complete and certify the Subscription Form by
designating the number of Subscribed Shares to which the Holder (or
such permitted transferee) is entitled to exercise and wishes to
exercise pursuant to such Subscription Form and Section 1 hereof (which
may be less than or equal to the Maximum Number of Warrant Shares);
(2) Surrender this Warrant to the Secretary at the
Company's Office, and
4
<PAGE> 5
(3) Upon the surrender of this Warrant to the
Secretary, deliver to the Secretary at the Company's Office a certified
or cashier's check payable to the Company's order in an amount equal to
(i) the number of Subscribed Shares, times (ii) the Exercise Price.
In the event the Company has completed a Qualified Public Offering, the Holder
may at its option, in lieu of tendering a certified or cashier's check as
provided in subparagraph (3) above, exercise this Warrant by submitting, during
normal business hours, a duly executed exercise notice marked to reflect "Net
Issue Exercise," and specifying the number of shares of Warrant Shares to be
exercised. Upon a Net Issue Exercise, Holder shall be entitled to receive
Warrant Shares equal to the value of this Warrant (or the portion thereof being
exercised by Net Issue Exercise) by surrender of this Warrant to the Company
together with notice of such election, in which event the Company shall issue to
Holder a number of shares of the Company's Common Stock computed as of the date
of surrender of this Warrant to the Company using the following formula:
X = Y x (A-B)
---------
A
Where X = the number of Warrant Shares to be issued to Holder;
Y = the number of Warrant Shares purchasable under this
Warrant (at the date of such calculation).
A = the Current Market Price of one share of the
Company's Common Stock (at the date of such
calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
As used above, "Current Market Price" means, if the Company's Common Stock is
traded on a national securities exchange, the NASDAQ National Market System or
the over-the-counter market, the average of the last reported price over the
five (5) trading days immediately preceding the date of valuation at which the
Common Stock has traded on such national securities exchange, the NASDAQ
National Market System or the average of the bid and asked prices on the
over-the-counter market on the date of valuation.
(c) Notwithstanding any delay in the actual issuance of a Stock
Certificate or Receipt pursuant to Section 4 hereof, the Warrant Shares shall be
deemed issued for all purposes as of the opening of business on the Warrant
Effective Date (as defined in Section 5.1 of the Systems Access
Agreement)Exercise Date subject to the provisions of Section 6.1.3 of the
Systems Access Agreement and the Holder shall for all purposes be deemed to be
the holder of record of the Subscribed Shares to which the Receipt or the Stock
Certificate pertains.
4. Issuance of Certificate for Subscribed Shares. Upon the Holder's
exercise of this Warrant in accordance with Section 3, the Company shall deliver
to the Holder:
5
<PAGE> 6
(a) If the Subscribed Shares constitutes the Maximum Number of
Warrant Shares (and as the Company chooses), either (1) a Stock Certificate, or
(2) a Receipt.
(b) If the Subscribed Shares constitute less than the Maximum Number
of Warrant Shares (and as the Company chooses), either
(1) (i) a Stock Certificate, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Warrant Shares; or
(2) (i) a Receipt, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Warrant Shares.
5. Transfer of Warrant.
(a) This Warrant shall be registered on the books of the Company,
which shall be kept at its Office for that purpose, and shall be transferable in
whole or in part but only on such books, by the Holder (or Holder's duly
authorized representative) in person or by duly authorized attorney
substantially in the form of Exhibit B hereof, and only in compliance with
paragraph (b) below. The Company may issue appropriate stop orders to its
Secretary or transfer agent to prevent a transfer in violation of this Section 5
and Section 7.
(b) The Holder may transfer this Warrant during the Warrant Period
by completing and signing the transfer form (the "Transfer Form") in the form of
transfer form attached as Exhibit B to this Warrant; provided, however, that
without the prior written consent of the Company, this Warrant and all rights
hereunder may be transferred only (i) to an Affiliate, or (ii) in accordance
with the requirements of Section 7 hereof and pursuant to the registration of
this Warrant or the Warrant Shares under the Securities Laws (except as
otherwise limited by any applicable shareholders buy-sell, registration rights,
or voting agreements binding upon the Holder) or subsequent to any applicable
holding period an exemption under Rule 144 or other exemption from such
registration. If at least fifteen (15) working days before the end of the
Exercise Period the Holder completes and signs the Transfer Form and surrenders
this Warrant to the Secretary at the Company's Office, the Company shall, within
ten (10) working days after this Warrant's surrender, issue to the transferee or
transferees identified on the completed Transfer Form one or more new Securities
Purchase Warrants (containing the same terms and conditions as this Warrant)
evidencing the transferee's or transferees' right or rights to subscribe (during
the Exercise Period) for all or part of the Warrant Shares.
6. Adjustments. The Exercise Price and the number of Warrant Shares
purchasable hereunder are subject to adjustment from and after the Effective
Date as follows:
6
<PAGE> 7
(a) Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 6. In no event shall such
reclassification result in a diminishment for Holder's rights and privileges as
a shareholder in the Company.
(b) Split, Subdivision or Combination of Shares. If the Company, at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired, shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, then (i) in the case of a split or subdivision, the Exercise Price
for such securities shall be proportionately decreased and the securities
issuable upon exercise of this Warrant shall be proportionately increased, and
(ii) in the case of a combination, the Exercise Price for such securities shall
be proportionately increased and the securities issuable upon exercise of this
Warrant shall be proportionately decreased.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 6.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
7
<PAGE> 8
(e) No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 6 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holders of this Warrant against impairment.
(f) Fractional Shares. No fractional shares or scrip representing
fractional Common Shares shall be issued upon the exercise hereof. Upon exercise
by any Holder, such Holder shall be entitled to receive the aggregate full
number of Common Shares in which all the Warrant Shares being subscribed for by
such Holder may exercise and in lieu of any fractional share to which such
Holder would otherwise be entitled, an amount equal to such fractional share
multiplied by the then fair market value (as hereafter defined) of Common Shares
shall be paid by the Company in cash to such holder.
(g) Validity of Shares; Reservation of Shares. All Common Shares
which may be issued upon exercise of this Warrant will, upon issuance, be
legally and validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company shall at
all applicable times reserve for issuance the Maximum Number of Shares.
(h) Fair Market Value. For the purposes of this Section 6, if the
Company's Common Shares shall be regularly traded in any market, its "fair
market value" shall be based on (i) if the Common Shares are listed on a
national stock exchange, the closing price on the principal stock exchange where
the Common Shares are listed and traded, or if there is no trading on a given
day, the mean between the closing bid and asked prices on such day on said
exchange, or (ii) if the Common Shares are not so listed, the mean between the
closing bid and asked prices on the over-the-counter market as furnished by a
national quotation service or the principal broker making a market; and in each
case the daily values so obtained shall be averaged over a period of ten (10)
consecutive trading days immediately prior to the date of the determination and
the average so obtained shall be deemed to be the "fair market value" of the
Common Shares hereunder. If the Common Shares are not regularly traded in any
market, its "fair market value" may be currently determined by the Board of
Directors of the Company for the purpose of any transaction hereunder, and such
determination shall be final and binding upon the Holders if it is made in good
faith and with due care.
7. Sale of Warrant or Warrant Shares. Neither this Warrant nor the
Warrant Shares have been registered under the Securities Act of 1933, as
amended, or under the securities laws of any state. Neither this Warrant nor the
Warrant Shares may be sold, transferred, pledged, or hypothecated, in the
absence of (i) an effective registration statement for this Warrant or the
Warrant Shares, as the case may be, under the Act and such registration or
qualification as may be necessary under the securities laws of any state, or
(ii) an opinion of counsel reasonably satisfactory to the Company that such
registration or qualification is not required. The Company shall cause a
Certificate or Certificates evidencing all or any part of the Warrant Shares
prior to any such registration or qualification of Warrant Shares to bear the
following legend:
8
<PAGE> 9
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state (the "Securities Laws"). These securities may not be offered,
sold, transferred, pledged, or hypothecated in the absence of
registration under applicable Securities Laws, or the availability of
an exemption therefrom. This Certificate will not be transferred on the
books of the Company or any transfer agent acting on behalf of the
Company except upon the receipt of an opinion of counsel, satisfactory
to the Company, that the proposed transfer is exempt from the
registration requirements of all applicable Securities Laws, or the
receipt of evidence, satisfactory to the Company, that the proposed
transfer is the subject of an effective registration statement under
all applicable Securities Laws.
8. Replacement of Warrant. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, the Company at its expense
will issue in lieu thereof a new Warrant of like tenor.
9. No Voting Rights. Except as otherwise provided herein, this Warrant
shall not be deemed to confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
10. Investment Covenant. The Holder by its acceptance of this Warrant
covenants that this Warrant is, and the Warrant Shares issued hereunder will be,
acquired for investment purposes, and that the Holder will not distribute this
Warrant or the Warrant Shares in violation of any state or federal law or
regulations.
11. Lock-Up Agreement. The Holder hereby agrees that for a period of
six (6) months after the effective date of the closing of a Qualified Public
Offering of the Company's Common Stock pursuant to a registration statement
filed under the Act, the Holder will not, without the prior written consent of
the Company, offer, pledge, margin, sell, contract to sell, grant any option for
the sale of, enter into any hedging or derivatives transaction involving, or
otherwise dispose of, directly or indirectly, any of the Warrant Shares, or the
Warrant.
12. Piggyback Registration. If the Company at any time or from time to
time proposes to register any shares of its Common Stock for any holder thereof
(a "Secondary Registration") under the Securities Act of 1933, as amended (the
"Act") (except with respect to any registration statement filed on Form S-8 or
Form S-4 or such other similar form then in effect under the Act), it will, at
each such time promptly give written notice to Holder of its intention to do so,
together with the name of the proposed underwriter(s), if any, and, upon
Holder's written request, which must be given within twenty (20) days after
receipt of such notice (which request shall state the number of shares of Common
Stock desired to be registered by Holder), the Company will use its best efforts
to cause to be included in the Secondary Registration such shares of Common
Stock held by Holder pro rata on the basis of the number of shares held by
Holder and other selling stockholders requested to be included in the Secondary
Registration (provided, however, that the Company may at any time withdraw or
cease proceeding with any such Secondary Registration if it shall at the same
time withdraw or cease proceeding with the registration of such other shares of
Common Stock originally proposed by it to be registered). Holder shall pay its
pro rata portion of all registration and selling expenses in connection with the
Secondary Registration, including, without limitation, all registration and
filing fees, printing
9
<PAGE> 10
expenses, listing fees, fees and disbursements of counsel and accountants, fees
of the NASD, transfer taxes, fees of transfer agents and all underwriting
discounts and selling commissions applicable to the sale of the shares. In any
underwritten Secondary Registration, the Holder shall enter into an underwriting
agreement containing reasonable and customary representations, warranties and
indemnities, and will complete and execute all questionnaires, powers of
attorney and other reasonable and customary documents reasonably required under
the terms of such underwriting agreement or otherwise in order to facilitate the
sale of the shares pursuant thereto.
In connection with any Secondary Registration in which Holder is
participating, Holder will furnish to the Company in writing such information
with respect to Holder as the Company or the underwriters reasonably request for
use in connection with any such registration statement or prospectus and shall
indemnify the Company, its directors and officers and each person who controls
the Company (within the meaning of the Act) against any losses, claims, damages,
liabilities and expenses, joint or several (including reimbursement of legal
fees and any amounts paid in settlement), to which the Company or any such other
persons may become subject under any applicable laws arising out of, based upon
or otherwise caused by any untrue or alleged untrue statement of a material fact
or any omission or alleged omission of a material fact required to be stated in
the registration statement , prospectus or preliminary prospectus (or any
amendment thereof or supplement thereto) or necessary to make the statements
therein (in the case of a prospectus or preliminary prospectus, in the light of
the circumstances under which they were made) not misleading, to the extent that
such untrue statement or omission is contained in any information with respect
to Holder so furnished in writing by Holder.
13. Miscellaneous.
(a) This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to the conflict of law
principles thereof.
(b) This Warrant shall bind the Company, its successors and assigns
(including any Successor Company), and shall benefit and bind the Holder, the
Holder's successors and permitted assigns.
(c) The Section headings in this Warrant have been included solely
for ease of reference and shall not be considered in the interpretation or
construction of this Warrant. All references in this Warrant to "Sections" shall
be construed as references to numbered Sections of this Warrant.
(d) Any notice or delivery required or permitted by this Warrant
shall be deemed given or made for all purposes of this Warrant when (1) the
notice is in writing, and (2) the notice or the delivery is delivered by hand or
is mailed by registered mail, return receipt requested, addressed to the
intended recipient at (A) in the Company's case, the Company's Office, or (B) in
the Holder's case,
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<PAGE> 11
the Holder's address as set forth in the Company's records or at such other
address as the Holder may designate by written notice to the Company.
IN WITNESS WHEREOF, this Warrant has been executed as of the 3rd day of
June, 1999.
HIGH SPEED ACCESS CORP. CLASSIC CABLE, INC.
By /s/ High Speed Access Corp. By /s/ Classic Cable, Inc.
-------------------------------- ---------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
Date: Date:
----------------------------- ------------------------------
CLASSIC -HSAC WARRANT 4-15-9907/06/99 8:11 AM
Final HSAC-CLASSIC Warrant 7-6-99
11
<PAGE> 12
Exhibit A
SUBSCRIPTION FORM TO BE EXECUTED
UPON EXERCISE OF THE WARRANT
Date:________________
To HIGH SPEED ACCESS CORP.:
The undersigned, as Holder, hereby subscribes, at the price and upon the other
terms and conditions set forth in this Class A Securities Purchase Warrant of
which this subscription form is a part, for _________ shares of the common
stock, $.01 par value, of High Speed Access Corp.
CLASSIC CABLE, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
----------------------------
----------------------------
12
<PAGE> 13
Exhibit B
TRANSFER FORM
[To be completed and signed only upon transfer of Warrant before exercise.]
For value received, the undersigned hereby transfers this Warrant
entitling the Holder to subscribe for ________________ shares of the common
stock with $.01 par value of High Speed Access Corp. to
____________________________. The undersigned represents, warrants and covenants
that it has this transfer conforms to the requirements of Section 5 of the
Warrant.
Dated _________________, _______.
244:2900-58
----------------------------------
13
<PAGE> 1
EXHIBIT 10.2
[HIGH SPEED ACCESS LOGO]
THIS WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY
PUBLIC OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), OR THE LAWS OF ANY STATE. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT, THE LAWS OF ANY
APPLICABLE STATE, THE PROVISIONS OF THIS WARRANT, OR THE RECEIPT BY THE
ISSUER OF AN OPINION OF COUNSEL, WHICH SHALL BE REASONABLY SATISFACTORY TO
THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
JUNE 4, 1999
SECURITIES PURCHASE WARRANT
to Subscribe for and Purchase Common Stock
of
HIGH SPEED ACCESS CORP.
Void If Not Exercised During The Exercise Period Described Herein
Warrant No. R-005
1. Grant of Warrant; Conditional Exercise. THIS CERTIFIES that, for
value received, ETAN INDUSTRIES INC, A TEXAS CORPORATION, or its permitted
assigns (the "Holder"), is entitled, subject to the terms and conditions
hereinafter set forth, to earn on or prior to December 31, 2000, subscribe for
and purchase from High Speed Access Corp., a Delaware corporation (hereinafter
called the "Company"), at any time on or prior to December 31, 2001, during the
Exercise Period, not more than Two Hundred Thousand (200,000), fully paid,
nonassessable shares of the Company's post-Qualified Public Offering Common
Stock, $0.01 par value, of the Company (i.e., the "Maximum Number of Warrant
Shares") at the price equal to the Exercise Price (defined below). This
Securities Purchase Warrant ("Warrant") is issued pursuant to the terms and
conditions of, and is qualified by and subject to, Sections 1.14, 2.1 and 5 of a
certain Systems Access Agreement (defined below), which is incorporated herein
by reference. This Warrant may not be exercised unless accompanied by a signed
Subscription Form in the form attached hereto as Exhibit A.
2. Definitions. Unless otherwise defined herein, as used in this
Securities Purchase Warrant, the following terms shall have the meanings
ascribed to them as follows:
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<PAGE> 2
(a) "Affiliate" means, with respect to the Holder, any entity or
person controlled, directly or indirectly, by ETAN Industries, Inc. or related
by common ownership. As used in the foregoing sentence, "controlled" means (i)
with respect to any entity, the ability to exercise voting power with respect to
at least 50% of the outstanding voting securities of such entity.
(b) "Cable System" shall have the meaning given it in Section 1.2 of
the Systems Access Agreement.
(c) "Common Stock" means the shares of common stock of $.01 par
value that the Company is authorized to issue in accordance with its Amended
Certificate of Incorporation, and all securities into which such Common Stock is
exchanged or converted.
(d) "Company" means High Speed Access Corp., a Delaware corporation,
or such successor company as may result from any merger or other business
combination or reorganization of High Speed Access Corp.
(e) "Committed System" shall have the meaning given it in Section
1.3 of the Systems Access Agreement.
(f) "Effective Date" means the date on which the Holder satisfies
the Minimum Commitment which shall cause Warrant Shares to become automatically
issuable in accordance with the provisions hereof and the Systems Access
Agreement, and which shall in no event be later than December 31, 2000.
(g) "Exercise Period" means, with respect to any Warrant Share,
subject to any extension or extensions of the period pursuant to Section 7(c),
the period beginning on the Effective Date of this Warrant and ending on
December 31, 2002.
(h) "Exercise Price" means Thirteen Dollars ($13.00) per share
(adjusted if appropriate pursuant to Sections 6 or 7).
(i) "Holder" means ETAN INDUSTRIES, INC., A TEXAS CORPORATION, or
any other Person to whom this Warrant is transferred in accordance with Section
5 hereof.
(j) "Homes Passed" shall have the meaning given it in Section 1.11
of the Systems Access Agreement.
(k) "Network Services Agreement" means the Network Services
Agreement dated June 15, 1999, between the Company and ETAN Industries, Inc.
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<PAGE> 3
(l) "Office" means the Company's office at 1000 W. Ormsby Ave, Suite
210, Louisville, KY 40210, or such other office as the Company may designate by
written notice to the Holder.
(m) "Person" means any person, firm, Company, or other entity.
(n) "Receipt" means a written receipt, deliverable by the Company to
the Holder pursuant to Section 4, (a) acknowledging the Company's receipt of the
Exercise Price and the Holder's timely and proper exercise of this Warrant, and
(b) obligating the Company to issue a Stock Certificate to the Holder within 30
working days after this Warrant's surrender to the Company.
(o) [Left Intentionally Blank]
(p) "Secretary" means John G. Hundley or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Assistant Secretary of the Company.
(q) "Securities Laws" means the Securities Act of 1933, as amended,
or the securities laws of any state, or any similar successor federal or state
statutes and rules and regulations thereunder, all as the same shall be in
effect from time to time.
(r) "Stock Certificate" means an appropriate certificate issued in
the Holder's name representing the Subscribed Shares.
(s) "Subscribed Shares" means, collectively, the number of whole
Warrant Shares that the Holder designates on the Subscription Form as Warrant
Shares that the Holder wishes to purchase upon this Warrant's surrender to the
Company, which shall not exceed 200,000 shares of Common Stock (adjusted, if
appropriate, pursuant to Sections 6).
(t) "Subscription Form" means the subscription form attached as
Exhibit A to this Warrant.
(u) "Systems Access Agreement" means a certain Systems Access
Agreement dated June 15, 1999, between the Company and ETAN Industries, Inc.
(v) "Warrant" means this Securities Purchase Warrant.
(w) "Warrant Period" means the period beginning on the date hereof
and ending on the last date of the Exercise Period.
(x) "Warrant Shares" means, collectively, the minimum and maximum
number of shares of Common Stock that this Warrant entitles the Holder to
subscribe for and receive upon the Holder's exercise of this Warrant in
accordance with Section 3, or, as appropriate if the context
3
<PAGE> 4
requires, these same shares of Common Stock as they may be issued and
outstanding in the hands of the Holder after exercise of this Warrant.
3. Exercise of Warrant.
(a) This Warrant entitles the Holder to earn , from time-to-time and
upon the terms and conditions set forth in this Warrant but in no event later
than the Effective Date, and purchase during the Exercise Period, Subscribed
Shares in any amount equal to the number of Homes Passed (not to exceed 200,000)
in Cable Systems which the Operator has designated as Committed Systems, on a
one (1) Warrant Share per each Home Passed basis, as the case may be), in
accordance with Section 5.1 of the Systems Access Agreement; provided that:
(1) the number of Subscribed Shares issuable under
this Warrant, to the extent of the Committed Systems designated under
Sections 2.1 and 2.2 of the Systems Access Agreement, will be cancelled
and deemed forfeited by Holder (or its permitted transferee) in the
event (i) any Operator withdraws Committed Systems under the Network
Agreement for any reason other than pursuant to Section 13 of the
Network Agreement or, (ii) subject to the clustering requirements of
Section 4.2 of this Agreement, HSAC declines or is unable to deliver
service to the Committed Systems within 180 days of notice by Holder
(provided, that there will be no such forfeiture if HSAC is unable to
Cluster Holder's Sub-4000 Systems on or before September 30, 2001)
except to the extent Holder or such Operator replaces the Homes Passed
in such withdrawn Committed System with the same number of Homes Passed
in another Committed System(s)or additional Committed Systems,
provided, that if at any time prior to December 31, 2001 (i) Holder has
exercised any Warrants hereunder or any Class B Warrants applicable to
Homes Passed in a Committed System, (ii) any Operator withdraws a
Committed System from the Network Agreement for any reason other than
pursuant to Section 13 of the Network Agreement, and (iii) Operators
have not replaced the Homes Passed in such withdrawn Committed System
with at least the number of Homes Passed as of December 31, 2000, the
parties shall effect a reconciliation of the total number of Homes
Passed in all Committed Systems under the Systems Access Agreement, and
the number of Warrant Shares. If such reconciliation reveals that the
total number of Homes Passed in all Committed Systems under the Systems
Access Agreement is different than the total number of all outstanding
Warrant Shares (the "Shortfall"), then the number of Warrant Shares
issuable hereunder will be adjusted upward or downward, and the
Shortfall will be cancelled and deemed forfeited by Holder (or its
permitted transferee), as the case may be. If the number of unexercised
Warrants then held by ETAN is insufficient to cover the Shortfall, then
ETAN (or its permitted transferee) shall return to HSAC a number of
Warrant Shares necessary to meet the Shortfall, and HSAC shall refund
to ETAN the exercise price paid by ETAN for such returned Warrant
Shares.;
(2) the inspection and commissioning procedures set
forth in Section 2.3 of the Network Agreement have been satisfied, and
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<PAGE> 5
(3) at no time may the number of such Subscribed
Shares/Warrant Shares exceed, in the aggregate, the Maximum Number of
Warrant Shares.
(b) To exercise this Warrant an authorized officer of Holder (or its
permitted transferee) shall, during the Exercise Period, on the day the Holder
wishes to exercise this Warrant (the "Exercise Date"):
(1) Complete and certify the Subscription Form by
designating the number of Subscribed Shares to which the Holder (or
such permitted transferee) is entitled to exercise and wishes to
exercise pursuant to such Subscription Form and Section 1 hereof (which
may be less than or equal to the Maximum Number of Warrant Shares);
(2) Surrender this Warrant to the Secretary at the
Company's Office, and
(3) Upon the surrender of this Warrant to the
Secretary, deliver to the Secretary at the Company's Office a certified
or cashier's check payable to the Company's order in an amount equal to
(i) the number of Subscribed Shares, times (ii) the Exercise Price.
In the event the Company has completed a Qualified Public Offering and Holder
has satisfied the Minimum Commitment, the Holder may at its option, in lieu of
tendering a certified or cashier's check as provided in subparagraph (3) above,
exercise this Warrant by submitting, during normal business hours, a duly
executed exercise notice marked to reflect "Net Issue Exercise," and specifying
the number of shares of Warrant Shares to be exercised. Upon a Net Issue
Exercise, Holder shall be entitled to receive Warrant Shares equal to the value
of this Warrant (or the portion thereof being exercised by Net Issue Exercise)
by surrender of this Warrant to the Company together with notice of such
election, in which event the Company shall issue to Holder a number of shares of
the Company's Common Stock computed as of the date of surrender of this Warrant
to the Company using the following formula:
X = Y x (A-B)
---------
A
Where X = the number of Warrant Shares to be issued to Holder;
Y = the number of Warrant Shares purchasable under this
Warrant (at the date of such calculation).
A = the Current Market Price of one share of the
Company's Common Stock (at the date of such
calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
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<PAGE> 6
As used above, "Current Market Price" means, if the Company's Common Stock is
traded on a national securities exchange, the NASDAQ National Market System or
the over-the-counter market, the average of the last reported price over the
five (5) trading days immediately preceding the date of valuation at which the
Common Stock has traded on such national securities exchange, the NASDAQ
National Market System or the average of the bid and asked prices on the
over-the-counter market on the date of valuation.
(c) Notwithstanding any delay in the actual issuance of a Stock
Certificate or Receipt pursuant to Section 4 hereof, the Warrant Shares shall be
deemed issued for all purposes as of the opening of business on the Exercise
Date subject to the provisions of Section 6.1.3 of the Systems Access Agreement,
and the Holder shall for all purposes be deemed to be the holder of record of
the Subscribed Shares to which the Receipt or the Stock Certificate pertains.
4. Issuance of Certificate for Subscribed Shares. Upon the Holder's
exercise of this Warrant in accordance with Section 3, the Company shall deliver
to the Holder:
(a) If the Subscribed Shares constitutes the Maximum Number of
Warrant Shares (and as the Company chooses), either (1) a Stock Certificate, or
(2) a Receipt.
(b) If the Subscribed Shares constitute less than the Maximum Number
of Warrant Shares (and as the Company chooses), either
(1) (i) a Stock Certificate, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Warrant Shares; or
(2) (i) a Receipt, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Warrant Shares.
5. Transfer of Warrant.
(a) This Warrant shall be registered on the books of the Company,
which shall be kept at its Office for that purpose, and shall be transferable in
whole or in part but only on such books, by the Holder (or Holder's duly
authorized representative) in person or by duly authorized attorney
substantially in the form of Exhibit B hereof, and only in compliance with
paragraph (b) below. The Company may issue appropriate stop orders to its
Secretary or transfer agent to prevent a transfer in violation of this Section 5
and Section 7.
(b) The Holder may transfer this Warrant during the Warrant Period
by completing and signing the transfer form (the "Transfer Form") in the form of
transfer form attached as Exhibit B
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<PAGE> 7
to this Warrant; provided, however, that without the prior written consent of
the Company, this Warrant and all rights hereunder may be transferred only (i)
to an Affiliate, or (ii) in accordance with the requirements of Section 7 hereof
and pursuant to the registration of this Warrant or the Warrant Shares under the
Securities Laws (except as otherwise limited by any applicable shareholders
buy-sell, registration rights, or voting agreements binding upon the Holder) or
subsequent to any applicable holding period an exemption under Rule 144 or other
exemption from such registration. If at least fifteen (15) working days before
the end of the Exercise Period the Holder completes and signs the Transfer Form
and surrenders this Warrant to the Secretary at the Company's Office, the
Company shall, within ten (10) working days after this Warrant's surrender,
issue to the transferee or transferees identified on the completed Transfer Form
one or more new Securities Purchase Warrants (containing the same terms and
conditions as this Warrant) evidencing the transferee's or transferees' right or
rights to subscribe (during the Exercise Period) for all or part of the Warrant
Shares.
(c) Piggyback Registration. If the Company at any time or from time
to time proposes to register any shares of its Common Stock for any holder
thereof (a "Secondary Registration") under the Securities Act of 1933, as
amended (the "Act") (except with respect to any registration statement filed on
Form S-8 or Form S-4 or such other similar form then in effect under the Act),
it will, at each such time promptly give written notice to Operator of its
intention to do so, together with the name of the proposed underwriter(s), if
any, and, upon Operator's written request, which must be given within twenty
(20) days after receipt of such notice (which request shall state the number of
shares of Common Stock desired to be registered by Operator), the Company will
use its best efforts to cause to be included in the Secondary Registration such
shares of Common Stock held by Operator pro rata on the basis of the number of
shares held by Operator and other selling stockholders requested to be included
in the Secondary Registration (provided, however, that the Company may at any
time withdraw or cease proceeding with any such Secondary Registration if it
shall at the same time withdraw or cease proceeding with the registration of
such other shares of Common Stock originally proposed by it to be registered).
Operator shall pay its pro rata portion of all registration and selling expenses
in connection with the Secondary Registration, including, without limitation,
all registration and filing fees, printing expenses, listing fees, fees and
disbursements of counsel and accountants, fees of the NASD, transfer taxes, fees
of transfer agents and all underwriting discounts and selling commissions
applicable to the sale of the shares. In any underwritten Secondary
Registration, the Operator shall enter into an underwriting agreement containing
reasonable and customary representations, warranties and indemnities, and will
complete and execute all questionnaires, powers of attorney and other reasonable
and customary documents reasonably required under the terms of such underwriting
agreement or otherwise in order to facilitate the sale of the shares pursuant
thereto.
In connection with any Secondary Registration in which Operator is
participating, Operator will furnish to the Company in writing such information
with respect to Operator as the Company or the underwriters reasonably request
for use in connection with any such registration statement or prospectus and
shall indemnify the Company, its directors and officers and each person who
controls the Company (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses, joint or several (including reimbursement of
legal fees and any amounts paid in settlement),
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<PAGE> 8
to which the Company or any such other persons may become subject under any
applicable laws arising out of, based upon or otherwise caused by any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement ,
prospectus or preliminary prospectus (or any amendment thereof or supplement
thereto) or necessary to make the statements therein (in the case of a
prospectus or preliminary prospectus, in the light of the circumstances under
which they were made) not misleading, to the extent that such untrue statement
or omission is contained in any information with respect to Operator so
furnished in writing by Operator.
6. Adjustments. The Exercise Price and the number of Warrant Shares
purchasable hereunder are subject to adjustment from and after the Effective
Date as follows:
(a) Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 6.
(b) Split, Subdivision or Combination of Shares. If the Company, at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired, shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, then (i) in the case of a split or subdivision, the Exercise Price
for such securities shall be proportionately decreased and the securities
issuable upon exercise of this Warrant shall be proportionately increased, and
(ii) in the case of a combination, the Exercise Price for such securities shall
be proportionately increased and the securities issuable upon exercise of this
Warrant shall be proportionately decreased.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 6.
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<PAGE> 9
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 6 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holders of this Warrant against impairment.
(f) Fractional Shares. No fractional shares or scrip representing
fractional Common Shares shall be issued upon the exercise hereof. Upon exercise
by any Holder, such Holder shall be entitled to receive the aggregate full
number of Common Shares in which all the Warrant Shares being subscribed for by
such Holder may exercise and in lieu of any fractional share to which such
Holder would otherwise be entitled, an amount equal to such fractional share
multiplied by the then fair market value (as hereafter defined) of Common Shares
shall be paid by the Company in cash to such holder.
(g) Validity of Shares. All Common Shares which may be issued upon
exercise of this Warrant will, upon issuance, be legally and validly issued,
fully paid and non-assessable and free from all taxes, liens and charges with
respect to the issue thereof.
(h) Fair Market Value. For the purposes of this Section 6, if the
Company's Common Shares shall be regularly traded in any market, its "fair
market value" shall be based on (i) if the Common Shares are listed on a
national stock exchange, the closing price on the principal stock exchange where
the Common Shares are listed and traded, or if there is no trading on a given
day, the mean between the closing bid and asked prices on such day on said
exchange, or (ii) if the Common Shares are not so listed, the mean between the
closing bid and asked prices on the over-the-counter market as furnished by a
national quotation service or the principal broker making a market; and in each
case the daily values so obtained shall be averaged over a period of ten (10)
consecutive trading days immediately prior to the date of the determination and
the average so obtained shall be deemed to be the "fair market value" of the
Common Shares hereunder. If the Common Shares are not regularly traded in any
market, its "fair market value" may be currently determined by the Board of
Directors of the Company for the purpose of any transaction hereunder, and such
determination shall be final and binding upon the Holders if it is made in good
faith and with due care.
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<PAGE> 10
7. Sale of Warrant or Warrant Shares. Neither this Warrant nor the
Warrant Shares have been registered under the Securities Act of 1933, as
amended, or under the securities laws of any state. Neither this Warrant nor the
Warrant Shares may be sold, transferred, pledged, or hypothecated, in the
absence of (i) an effective registration statement for this Warrant or the
Warrant Shares, as the case may be, under the Act and such registration or
qualification as may be necessary under the securities laws of any state, or
(ii) an opinion of counsel reasonably satisfactory to the Company that such
registration or qualification is not required. The Company shall cause a
Certificate or Certificates evidencing all or any part of the Warrant Shares
prior to any such registration or qualification of Warrant Shares to bear the
following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state (the "Securities Laws"). These securities may not be offered,
sold, transferred, pledged, or hypothecated in the absence of
registration under applicable Securities Laws, or the availability of
an exemption therefrom. This Certificate will not be transferred on the
books of the Company or any transfer agent acting on behalf of the
Company except upon the receipt of an opinion of counsel, satisfactory
to the Company, that the proposed transfer is exempt from the
registration requirements of all applicable Securities Laws, or the
receipt of evidence, satisfactory to the Company, that the proposed
transfer is the subject of an effective registration statement under
all applicable Securities Laws.
8. Replacement of Warrant. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, the Company at its expense
will issue in lieu thereof a new Warrant of like tenor.
9. No Voting Rights. Except as otherwise provided herein, this Warrant
shall not be deemed to confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
10. Investment Covenant. The Holder by its acceptance of this Warrant
covenants that this Warrant is, and the Warrant Shares issued hereunder will be,
acquired for investment purposes, and that the Holder will not distribute this
Warrant or the Warrant Shares in violation of any state or federal law or
regulations. Holder will also upon execution hereof deliver to the Company an
opinion of Holder's counsel in form and substance reasonably satisfactory to
Company which states the the placement of the Warrant to Holder is exempt from
the registration requirements of the Securities Act of 1933, as amended.
11. Lock-Up Agreement. The Holder hereby agrees that for a period of
six (6) months after the effective date of the closing of a Qualified Public
Offering of the Company's Common Stock pursuant to a registration statement
filed under the Act, the Holder will not, without the prior written consent of
the Company, offer, pledge, margin, sell, contract to sell, grant any option for
the sale of, enter into any hedging or derivatives transaction involving, or
otherwise dispose of, directly or indirectly, any of the Warrant Shares, or the
Warrant.
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<PAGE> 11
12. Miscellaneous.
(a) This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to the conflict of law
principles thereof.
(b) This Warrant shall bind the Company, its successors and assigns
(including any Successor Company), and shall benefit and bind the Holder, the
Holder's successors and permitted assigns.
(c) The Section headings in this Warrant have been included solely
for ease of reference and shall not be considered in the interpretation or
construction of this Warrant. All references in this Warrant to "Sections" shall
be construed as references to numbered Sections of this Warrant.
(d) Any notice or delivery required or permitted by this Warrant
shall be deemed given or made for all purposes of this Warrant when (1) the
notice is in writing, and (2) the notice or the delivery is delivered by hand or
is mailed by registered mail, return receipt requested, addressed to the
intended recipient at (A) in the Company's case, the Company's Office, or (B) in
the Holder's case, the Holder's address as set forth in the Company's records or
at such other address as the Holder may designate by written notice to the
Company.
IN WITNESS WHEREOF, this Warrant has been executed as of the 4th day of
June, 1999.
HIGH SPEED ACCESS CORP. ETAN INDUSTRIES,INC.
By /s/ High Speed Access Corp. By /s/ ETAN Industries, Inc.
-------------------------------- ---------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
Date: Date:
----------------------------- ------------------------------
11
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Exhibit A
SUBSCRIPTION FORM TO BE EXECUTED
UPON EXERCISE OF THE WARRANT
Date:________________
To HIGH SPEED ACCESS CORP.:
The undersigned, as Holder, hereby subscribes, at the price and upon the other
terms and conditions set forth on in this Securities Purchase Warrant of which
this subscription form is a part, for _________ shares of the common stock, $.01
par value, of High Speed Access Corp.
ETAN INDUSTRIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address:
-----------------------------
-----------------------------
12
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Exhibit B
TRANSFER FORM
[To be completed and signed only upon transfer of Warrant before exercise.]
For value received, the undersigned hereby transfers this Warrant
entitling the Holder to subscribe for ________________ shares of the common
stock with $.01 par value of High Speed Access Corp. to
____________________________. The undersigned represents, warrants and covenants
that it has this transfer conforms to the requirements of Section 5 of the
Warrant.
Dated _________________, _______.
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<PAGE> 1
EXHIBIT 10.3
CHERRY CREEK PLAZA
OFFICE BUILDING LEASE
THIS LEASE, made effective this 18th day of May, 1999 between PLAZA II
LTD., a limited partnership of Denver, Colorado, LANDLORD, and HIGH SPEED ACCESS
CORP., TENANT.
PREMISES
1. DESCRIPTION. Landlord does hereby lease to Tenant and Tenant hereby
rents form Landlord those certain interior premises designated on the Plan
attached hereto as Exhibit A (hereinafter "Premises") and by this reference made
a part hereof, said Premises being situated on the ninth (9th) floor(s) known as
Suite 900, consisting of approximately 13,056 rentable square feet, together
with two lines on the tenant directory, in that certain building known as Cherry
Creek Plaza II (hereinafter "Building"), located at 650 South Cherry Street,
Denver (Arapaho County), Colorado, together with a non-exclusive right, subject
to the provisions hereof to use plazas, common areas, Amenities (as defined
herein) or other areas on the real property legally described on Exhibit B
designated by Landlord for the exclusive or non-exclusive use of tenants of the
Building Complex (the "Common Areas"). The Building is part of that certain
development which is commonly referred to as Cherry Creek Plaza which includes
buildings with the street addresses of 600 South Cherry Street and 650 South
Cherry Street, Denver, Colorado, and a parking structure, all plazas, Common
Areas, other areas and appurtenances thereto (the "Building Complex"). Said
letting and renting is upon and subject to the terms, covenants and conditions
set forth herein and Tenant covenants as a material part of the consideration
for this Lease to keep and perform each and all of said terms, covenants and
conditions by it to be kept and performed and that this Lease is made upon the
condition of such performance.
A. CONDITION OF PREMISES. Tenant accepts the Premises in its condition
and configuration at the time of the commencement of this Lease. Landlord shall
have no obligation to alter nor remodel the Premises unless otherwise
specifically agreed in writing. (See attached Addendum, which shall become an
integral part of this Lease.)
TERM
2. PRIMARY. The primary term of this Lease shall be for fourteen (14)
months, and subject to Paragraph 2.B., shall commence on June 1, 1999 and end on
July 31, 2000 unless sooner terminated pursuant to this Lease.
A. DELAY IN COMMENCEMENT. Tenant agrees that in the event of the
inability of Landlord for any reason to deliver possession of the Premises to
Tenant on the commencement date set forth above, Landlord shall not be liable
for any damages thereby, nor shall such inability affect the validity of this
Lease or the obligations of Tenant hereunder, but in such case Tenant shall not
be obligated to pay rent or other monetary sums until possession of the Premises
is tendered to
<PAGE> 2
Tenant; and such postponement shall be in full settlement of all claims which
Tenant may otherwise have by reason of such delay. If the commencement of the
term is delayed and such commencement date would occur on other than the 1st day
of the month the term as to commence, the commencement date of the primary term
shall be further delayed until the 1st day of the following month and the
expiration of the term shall be extended so that the primary term will continue
for the full period set forth in subparagraph A above. As soon as practicable
after the primary term commences, Landlord and Tenant shall execute an addendum
to this Lease setting forth the exact date on which the primary term commenced
and the expiration date of the primary term.
RENT
3. BASIC MONTHLY RENT. Tenant shall pay to Landlord as Base Rent for the
Premises in advance on the first day of each calendar month of the term of this
Lease without deduction, offset, prior notice or demand, in lawful money of the
United States, the sum of Twenty Thousand Six Hundred Seventy-two Dollars and No
100ths Dollars ($20,672.00). All rent shall be paid at the office of Landlord or
to such other person or to such other place as Landlord may designate in
writing. If payment of rent or other monetary sums due Landlord hereunder is
made later than the tenth (10th) day of the month when due, in addition to the
amounts described in Paragraph 16.F, a one-time administrative late charge of
five percent (5%) of the amount due, or $50.00, whichever is greater, shall be
due and payable by Tenant upon demand. If the commencement date is not the first
day of a month, or if the Lease termination date is not the last day of a month,
a prorated monthly installment shall be paid based upon a rate of 1/30th of the
then current monthly rental per day for the fractional part of the month during
which the Lease commences and/or terminates.
A. RENT DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant shall pay to Landlord the sum of Twenty Two Thousand Six Hundred
Ninety-seven and no 100ths Dollars ($22,697.00) as Base Rent for the month(s) of
June, 1999 including parking rental.
B. ADDITIONAL RENT. In addition to Base Rent, Tenant shall pay to
Landlord Tenant's Proportionate Share (as hereinafter defined) of Operating
Costs (as hereinafter defined) and such other charges as are required by the
terms of this Lease to be paid by Tenant which may be referred to herein as
"Additional Rent." Landlord shall have the same rights as to the Additional Rent
as it has to the payment of Base Rent. All amounts of Base Rent and Additional
Rent under the Lease may be referred to herein as "Rent."
PARKING
4. Tenant and its employees shall have the right to use on an unreserved,
first come, first served basis a total of fifty-four (54) parking spaces of
which twenty-seven (27) are covered spaces and the remainder of which are not
covered, provided in the Building Complex on the terms and conditions contained
herein and in a parking agreement each user of such spaces agrees to execute. If
Tenant shall fail to obtain an agreement from each user of the parking spaces
and deliver it to
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Landlord, Tenant shall assume all obligations set forth in this paragraph and in
such agreement for Landlord's rules and regulations for parking for such user.
Tenant agrees to pay Two Thousand Twenty Five an no 100ths Dollars ($2,205.00)
in advance base monthly rental for said spaces, payable concurrently with the
Base Rent provided above. Landlord shall be entitled to increase or decrease the
charge per parking space from time to time upon not less than one month's
written notice to Tenant of such increase or decrease. If Tenant fails to pay
the parking charges in a timely manner, Landlord, at its election, may cancel
Tenant's right to use the number of spaces for which Tenant has failed to pay
and shall notify Tenant of such cancellation. In addition to other remedies for
Landlord for an Event of Default under the Lease, Tenant shall forfeit its right
to all parking spaces granted hereunder. Landlord will also provide visitor
parking to be used on a first come, first served basis by visitors to the
Building Complex. Tenant, its employees and visitors, agree to obey and abide by
all rules and regulations established, modified and amended from time to time by
Landlord for the safety, protection, cleanliness and preservation of order in
connection with such parking, ingress and egress and other automobile and
pedestrian use of said property. Landlord reserves the right to specifically
assign and reassign from time to time the location of any or all of said parking
spaces among the tenants of the Building Complex in any manner in which Landlord
deems reasonable in Landlord's sole judgment. Landlord, its agent and employees
shall not be responsible to Tenant, its employees or visitors, for any damage,
fire, theft or loss to vehicles or other properties or injuries to persons
occurring in the parking structure parking areas or arising out of the use of
the parking spaces whether caused by theft, collision, moving vehicle, explosion
or any other activity or occurrence or for the non-performance by any other
tenant, visitor or user of said parking facilities of said rules and regulations
or assignment of spaces.
SECURITY DEPOSIT
5. Tenant has deposited with Landlord the sum of Twenty-two Thousand Six
Ninety-seven and No Hundredths Dollars ($22,697.00) as security for the full and
faithful performance of every provision of this Lease to be performed by Tenant.
If Tenant defaults with respect to any provision of this Lease, including but
not limited to the provisions relating to the payment of 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. If any portion of said deposit is so used or applied, Tenant
shall within five (5) days after written demand therefor deposit cash with
Landlord in an amount sufficient to restore the security deposit to its original
amount and Tenant's failure to do so shall be a material breach of this Lease.
Said deposit shall not be considered as liquidated damages and if claims of
Landlord exceed said deposit, Tenant shall remain liable for the balance of such
claims. Landlord shall not be required to keep this security deposit separate
from its general funds and Tenant shall not be entitled to interest on such
deposit. If said deposit has not bee utilized as aforesaid, said deposit, or as
much thereof as has not been utilized for such purposes, shall be refunded to
Tenant or to whomever is the then holder of Tenant's interest in the Lease,
without interest, within sixty (60) days after the termination of the Lease or
surrender and acceptance of the Premises, whichever occurs last. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer said
deposit to Landlord's successor interest whereupon
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<PAGE> 4
Tenant agrees to release Landlord from liability for the return of such depo0sit
or the accounting therefor.
OPERATING COSTS INCREASES
6. PAYMENT. In addition to the monthly Base Rent provided above, during the
term of this Lease and any extensions or renewals hereof, Tenant shall pay to
Landlord as Additional Rent, Tenant's Proportionate Share (as hereinafter
defined) of increases in Operating Costs (as hereinafter defined) in accordance
with the provisions of this Paragraph 6.
A. DEFINITIONS. In addition to the terms herein above defined, the
following terms shall have the following meanings with respect to this Paragraph
of the Lease:
[1] "BASE OPERATING COSTS" shall mean the actual Operating Costs for
the Building for calendar year 1999, excluding the annual reserve described
in subparagraph B(5)(1) below. Tenant acknowledges that Landlord has not
made any representation or given Tenant any assurance that the Operating
Costs will equal or approximate the actual Operating Costs for any calendar
year during the primary term of this Lease or any extension thereof, except
for the calendar year set forth above.
[2] "TENANT'S PROPORTIONATE SHARE" shall mean 8.2420 percent
(8.2420%), which is Tenant's proportionate share of the total Rentable Area
of the Building.
[3] "LANDLORD'S ACCOUNTANTS" shall mean that individual or firm
employed by Landlord from time to time to keep the books and records for
the Building and/or to prepare the federal and state income tax returns for
Landlord with respect to the Building.
[4] "RENTABLE AREA" shall mean the total rentable area of the
Building computed on a full floor rentable area basis, which is 158,408
square feet as of the date hereof.
[5] "OPERATING COSTS" shall mean all operating costs and expenses of
the Building Complex of any kind or nature which are necessary, ordinary or
customarily incurred in connection with the operation and maintenance of
buildings in the metropolitan Denver, Colorado area. Landlord shall
allocate Operating Costs attributable to operation and maintenance of the
Building Complex between and among all of the buildings located in the
Building Complex on an equitable basis which may change from time to time.
Operating Costs shall include but not be limited to:
[a] All real and personal property taxes and assessments levied
against the Building Complex by any governmental or quasi-governmental
authority. The foregoing shall include any taxes or assessments of a
nature not presently in
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<PAGE> 5
effect which shall hereafter be levied on the Building Complex as a
result of the use, ownership or operation of the Building Complex, or
for any other reason, whether in lieu of, or in addition to, any
current real estate taxes and assessments; provided, however, any
taxes which shall be levied on the rentals of the Building shall be
determined as if the Building were Landlord's only property and,
provided further, that in no event shall the term "taxes or
assessments," as used herein, including any net federal or state
income taxes levied or assessed on Landlord, unless such taxes are a
specific substitute for real property taxes. Such term shall, however,
including gross taxes on rentals. All of the foregoing are
collectively referred to herein as the "Taxes." "Assessment" shall
include so-called special assessments, any license tax, levy, charge,
penalty or tax, imposed by any authority having the direct power to
tax, including any city, county, state or federal government or any
school or other improvement or special district thereof, against the
Building or the Building Complex. Expenses incurred by Landlord for
tax consultants in contesting the amount or validity of any such taxes
or assessments shall be included in such computations. Notwithstanding
anything to the contrary contained herein, Tenant shall pay before
delinquency any and all taxes, assessments, license taxes, and other
charges levied, assessed or imposed and which become payable upon
Tenant's operations at, occupancy of, or conduct of business at the
Premises or upon equipment, furniture, appliances, trade fixtures and
other personal property of any kind installed or located at the
Premises.
[b] Costs of supplies, including, but not limited to, the cost
of relamping all standard building tenant lighting as the same may be
required from time to time.
[c] Cost incurred in connection with obtaining and providing
energy to the Building Complex, including, but not limited to, costs
of natural gas, electricity and fuel oils, or any other energy
sources.
[d] Costs of water and sanitary and storm drainage services.
[e] Costs of janitorial and security services, including the
cost of managing and operating a computer which controls building
energy consumption, life safety equipment, fire alarms, and security
access/response, when applicable.
[f] Costs of general maintenance and repairs, including costs
under HVAC and other mechanical maintenance contracts, and repairs and
replacements of equipment used in connection with such maintenance and
repair work.
[g] Costs of maintenance and replacement of landscaping.
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<PAGE> 6
[h] Insurance premiums, including fire and all-risk coverage
(including flood and earthquake coverage), together with loss of rent
endorsement, the part of any claim required to be paid under the
deductible portion of any insurance policy carried by Landlord in
connection with the building Complex or Common Areas or any component
parts thereof, public liability insurance (under primary and umbrella
policies); and any other insurance carried by Landlord on the Building
Complex or Common Area or any component parts thereof (all such
insurance shall be in such amounts and with such deductibles as
Landlord may reasonably determine).
[i] Labor costs, including wages and other payments, costs to
Landlord of workmen's compensation and disability insurance, payroll
taxes, welfare fringe benefits, and all legal fees and other costs or
expenses incurred in resolving any labor dispute.
[j] Professional building management fees (provided that such
fees shall not be in excess of comparable costs for comparable
services in comparable office buildings in the metropolitan Denver,
Colorado area).
[k] Legal, accounting, inspection and other consultation fees
incurred in the ordinary course of operating the Building and in
making the computations required hereunder.
[l] The costs of capital improvements and structural repairs and
replacements made in or to the Building Complex and/or Common Areas in
order to conform to changes subsequent to the date of this Lease in
any applicable laws, ordinances, rules, regulations or orders of any
governmental or quasi-governmental authority having jurisdiction over
the Building and/or Common Areas (herein "Required Capital
Improvements"); the costs of any capital improvements and structural
repairs and replacements designed primarily to reduce Operating Costs
(herein "Cost Savings Improvements"); and a reasonable annual reserve
(not to exceed fifteen cents annually per rentable square foot) for
all other capital improvements and structural repairs and replacements
reasonably necessary to permit Landlord to maintain the Building
Complex. The expenditures for Required Capital Improvements and Cost
Savings Improvements shall be amortized at a market rate return over
the useful life of such capital improvements or structural repair or
replacement (as determined by Landlord's accountants); provided that
the amortized amount of any Cost Savings Improvements shall be limited
in any year to the reduction in Operating Costs as a result thereof.
"Operating Costs" shall not include: (i) costs of work, including painting
and decorating and tenant change work, which Landlord performs for any tenant or
in any tenant's space in the Building Complex other than work of a kind and
scope which Landlord
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<PAGE> 7
would be obligated to furnish to all tenants whose leases contain rental
adjustment and services provision similar to this Lease; (ii) costs of repairs
or other work occasions by fire, windstorm or other insured casualty to the
extent of insurance proceeds received; (iii) leasing commissions, advertising
expenses and other costs incurred in leasing space in the Building; (iv) costs
of repairs or rebuilding necessitated by condemnation; (v) any interest on
borrowed money or debt amortization, except as specifically set forth above; or
(vi) depreciation on the Building Complex.
B. PAYMENTS. Tenant hereby agrees for each calendar year of the term
hereof to pay to Landlord as hereafter provided, Tenant's Proportionate Share of
the amount of the increase in the Operating Costs for the calendar year
completed over the Base Operating Costs. Tenant also agrees to pay to Landlord
monthly at the same time as the Base Rent is paid during each calendar year
following the year in which the primary term commences, an amount equal to 1/12
of Landlord's estimate of Tenant's Proportionate Share of any projected
increases in Operating Costs in excess of the Base Operating Costs, with a final
adjustment to be made between parties at a later date for said calendar year in
accordance with the procedure set forth herein.
[1] As soon as practicable following the end of each calendar year
during the primary term, beginning with the end of the calendar year in
which the primary term commences, Landlord shall submit to Tenant a
statement setting forth: (i) the exact amount of the increase, if any, in
Tenant's Proportionate Share of the increases in Operating Costs for the
calendar year just completed over the Base Operating Costs; and (ii) for
each calendar year following the year during which the primary term
commences, the difference, if any, between Tenant's actual Proportionate
Share of the Operating Costs for the calendar year just completed and the
estimated amount of Tenant's Proportionate Share of the increases in
Operating Costs which was paid for such year. Such statement shall also set
forth the amount of the estimated increases, if any, in Operating Costs
over Base Operating Costs for the new calendar year computed in accordance
with the foregoing provisions and the corresponding increase or decrease in
Tenant's monthly rent for such new calendar year above ro below the
Additional Rent paid by Tenant for the immediately preceding calendar year;
provided, however, in no event will the rental to be paid by Tenant
hereunder be less than the Base Rent for such calendar year.
[2] To the extent that Tenant's Proportionate Share of the actual
increase in Operating Costs for the period covered by such statement are
higher than Tenant's Proportionate Share of the estimated increases which
Tenant previously paid during the calendar year just completed, if any,
Tenant shall pay to Landlord the difference within thirty (30) days
following receipt of said statement from Landlord. If, however, Tenant's
Proportionate Share of the actual increases in Operating Costs for the
period covered by the statement are less than Tenant's Proportionate Share
of the estimated increases which Tenant previously paid during the calendar
year just completed, if any, Landlord shall credit the difference against
the Tenant's estimated payment for such Operating Costs for the current
year. Until Tenant receives such statement, Tenant shall continue to pay
the amount required
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<PAGE> 8
for the prior year, but Tenant shall commence payment to Landlord of the
monthly installments of such estimates on the basis of the statement
beginning on the first day of the month following the month in which Tenant
receives such statement. Moreover, Tenant shall pay to Landlord or deduct
from the rent, as the case may be, the difference, if any, between the
monthly installments of rent, so adjusted, for the new year and the monthly
installments of rent actually paid during the new calendar year.
C. SURVIVAL. Tenant's obligation with respect to payment of its
Proportionate Share of the increase in Operating Costs shall survive the
expiration or early termination of this Lease and Landlord shall have the right
to retain the Security Deposit, or so much thereof as it deems necessary, to
secure such payment attributable to the year in which the Lease terminates. If
the Lease is in effect for less than a full calendar year during the first or
last calendar years of the primary term, Tenant's Proportionate Share for such
partial year shall be calculated by proportionately reducing the Base Operating
Costs to reflect the number of months in such year during which the Lease was in
effect (the "Adjusted Base Operating Costs"). The Adjusted Base Operating Costs
shall then be compared with the actual Operating Costs for said partial year to
determine the amount, if any, of any increases in the actual Operating Costs for
such partial year over the Adjusted Base Operating Costs.
D. TENANT REVIEW. Tenant shall have the right, at any time within
thirty (30) days after a statement of actual Operating Costs for a particular
calendar year has been rendered by Landlord as provided herein, upon written
notice to Landlord, at Tenant's sole cost and expense, to examine Landlord's
books and records during ordinary business hours relating to the determination
of such Operating Costs at the location where such books and records are
maintained. Unless Tenant objects to the rental adjustment herein within said
thirty (30) day period, such statement and adjustment shall be deemed
conclusive. Notwithstanding notice by Tenant pursuant to this paragraph, Tenant
shall continue to pay Landlord the amount of the adjusted monthly installment of
Additional Rent determined by Landlord as provided in this paragraph.
E. SPACE COMPUTATION. Notwithstanding anything contained herein to the
contrary, if any lease entered into by Landlord with any tenant in the Building
is on a so-called "net" basis, or provides for a separate basis of computation
for any Operating Costs with respect to its leased premises, then, to the extent
that Landlord determines that an adjustment should be made in making the
computations herein provided for, Landlord shall be permitted to modify the
computation of Base Operating Costs, Rentable Area, and Operating Costs for a
particular calendar year in order to eliminate or otherwise modify any such
expenses which are paid for in whole or in part by such tenant. Furthermore, in
making any computations contemplated hereby, Landlord shall also be permitted to
make such adjustments and modifications to the provisions of this paragraph 6 as
shall be reasonably necessary to achieve the intention of the parties hereto. In
the event the Rentable Area is not fully occupied during any particular calendar
year, Landlord may adjust those Operating Costs which are affected by the
occupancy rates for the particular calendar year, or portion thereof, as the
case may be, to reflect a full occupancy.
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USE
7. PURPOSE. The Premises are to be used for executive and general office
purposes and for no other purposes without the prior written consent of
Landlord.
A. PROHIBITIONS. Tenant shall not use, or permit said Premises or any
part thereof to be used, for any purpose or purposes other than the purposes for
which the said Premises are hereby leased; and no use shall be made or permitted
to be made of the said Premises, nor acts done, which will increase the existing
rate of insurance upon the building in which said Premises may be located, or
cause a cancellation of any insurance policy covering said Building, or any part
thereof, nor shall Tenant sell, or permit to be kept, used, disposed of or sold,
in or about said Premises, any article or substance which may be prohibited by
Landlord's insurance policies. Tenant shall not keep, store, produce or dispose
of on, in or from the Premises or the Building Complex any substance which may
be deemed a hazardous substance or infectious waste under any Applicable Law, as
defined below. Tenant shall not commit, or suffer to be committed, any waste
upon the said Premises, or any public or private nuisance, or other act or thing
which may disturb the quiet enjoyment of any other tenant in the Building
Complex, nor, without limiting the generality of the foregoing, shall Tenant
allow said Premises to be used for any improper, unlawful or objectionable
purpose, nor shall Tenant use any apparatus, machinery or device in or about the
demised premises which shall make any noise or vibration or which shall in any
way increase the amount of electricity, gas or water to be furnished or supplied
under this Lease.
C. COMPLIANCE WITH LAW. Tenant, at its sole cost, shall comply with all
laws, orders, statutes, ordinances or governmental rules or regulations of
federal, state, county, municipal authorities, quasi-governmental, and utility
providers now in force or which may hereafter be enacted or promulgated (the
"Applicable Laws"), which impose a duty on Landlord or Tenant with respect to
the Premises, or te use or occupation thereof. Notwithstanding the foregoing and
subject to reimbursement as set forth in paragraph 6 above, Landlord will be
responsible for compliance of the Common Ares of the Building Complex with
Applicable Laws, including the Americans With Disabilities Act; provided,
however, Landlord shall have no obligation for compliance if such compliance is
a result of Tenant's use or occupancy of its Premises.
SERVICE AND UTILITIES
8. A. LANDLORD'S OBLIGATIONS. Subject to the provisions below, Landlord
agrees, without charge, in accordance with standards determined by Landlord from
time to time for the Building: (1) to furnish running water at those points of
supply for general use of tenants of the Building; (2) during Ordinary Business
Hours to furnish to interior Common Areas heated or cooled air (as applicable),
electrical current, janitorial services, and maintenance; (3) during Ordinary
Business Hours to furnish heated or cooled air to the Premises for standard
office use, provided the recommendations of Landlord's engineer regarding
occupancy and use of the Premises are complied with by Tenant; (4) to furnish,
subject to availability and capacity of Building systems, unfiltered treated
cooling tower water for use in Tenant's packaged HVAC systems provided that such
systems
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are approved by Landlord and equipped with Landlord-approved strainers, pumping
systems and controls; (5) to provide, during Ordinary Business Hours, the
general use of passenger elevators for ingress and egress to and from the
Premises (at least one such elevator shall be available at all times except in
the case of emergencies or repair); (6) to provide janitorial services for the
Premises to the extent of the Tenant improvements Landlord has completed in the
Premises (including window washing of the inside and outside of exterior
windows); and (7) to cause electric current to be supplied to the Premises for
Tenant's Standard Electrical Usage. Items (1) though (7) may be collectively
called "Services." "Tenant's Standard Electrical Usage" means weekly electrical
consumption in an amount determined by (i) multiplying 3.5 watts/square foot by
60 hours and (ii) multiplying the product thereof by the number of rentable
square feet in the Premises. "Ordinary Business Hours" means 7:00 a.m. to 6:00
p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturdays, Legal
Holidays excepted. "Legal Holidays" are New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
B. TENANT'S ADDITIONAL REQUIREMENTS. "Excess Usage" shall be defined as
any service usage (i) during other than Ordinary Business Hours; or (ii)
electricity in an amount in excess of Tenant's Standard Electrical Usage or
water in the Premises; (iii) for Special Equipment (as defined herein); or (iv)
for heat and air conditioning service, during other than Ordinary Business
Hours. "Special Equipment," as used herein, shall mean (a) any equipment
consuming more than 0.5 kilowatts at rated capacity; (b) any equipment requiring
a voltage other than 110 volts, single phase; or (c) equipment that requires use
of self-contained HVAC units. Tenant shall reimburse Landlord for reasonable
costs incurred by Landlord in providing services for Excess Usage. Such
reasonable costs will include Landlord's costs for materials, reasonable wear
and tear on equipment, utilities and labor (including fringe and overhead
costs). Computation of Landlord's costs for providing such services will be made
by Landlord's engineer, based on an engineering survey of Tenant's Excess Usage.
Tenant shall also reimburse Landlord for all costs of supplementing heating,
ventilating and air conditioning system and/or extending or supplementing any
electrical service, as Landlord may determine is necessary, as a result of
Tenant's Excess Usage. Prior to installation or use by Tenant of Special
Equipment or operation of the Premises for extended hours on an ongoing basis,
Tenant shall notify Landlord of such intended installation or use and obtain
Landlord's consent. Tenant may request that Landlord, at Tenant's sole costs and
expense, install a check meter and/or full meter to assist in determining the
cost to Landlord of Tenant's Excess Usage. If Tenant desires electric current
and/or heated or cooled air to the Premises during periods other than Ordinary
Business Hours, Landlord shall use reasonable efforts to supply the same, but at
the expense of Tenant, at Landlord's standard rate as established by it, from
time to time, for such services. If Tenant should require water in excess of
that usually furnished or supplied for use of the Premises as general office
space, Tenant shall first procure the consent of Landlord for the installation
and use thereof and shall bear all costs retained to such Excess Usage,
including but not limited to the cost of supplies and the cost of such meters
and installation, maintenance and repair thereof, and an accounting therefor, as
reasonably determined by Landlord.
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C. TENANT'S OBLIGATION. Tenant shall pay for, prior to delinquency, all
telephone and all other materials and services, not expressly required to be
provided by Landlord, which may be furnished to or used in, on or about the
Premises during the term of this Lease.
D. NON-LIABILITY. Landlord shall not be liable for, and Tenant shall
not be entitled to, any abatement or reduction of rent by reason of Landlord's
failure to furnish any of the foregoing services when such failure is caused by
accidents, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, or any other cause similar or dissimilar,
beyond the reasonable control of Landlord. Landlord shall not be liable under
any circumstances for loss of or injury to property, however occurring, through
or in connection with incidental to failure to furnish any of the foregoing
services.
MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
9. A. MAINTENANCE AND REPAIRS.
(1) LANDLORD'S OBLIGATIONS. Landlord shall (i) make repairs to HVAC,
mechanical, life safety and electrical systems in the Premises (to the extent
such systems are Building standard) as are deemed necessary by Landlord for
normal maintenance operations of the Building Complex; and (ii) provide upkeep,
maintenance, and repairs to all Common Areas. Except as provided in this
subparagraph or otherwise expressly required in this Lease, Landlord is not
required to make improvements or repairs to the Premises during the Term.
(2) TENANT'S OBLIGATIONS.
(a) Tenant at Tenant's sole cost and expense, except for Services
furnished by Landlord pursuant to Paragraph 8 hereof, shall maintain the
Premises in good order, condition and repair, reasonable wear and tear excepted.
(b) Tenant agrees to repair any damage to the Premises or the
Building and to replace any items which in Landlord's opinion cannot be
satisfactorily repaired caused by any act or neglect of Tenant, its employees
and agents, the failure of Tenant to observe any provision of this Lease, or the
removal from the Building of any property belonging to Tenant. This includes,
without limitation, repairing or replacing the carpet, draperies and other wall
and floor coverings where unreasonable wear or damage has occurred. All such
repairs and replacements shall be done at Tenant's sole cost and subject to the
provisions of Paragraph 9.B.
(c) In the event Tenant fails to maintain the Premises in good
order, condition and repair as provided in this Lease, Landlord shall give
Tenant notice to such acts as are reasonably required to so maintain the
Premises. In the event Tenant fails to promptly commence such work and
diligently prosecute it to completion, then Landlord shall have the right to do
such acts and expend such funds at the expense of Tenant as are reasonably
required to perform such work. Any amount so expended by Landlord shall be paid
by Tenant promptly after demand
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with interest at twelve percent (12%) per annum from the date of such work.
Landlord shall have no liability to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant as a result of performing
any such work.
(d) Upon expiration or earlier termination of this Lease, Tenant
shall surrender the Premises (including the carpet and draperies) in the same
condition as received, reasonable wear and tear and damage by fire, earthquake,
act of God or the elements alone excepted, and shall promptly remove or cause to
be remove at Tenant's expense from the Premises and the Building all property
belonging to Tenant. Tenant shall indemnify the Landlord against any loss or
liability resulting from delay by Tenant in surrendering the Premises,
including, without limitation, any loss of rent suffered by Landlord by reason
of such delay. In the event Tenant fails to remove its property, all such items
not so removed shall conclusively be deemed to have been abandoned and may be
appropriated, sold, stored, destroyed or otherwise disposed of by Landlord
without notice to Tenant or any other person and without obligation to account
thereof. Tenant shall pay Landlord all expenses incurred in connection with such
property. Tenant shall pay Landlord the cost of removal and/or repairing any
damage to the Building or the Premises caused by removal of such property.
Tenant's obligation hereunder shall survive the expiration or other termination
of this Lease.
B. ALTERATIONS AND ADDITIONS.
(1) Tenant shall make no repairs, alterations, additions or
improvements to the Premises or any part thereof without obtaining the prior
approval of Landlord.
(2) Landlord may impose as a condition to the aforesaid consent such
requirements as Landlord may deem necessary in its sole discretion, including
without limitation thereto, the manner in which the work is done, a right of
approval of the contractor by whom the work is to be performed, the times during
which it is to be accomplished, and the requirement that upon written request of
Landlord prior to the expiration or earlier termination of the Lease, Tenant
will remove any and all permanent improvements or additions to the Premises
installed at Tenant's expense and all movable partitions, counters, personal
property, equipment, fixtures and furniture. If any work done on behalf of
Tenant is performed by Landlord or the Building manager, Tenant shall pay to
Landlord, upon receipt of billing therefor, the costs for supervision and
control of such persons as Landlord may determine to be necessary and
reasonable.
(3) All such repairs, alterations, additions or improvements hall at
the expiration or earlier termination of the Lease become the property of
Landlord and remain upon and surrendered with the with the Premises, unless
specified pursuant to Paragraph (2) above.
ENTRY BY LANDLORD
10. Landlord and its agents shall have the right to enter the Premises
at all reasonable times for the purpose of examining or inspecting the same, to
supply janitorial services
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and any other service to be provided by Landlord or Tenant hereunder, to show
the same to prospective purchasers or tenants of the Building, and make such
alterations, repairs, improvements or additions to the Premises or the Building
as Landlord may deem necessary or desirable. Any such reentry shall not
constitute an eviction or entitle Tenant to abatement of Rent. Furthermore,
Landlord shall at all times have the right at Landlord's election to make such
alterations or changes in portions of the Building Complex as Landlord may from
time to time deem necessary and desirable as long as such alterations and
changes do not unreasonably interfere with Tenant's use and occupancy of the
Premises. Landlord, during the term of this Lease, shall have the right, upon
ninety (90) days' prior written notice to Tenant, to change the name, number or
designation of the Building in which the Premises are located without liability
to Tenant. Tenant shall not without the prior consent of Landlord change the
locks or install additional locks on any entry door or doors to or within the
Premises.
LIENS
11. Tenant shall keep the Premises and the Building fee from any liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant and does hereby agree to indemnify, hold harmless and defend Landlord
from any liens, costs, attorney's fees and encumbrances arising out of any work
performed or materials furnished by or at the direction of Tenant. If any lien
is recorded against the Premises, Landlord may pay such amount and any costs ad
the amount paid, together with reasonable attorney's fees incurred, shall be
immediately due Landlord upon notice. Tenant shall give to Landlord at least ten
(10) days' prior written notice of the expected date of commencement of any work
relating to alterations or additions to the Premises.
DAMAGE TO PROPERTY
12. A. Tenant agrees Landlord is not liable for any injury or damage,
either proximate or remote, occurring through or caused by fire, water, steam,
or any repairs, alterations, injury, accident, or any other cause to the
Premises, to any furniture, fixtures, Tenant improvements, or other personal
property of Tenant kept or stored in the Premises, or in other parts of the
Building Complex, whether by reason of the negligence or default of Landlord,
other occupants, any other person, or otherwise; and the keeping or storing of
all property of Tenant in the Premises and Building Complex is at the sole risk
of Tenant. Tenant shall maintain throughout the Term "all risk" or "multi-peril"
insurance for the full replacement cost of Tenant's property and betterments in
the Premises, including tenant finish in excess of the Initial Tenant Finish.
B. Tenant agrees to indemnify, defend, and hold Landlord, its
agents, and employees harmless from all liability, costs, or expenses, including
attorney's fees, on account of damage to the person or property of any third
party, including any other tenant in the Building Complex, to the extent caused
by the negligence, misconduct or breach of this Lease by the Tenant or Tenant's
agent or employees.
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DAMAGE OR DESTRUCTION TO BUILDING
13. A. In the event the Premises or the Building of which the same are
a part are damaged by fire or other insured casualty and the insurance proceeds
have been made available to Landlord by the holder or holders of any mortgages
or deeds of trust covering the Premises, or the property of which the same are a
part, the damage shall be repaired by and at the expense of Landlord to the
extent of the Building standard tenant finish work and of such insurance
proceeds available therefor, provided such repairs can, in Landlord's sole
opinion, be made within one hundred twenty (120) days after the occurrence of
such damage without the payment of overtime or other premiums. Until such
repairs are completed, the rent shall be abated in proportion to the part of the
Premises which is unusable by Tenant in the conduct of its business (but there
shall be no abatement of rent by reason of any portion of the Premises being
unusable for a period equal to three (3) days or less). If the dame is due to
the fault or neglect of Tenant or its employees, agents or invitees, there shall
be no abatement of rent. If repairs cannot, in Landlord's sole opinion, be made
within one hundred twenty (120) days, or if Landlord does not so elect to make
such repairs, then either party may, by written notice to the other, given
within sixty (60) days after the happening of such damage cancel this Lease as
of the date of the occurrence of such damage. A total destruction of the
Building in which Premises are located shall automatically terminate this Lease.
B. Except as provided in this Paragraph, there shall be no
abatement of rent an no liability of Landlord by reason of any injury to or
interference with Tenant's business or property arising from the making of any
repairs, alterations or improvements in or to any portion of the Building or the
Premises or in or to fixtures, appurtenances and equipment therein. Tenant
understands that Landlord will not carry insurance of any kind on Tenant's
leasehold improvements or on Tenant's personal property under the provisions of
this Lease, an that Landlord shall not be obligated to repair any damage thereto
or replace the same.
C. In the event that the Building in which the demised Premises may
be situated be destroyed to the extent of not less than thirty percent (30%) of
the replacement cost thereof, or in the event the Applicable Laws or economic
considerations make it impracticable to repair the damage within 60 days after
the happening of such damage, Landlord may elect to terminate this Lease,
whether the demised Premises be injured or not by written notice to Tenant to
that effect. In the event of any dispute between Landlord and Tenant relative to
the provisions of this Paragraph, they shall select an arbitrator, the two
arbitrators so selected shall select a third arbitrator, and the three
arbitrators so selected shall hear and determine the controversy and their
decision thereon shall be final and binding upon both Landlord an Tenant, who
shall bear the cost of such arbitration equally between them.
INSURANCE
14. A. TENANT. Tenant shall procure and maintain at its cost primary
insurance coverage for all of Tenant's leasehold improvements and personal
property in or about the Premises or Building, for the full replacement cost
thereof, providing broad form fire and extended coverage,
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sprinkler leakage, vandalism and malicious mischief. Any proceeds shall be used
for the repair or replacement of leasehold improvements damaged or destroyed
during the term of this Lease.
B. LIABILITY. Tenant shall obtain and maintain throughout the term
of this Lease a commercial general liability insurance policy, including
protection against bodily injury, personal injury and property damage (employee
and contractual liability exclusions deleted), issued by an insurance company
qualified to do business in the State of Colorado, with a combined single limit
of not less than $1,000,000 for bodily injury and property damage. Such policy
shall provide that the same may not be canceled or modified without at least
twenty (20) days' prior written notice to Landlord. Tenant shall deliver from
time to time certificates evidencing that such insurance is in force and effect.
The limits of said insurance shall not, under any circumstances, limit the
liability of Tenant hereunder.
C. LANDLORD'S INSURANCE. Landlord shall maintain casualty insurance
for the Building Complex and the shell and core of the Building to the extent of
the tenant finish work performed by Landlord in the Premises, in such amounts,
from such companies and on such terms and conditions, including loss of rental
insurance, as Landlord deems appropriate, from time to time. Tenant understands
that Landlord will not carry insurance of any kind on Tenant's furniture and
furnishings or on any fixture or equipment removable by Tenant under the
provisions of this Lease, or any other leasehold improvements or personal
property of Tenant.
D. WAIVER. Notwithstanding anything to the contrary contained
herein Landlord and Tenant hereby mutually waive and release their respective
rights of recovery against each other, their officers, agents and employees (but
not against other third parties) for (1) any loss on its property capable of
being insured against by "all risk" or "multi-risk" insurance coverage whether
carried or not; and (ii) all loss, cost, damage or expense arising out of or due
to any interruption of business (regardless of the cause therefor), increased or
additional costs of operation of business or their costs or expenses whether
similar or dissimilar which are capable of being insured against under business
interruption insurance whether or not carried. Each party shall apply to its
insurers to obtain said waivers and obtain any special endorsements, if required
by its insurer to evidence compliance with the aforementioned waiver, and shall
bear the cost therefor.
ASSIGNMENT AND SUBORDINATION
15. A ASSIGNMENT AND SUBLETTING. Tenant shall not assign nor encumber
this Lease, or any interest therein, and shall not sublet the said Premises or
any part thereof, or any right to privilege appurtenant thereto, or suffer any
other person (the agents and employees of Tenant excepted) to occupy or use the
said Premises, or any portion thereof, without the written consent of Landlord,
which consent may be withheld in Landlord's sole and absolute discretion. A
consent to one assignment, subletting, occupation or use by any other person
shall not be deemed to be a consent to any subsequent assignment, subletting,
occupation or use by another person. Any assignment or subletting without
Landlord's prior written consent shall be void, and shall at the option of
Landlord terminate this Lease. This Lease shall not, nor shall any interest
therein, be
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assignable, as to the interest of Tenant, by operation of law, without the
written consent of Landlord. Notwithstanding the consent of Landlord to any
sublease or Assignment, Tenant shall not be relieved of its primary obligations
hereunder to Landlord. Landlord may, after default by Tenant, collect rent from
any subtenant or assignee of occupant and apply the net amount collected to the
Rent herein reserved, but no such collection will be deemed an acceptance of the
subtenant or assignee or occupant as Tenant or release Tenant from its
obligations. If Tenant collects any rent or other amounts from a subtenant in
excess of the Rent for any monthly period, Tenant shall pay Landlord the excess
monthly as and when received. All documents utilized by Tenant to evidence a
subletting or assignment are subject to the approval of Landlord. Tenant shall
pay Landlord's expenses, including reasonable attorneys' fees, for determining
whether to consent and in reviewing and approving the documents. Tenant shall
provide Landlord with such information as Landlord reasonably requests regarding
a proposed subtenant, including financial information.
B. SUBORDINATION TO MORTGAGE AND/OR DEED OF TRUST. This Lease is
subject and subordinate to any present or future first mortgage and/or first
deed of trust which now or hereafter may affect the real property of which the
Premises forms a part, and to all renewals, modifications, consolidations,
replacements and extensions thereof. Tenant agrees that no documentation other
than this Lease is required to evidence such subordination. Notwithstanding the
foregoing, in confirmation of subordination, Tenant will execute such documents
as may be required by a mortgagee and if it fails to do so within 10 days after
demand, Tenant hereby appoints Landlord as Tenant's attorney-in-fact and in
Tenant's name, place, and stead to do so.
C. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to
time upon not less than ten (10) days' prior written notice from Landlord
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the dates to which rental and other
charges are paid in advance, if any, and acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder or
specifying such defaults if any are claimed. It is expressly understood and
agreed that any such statement may be relied upon by any prospective purchaser
or encumbrancer of all or any portion of the real property of which the Premises
are a part. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord, that there are no uncured
defaults in Landlord's performance and that not more than two (2) months' rental
has been paid in advance.
D. ATTORNMENT. Tenant hereby attorns to all successor owners of the
Building, whether such ownership is acquired by sale, foreclosure of a mortgage,
or otherwise.
E. QUIET ENJOYMENT. So long as Tenant complies with the terms and
provisions of this Lease, Landlord agrees to warrant and defend in the quiet
enjoyment and possession of the Premises during the term of this Lease, subject
to the terms of the Lease and of any of the ground leases, mortgages or deeds of
trust which now or hereafter may affect the Building.
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DEFAULT AND REMEDIES
16 A. DEFAULT. The occurrence of any of the following shall constitute
an Event of Default and breach of this Lease by Tenant:
(1) Any failure by Tenant to pay the rent or any other monetary
sums required to be paid within ten (10) days after same are due hereunder;
(2) The abandonment or vacation of the Premises by Tenant;
(3) A failure by Tenant to observe and perform any other provision
of this Lease to be observed or performed by Tenant, where such failure
continues for ten (10) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of the default is such that the same
cannot reasonably be cured within said ten-day period, Tenant shall not be
deemed to be in default if Tenant shall within such period commence such cure
and thereafter diligently prosecute the same to completion;
(4) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or of a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of
petition filed against Tenant, the same is dismissed within sixty (60) days; the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where possession is not restored to Tenant within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this lease, where such
seizure is not discharged within thirty (30) days.
B. REMEDIES OF LANDLORD. If an Event of Default occurs, Landlord may
then or at any time thereafter, either:
(1) (a) Without demand or notice, or reenter and take possession of
the Premises or any part thereof and expel Tenant and those claiming through or
under Tenant and remove the effects of both without being deemed guilty of any
manner of trespass and without prejudice to any remedies for arrears of Rent or
breach of this Lease. Should Landlord elect to reenter, as provided in this
subparagraphs (1), or should Landlord take possession pursuant to legal
proceedings or any notice provided for by law, Landlord may, from time to time,
without terminating this Lease, relet the Premises or any part, either alone or
in conjunction with other portions of the Building Complex, in Landlord's or
Tenant's name but for the account of Tenant, for such periods (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions and upon such other terms (which may
include concessions of free rent and alteration and repair of the Premises) as
Landlord, in its sole discretion, determines and Landlord may collect the rents
therefor. Landlord is not in any way responsible or liable for failure to relet
the Premises, or any part thereof, or for any failure to collect any rent due
upon such reletting.
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No such reentry or possession or notice from Landlord shall be construed as an
election by Landlord to terminate this Lease unless specific notice of such
intention is given Tenant. Landlord reserves the right following any reentry
and/or reletting to exercise its right to terminate this Lease by giving Tenant
notice, in which event this Lease will terminate as specified in the notice.
(b) If Landlord takes possession of the Premises as provided
above without terminating this Lease, Tenant shall pay Landlord (i) the Rent
which would be payable hereunder if repossession had not occurred, less (ii) the
net proceeds, if any, of any reletting of the Premises after deducting all of
Landlord's expenses incurred in connection with such reletting, including all
repossession costs, brokerage commissions, attorneys fees, expenses of
employees, alteration, and repair costs (collectively "Reletting Expenses"). If,
in connection with any reletting, the new lease term extends beyond the Term or
the premises covered thereby include other premises not part of the Premises, a
fair apportionment of the rent received from such reletting and the Reletting
Expenses, will be made in determining the net proceeds received from the
reletting. In determining such net proceeds, rent concessions will also be
apportioned over the term of the new lease. Tenant shall pay such amounts to
Landlord monthly on the days on which the Rent would have been payable if
possession had not been retaken, and Landlord is entitled to receive the same
from Tenant on each such day; or
(2) Give Tenant notice of termination of this Lease ion the date
specified and, on such date, Tenant's right to possession of the Premises shall
cease and the Lease will be terminated except as to Tenant's liability as
hereafter provided as if the expiration of the term fixed in such notice were
the end of the Term. If this Lease terminates pursuant to this paragraph, Tenant
remains liable to Landlord for damages in an amount equal to the Rent which
would have been owing by Tenant for the balance of the Term had this Lease not
terminated, less the net proceeds, if any, of reletting of the Premises by
Landlord subsequent to termination after deducting Reletting Expenses. Landlord
may collect such damages from Tenant monthly on the days on which the Rent
amounts would have been payable hereunder if this Lease had not terminated and
Landlord shall be entitled to receive the same from Tenant on each such day.
Alternatively, if this Lease is terminated, Landlord at its option may recover
forthwith against Tenant as damages for loss of the bargain and not as a penalty
an amount equal to the worth at the time of termination of the excess, if any,
of the Rent reserved in this Lease for the balance of the Term over the then
Reasonable Rental Value of the Premises for the same period plus all Reletting
Expenses. "Reasonable Rental Value" is the amount of rent Landlord can obtain
for the remaining balance of the Term.
C. CUMULATIVE REMEDIES. Suits to recover Rent and damages may be
brought by Landlord, from time to time, and nothing herein requires Landlord to
await the date the Term would expire had there been no Event of Default or
termination, as the case may be. Each right and remedy provided for in this
Lease is cumulative and non-exclusive and in addition to every other right or
remedy provided now or hereafter existing at law or equity, including suits for
injunctive relief and specific performance. The exercise or beginning of the
exercise by Landlord of one or more rights or remedies shall not preclude the
simultaneous or later exercise by Landlord of other rights or remedies. All
costs incurred by Landlord to collect any Rent and damages or to enforce this
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Lease are also recoverable from Tenant. If any suit is brought, the prevailing
party is also entitled to recover from the other party all reasonable attorneys
fees and costs incurred in connection therewith.
D. NO WAIVER. No failure by Landlord to insist upon strict performance
of any provision or to exercise any right or remedy upon a breach thereof, and
no acceptance of full or partial Rent during the continuance of any breach
constitutes a waiver of any such breach or such provision, except by written
instrument executed by Landlord. No waiver shall affect or alter this Lease but
each provision hereof continues in effect with respect to any other then
existing or subsequent breach thereof.
E. BANKRUPTCY. Nothing contained in this Lease limits Landlord's right
to obtain as liquidated damages in any bankruptcy or similar proceeding the
maximum amount t allowed by law at the time such damages are to be proven,
whether such amount is greater, equal to, or less than the amounts recoverable,
either as damages or Rent, referred to in any of the preceding provisions of
this paragraph.
F. LATE PAYMENT CHARGE. Any Rent or other monetary sums not paid
within 10 days after the due date shall thereafter bear interest at one and
one-half (1-1/2%) of such amount per month until paid. Any amounts paid by
Landlord to cure a default of Tenant which Landlord has the right but not the
obligation to do, shall, if not repaid by Tenant within 10 days of demand by
Landlord, thereafter bear interest at one and one-half percent (1-1/2%) of such
amount per month until paid.
G. WAIVER OF JURY TRIAL. Tenant and Landlord waive any right to a
trial by jury in suits arising out of or concerning the provisions of this
Lease.
EMINENT DOMAIN
17. In the event the Premises, or any part thereof, shall be taken by any
exercise of the right of eminent domain or by action of any public or other
authority during this Lease or any extension thereof, then this Lease shall
terminate at the election of the Landlord, and if the Landlord shall not so
elect to terminate this Lease, then the rental shall be proportionately
adjusted. The Landlord reserves all rights to damages to said Premises and the
leasehold hereby created, hereafter accruing by reason of any exercise of the
right of eminent domain, or by reason of anything lawfully done and in pursuance
of any public or other authority; and by way of confirmation, the Tenant grants
to the Landlord all of the Tenant's rights to such damages and covenants to
execute and deliver such further instruments of assignment thereof as Landlord
may from time to time request. Nothing in this paragraph shall give Landlord any
interest in, or preclude Tenant from seeking, on its own account, any award
attributable to the taking of personal property or trade fixtures belonging to
Tenant, or for the interruption of Tenant's business.
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18. SURRENDER AND HOLDING OVER. Upon the expiration or other termination of
this Lease, Tenant shall promptly quit and surrender to Landlord the Premises in
accordance with subparagraph A(2)(d) of Paragraph 9. If, after the expiration of
this Lease, Tenant shall remain in possession of the Premises and continue to
pay rent, and Landlord shall accept such rent or permit such possession, without
any express written agreement as to such holding over, then such holding over
shall be deemed and taken to be holding upon a tenancy from month to month,
subject to all the terms and conditions hereof on the part of Tenant, to be
observed and performed at a monthly Base Rent rate equivalent to one hundred
twenty-five percent (125%) of the monthly installments paid by Tenant
immediately prior to such expiration. Such month-to-month tenancy may be
terminated by either party upon not less than ten (10) days notice prior to the
end of any such monthly period. Nothing contained herein shall be construed as
obligating Landlord to accept any rental tendered by Tenant after expiration of
the term hereof or as relieving Tenant of its liability pursuant to subparagraph
A(2)(d) of Paragraph 9. If Tenant holds over without the consent of Landlord,
Tenant shall be in default under the Lease and liable for any loss or liability
resulting from such delay by Tenant in surrendering the Premises, including but
not limited to, rent for such period at the holding over rate referred to above
and consequential damages.
SECURITY INTEREST
19. Subject to any prior purchase money security interests granted by
Tenant, Tenant hereby conveys to Landlord all of Tenant's property situated on
the Premises as security for the payment of all Rent and other amounts due or to
become due hereunder, and Tenant shall execute such documents as Landlord may
reasonably require to evidence and perfect Landlord's security interest therein.
For this purpose, this Lease shall be considered to be a security agreement
covering such personal property and Landlord, upon the occurrence of an Event of
Default under this Paragraph 19 hereof, may exercise any rights of a secured
party under the Uniform Commercial Code of the State of Colorado. Such security
interest shall be prior and superior to any other security interest except an
existing purchase money security interest. Tenant's property shall not be
removed from the Premises without the consent of Landlord, except to the extent
such property is replaced with an item of equal or greater value (and Landlord's
security interest shall extend to such replacements and to the proceeds of all
such property).
RULES AND REGULATIONS
20. Tenant shall observe and comply with the Rules and Regulations attached
hereto as Exhibit C, which are made part hereof, and with such further
reasonable rules and regulations as Landlord may prescribe, on written notice to
Tenant, for the safety, care and cleanliness of the Building and the comfort,
quiet and convenience of other occupants of the Building. Landlord shall not be
responsible to Tenant for the non-performance by any other tenant or occupant of
the Building of any of said Rules and Regulations.
20
<PAGE> 21
AMENITIES
21. Landlord has made available space in the Building for a health club and
dressing rooms and a conference room (together the "Amenities") which, subject
to the following, are available for use by Tenant and its employees, other
tenants of the Building and their employees subject to availability. The health
club facility and conference room are considered as part of the Common Area of
the Building and all costs associated therewith are Operating Expenses of the
Building.
A. The right granted to Tenant and its employees to use the Amenities
shall be deemed a license only and Landlord's inability to make such facility
available at any time during the term of the Lease shall not be deemed a breach
by Landlord of any of its obligations under the Lease. Landlord reserves the
right to close the Amenities, or a portion thereof, remove equipment without
replacement or otherwise modify the Amenities area. Landlord will post the
Amenity premises or notify Tenant if Landlord intends to close on or all or
institute new rules for the use thereof.
B. Tenant and its employees shall abide by all rules and regulations as
are or may at any time be established by Landlord for use of the Amenities,
including, but not limited to the following: (i) requiring payment to Landlord
for any and all loss or damage caused by Tenant or Tenant's agents, employees or
others than Tenant grants access to the Amenities occurring or related to the
use of the Amenities; (ii) observing the special hours of operating, closing and
nonuse of the Amenities; (iii) observing all posted rules and regulations; and
(iv) reserving the conference room through the Building Complex management
office.
C. The following are applicable to the health club facility:
(1) Tenant and its employees understand that using the health club
facilities and equipment or fixtures contained therein may be hazardous, and
that injuries may result from use of the health club facilities, including the
change of injury resulting from the negligence and carelessness of other users
of the health facility or Landlord. Tenant acknowledges that health club
facilities are not supervised and all risk of loss or injury is that of Tenant
or its employees. Neither Landlord or its partners, agents or employees shall be
liable for any injury, damages, fire, theft, or loss to persons or property
while in the health club facilities, whether caused by theft, fire, defective
equipment, negligence of Landlord, its partners, agents or employees, or
negligence of others in the health club facilities of any other activity or
occurrence in such health club facilities. Tenant, its employees or the invitees
of either exempts and releases Landlord, its agents, its partners, servants, and
employees from any and all liability, claims, demands or actions or causes of
action whatsoever arising out of damage, loss or injury to the waiving party
while in the health club facilities or while participating in any activities
contemplated to be performed in the health club facilities, whether such loss,
damage or injury, results from the negligence of Landlord, its partners, agents,
servants or employees or from some other cause. Tenant, its employees, or either
of their invitees into the health facility assume the risk of injury, loss or
damage and shall indemnify, defend and hold Landlord, its agents, its partners
and employees harmless from and against any claims of loss and damages incurred
by Landlord arising out of Tenants, its employees' or invitees' use of the
21
<PAGE> 22
health club facilities, including all costs, attorneys' fee and expenses and
liabilities incurred on or about any such claim or action.
(2) At Landlord's request, Tenant shall obtain a written agreement
from all users of the health club facilities to the obligations under this
Paragraph 21 using Landlord's standard form therefor prior t6o issuing a key to
the health club facilities to such user or at any other time designated by
Landlord. If Tenant shall fail to obtain such an agreement and deliver it to
Landlord or its agents, Tenant shall assume all obligations set forth in this
Paragraph for such user.
D. Tenant and its employees shall be prohibited from allowing any other
person to enter or use the Amenities without express consent of Landlord and
execution of a written agreement from any such user described in subparagraph C
above.
NOTICE
22. Any notice from the Landlord to the Tenant shall be deemed duly served
if mailed by registered or certified mail, addressed to the Tenant at said
Premises, whether or not Tenant has departed from, vacated or abandoned the
Premises, or to the Landlord at the place from time to time established for the
payment of rent, and the customary registered or certified mail receipt shall be
conclusive evidence of such service. Either party may designate in writing
served as above provided a different address to which notice is to be mailed.
SALE BY LANDLORD
23. In the event of a sale or conveyance by Landlord of the Building
containing the Premises, the same shall operate to release Landlord from any
future liability upon any of the covenants or conditions, expressed or implied,
herein contained in favor of Tenant, and in such event Tenant agrees to look
solely to the responsibility of the successor in interest of Landlord in and to
this Lease. This Lease shall not be affected by any such sale, and the Tenant
agrees to attorn to the purchaser or assignee.
BROKERAGE
24. Tenant represents that it has not employed any broker with respect to
this Lease and has no knowledge of any broker's involvement in this transaction
except Oliver Real Estate ( collectively the "Brokers"). Tenant shall indemnify
Landlord against any expense incurred by Landlord as a result of any claim for
commissions or fees by any other broker, finder or agent, whether or not
meritorious, employed by Tenant or claiming by, through, or under Tenant other
than the Brokers. Tenant acknowledges Landlord is not liable for any
representation by the Brokers regarding the Premises, the Building, Building
Complex or this Lease. Tenant acknowledges that several of Landlord's partners
and/or employees may be licensed real estate agents and may be providing
brokerage services in connection with this Lease.
22
<PAGE> 23
RELOCATION
25. If the Premises are less than 3,000 rentable square feet, Tenant agrees
that Landlord may relocate Tenant to other space in the Building upon 30 days'
prior written notice to Tenant containing at least the same amount of rentable
space as is contained in the Premises, provided that the rent is not increased
above the amount payable hereunder and the reasonable costs of relocating
Tenant, including the cost of substantially comparable tenant finish in the new
space, are borne by Landlord. The suite number designation and Exhibit A shall
be deemed revised to reflect the description of the substitute premises. Except
for such revisions the provisions of this Lease are applicable to the substitute
premises which are the Premises following Tenant's move.
MISCELLANEOUS PROVISIONS
26. A. The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. Words used in masculine gender include the
feminine and neuter. If there be more than one Tenant, the obligations hereunder
imposed upon Tenant shall be joint and several. The titles to the paragraphs of
this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
B. Time is of the essence of this Lease and each and every provision
hereof except as to the conditions relating to the delivery of possession of the
Premises of Tenant.
C. Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant.
D. Notwithstanding expiration or termination of this Lease, this Lease
shall be deemed to continue in effect as to any provisions requiring observance
or performance subsequent to termination or expiration.
E. Clauses, plats and riders, if any, signed or initialed by Landlord
and Tenant or an authorized representative of Tenant and endorsed on or affixed
to this Lease are a part hereof, and in the event of variation or discrepancy,
the duplicate original hereof, including such clauses, plats and riders, if any,
held by Landlord shall control.
F. 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 provisions shall remain in full force and effect.
G. This Lease shall be governed by and construed pursuant to the laws
of the State of Colorado.
23
<PAGE> 24
H. Tenant acknowledges and agrees that it has not relied upon any
statement, representations, agreements or warranties except such as are
expressed herein.
I. If Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation and that
this Lease is binding upon said corporation in accordance with its terms. If,
there is more than one party which is Tenant, the obligations imposed on Tenant
are joint and several.
J. Tenant agrees to look solely to Landlord's interest in the Building
for satisfaction of any liability of or judgment against Landlord hereunder and
that none of the partners of Landlord shall have any personal liability
therefor.
K. The covenants and conditions herein contained shall, subject to the
provisions of Paragraph 15, apply to and bind the heirs, successors, executors,
administrators, assigns and subtenants of the parties hereto.
L. Landlord may use any of the Common Areas for purposes of completing
or making repairs or alterations in any portion of the Building Complex.
M. Landlord may as it relates to the Building and Building Complex
change the name, increase the size by adding additional property, construct
other buildings or improvements, change the location and/or character or make
alterations or additions. If additional buildings are constructed or the size is
increased, Landlord and Tenant shall execute an amendment which incorporates any
necessary modifications to Tenant's Proportionate Share. Tenant may not use the
Building's name for any purpose other than as part of its business address.
N. As part of the Services Landlord provides hereunder, Landlord may
elect to provide a concierge or security guard for more efficient operation of
the Building Complex, and the cost therefor shall be included as an Operating
Cost. Landlord is not obligated to provide such Services at any time or for any
length of time. Tenant expressly acknowledges that Landlord has not represented
to Tenant that the Building Complex are secure buildings or areas.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the
day and year first above written.
LANDLORD
PLAZA II, LTD.
By: BPM Inc., a Colorado corporation
Managing General Partner
24
<PAGE> 25
By /s/ BPM, Inc.
-----------------------------------
Title:
-------------------------------
TENANT
HIGH SPEED ACCESS CORP.
By: /s/ Richard J. Pulley
----------------------------------
Richard J. Pulley
Vice President of Operations
EXHIBIT LIST
(Check if applicable)
X Exhibit A - The Premises
---
X Exhibit B - Legal Description
---
X Exhibit C - Rules and Regulations
---
X Exhibit D - Space Plan
---
X Addendum
---
25
<PAGE> 1
EXHIBIT 10.4
================================================================================
DEED OF LEASE BY AND BETWEEN
HIGH SPEED ACCESS
AND
THE REALTY ASSOCIATES FUND III, L.P.
of
205 Van Buren Street
Herndon, Virginia 22070
DATED
August 20, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. BASIC LEASE PROVISIONS..........................................................................1
2. PREMISES........................................................................................2
2.1 LEASE OF PREMISES AND DEFINITION OF PROJECT. ................................2
2.2 CALCULATION OF SIZE OF BUILDING AND PREMISES. ...............................2
2.3 COMMON AREAS-DEFINED. .......................................................2
3. TERM............................................................................................3
3.1 TERM AND COMMENCEMENT DATE. .................................................3
3.2 DELAY IN POSSESSION. ........................................................3
3.3 DELAYS CAUSED BY TENANT. ....................................................3
3.4 TENDER OF POSSESSION. .......................................................3
3.5 EARLY POSSESSION. ...........................................................4
4. RENT............................................................................................4
4.1 BASE RENT. ..................................................................4
4.2 OPERATING EXPENSE INCREASES. ................................................4
4.3. BASE RENT INCREASE............................................................7
5. SECURITY DEPOSIT. .............................................................................8
6. USE.............................................................................................8
6.1 USE. ........................................................................8
6.2 COMPLIANCE WITH LAW...........................................................8
6.3 CONDITION OF PREMISES. ......................................................9
7. MAINTENANCE, REPAIRS AND ALTERATIONS............................................................9
7.1 LANDLORD'S OBLIGATIONS. .....................................................9
7.2 TENANT'S OBLIGATIONS..........................................................9
7.3 ALTERATIONS AND ADDITIONS....................................................10
7.4 FAILURE OF TENANT TO REMOVE PROPERTY. ......................................11
8. INSURANCE......................................................................................11
8.1 INSURANCE-TENANT.............................................................11
8.2 INSURANCE-LANDLORD...........................................................12
8.3 INSURANCE POLICIES. ........................................................12
8.4 WAIVER OF SUBROGATION. .....................................................12
8.5 COVERAGE. ..................................................................13
9. DAMAGE OR DESTRUCTION..........................................................................13
9.1 EFFECT OF DAMAGE OR DESTRUCTION. ...........................................13
9.2 DEFINITION OF MATERIAL DAMAGE. .............................................14
9.3 ABATEMENT OF RENT. .........................................................14
9.4 TENANT'S ACTS. .............................................................14
9.5 TENANT'S PROPERTY. .........................................................14
9.6 WAIVER. ....................................................................14
10. REAL AND PERSONAL PROPERTY TAXES...............................................................14
10.1 PAYMENT OF TAXES. ..........................................................15
10.2 DEFINITION OF "REAL PROPERTY TAX." .........................................15
10.3 PERSONAL PROPERTY TAXES. ...................................................15
10.4 REASSESSMENTS. .............................................................15
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11. UTILITIES......................................................................................15
11.1 SERVICES PROVIDED BY LANDLORD. .............................................15
11.2 OCCUPANT DENSITY. ..........................................................16
11.3 HOURS OF SERVICE. ..........................................................16
11.4 EXCESS USAGE BY TENANT. ....................................................16
11.5 INTERRUPTIONS. .............................................................17
12. ASSIGNMENT AND SUBLETTING......................................................................17
12.1 LANDLORD'S CONSENT REQUIRED. ...............................................17
12.2 LEVERAGED BUY-OUT. .........................................................18
12.3 STANDARD FOR APPROVAL. .....................................................18
12.4 ADDITIONAL TERMS AND CONDITIONS. ...........................................19
12.5 ADDITIONAL TERMS AND CONDITIONS APPLICABLE
TO SUBLETTING. .............................................................20
12.6 TRANSFER PREMIUM FROM ASSIGNMENT OR SUBLETTING. ............................20
12.7 LANDLORD'S OPTION TO RECAPTURE SPACE. ......................................21
12.8 LANDLORD'S EXPENSES. .......................................................21
13. DEFAULT; REMEDIES..............................................................................21
13.1 DEFAULT BY TENANT. .........................................................21
13.2 REMEDIES.....................................................................22
13.3 DEFAULT BY LANDLORD. .......................................................23
13.4 LATE CHARGES. ..............................................................24
13.5 INTEREST ON PAST-DUE OBLIGATIONS. ..........................................24
13.6 PAYMENT OF RENT AND SECURITY DEPOSIT AFTER DEFAULT. ........................24
14. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT. .........................................24
15. CONDEMNATION. .................................................................................24
16. VEHICLE PARKING................................................................................25
16.1 USE OF PARKING FACILITIES. .................................................25
16.2 PARKING CHARGES. ...........................................................25
17. BROKER'S FEE...................................................................................26
18. ESTOPPEL CERTIFICATE...........................................................................26
18.1 DELIVERY OF CERTIFICATE. ...................................................26
18.2 FAILURE TO DELIVER CERTIFICATE. ............................................26
19. LANDLORD'S LIABILITY. .........................................................................26
20. INDEMNITY......................................................................................27
21. EXEMPTION OF LANDLORD FROM LIABILITY...........................................................27
22. HAZARDOUS MATERIAL.............................................................................28
22.1 DEFINITION AND CONSENT. ....................................................28
22.2 DUTY TO INFORM LANDLORD. ...................................................28
22.3 INSPECTION; COMPLIANCE. ....................................................28
23. MEDICAL WASTE..................................................................................28
23.1 DISPOSAL OF MEDICAL WASTE. .................................................28
23.2 DUTY TO INFORM LANDLORD. ...................................................29
23.3 INSPECTION; COMPLIANCE. ....................................................29
24. TENANT IMPROVEMENTS............................................................................29
</TABLE>
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25. SUBORDINATION..................................................................................29
25.1 EFFECT OF SUBORDINATION. ...................................................29
25.2 EXECUTION OF DOCUMENTS. ....................................................30
26. OPTIONS........................................................................................30
26.1 DEFINITION. ................................................................30
26.2 OPTIONS PERSONAL. ..........................................................30
26.3 MULTIPLE OPTIONS. ..........................................................30
26.4 EFFECT OF DEFAULT ON OPTIONS. ..............................................30
26.5 LIMITATIONS ON OPTIONS. ....................................................30
26.6 NOTICE OF EXERCISE OF OPTION. ..............................................31
27. LANDLORD RESERVATIONS..........................................................................31
28. CHANGES TO PROJECT.............................................................................31
29. SUBSTITUTION OF OTHER PREMISES. ...............................................................31
30. HOLDING OVER...................................................................................32
31. LANDLORD'S ACCESS..............................................................................32
31.1 ACCESS. ....................................................................32
31.2 KEYS. .....................................................................32
32. SECURITY MEASURES..............................................................................32
33. EASEMENTS......................................................................................33
34. TRANSPORTATION MANAGEMENT......................................................................33
35. SEVERABILITY...................................................................................33
36. TIME OF ESSENCE................................................................................33
37. DEFINITION OF ADDITIONAL RENT..................................................................33
38. INCORPORATION OF PRIOR AGREEMENTS..............................................................33
39. AMENDMENTS.....................................................................................33
40. NOTICES. ......................................................................................33
41. WAIVERS........................................................................................34
42. COVENANTS......................................................................................34
43. BINDING EFFECT, CHOICE OF LAW..................................................................34
44. ATTORNEYS' FEES................................................................................34
45. AUCTIONS.......................................................................................34
46. SIGNS..........................................................................................34
47. MERGER.........................................................................................35
48. QUIET POSSESSION...............................................................................35
</TABLE>
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49. AUTHORITY......................................................................................35
50. CONFLICT.......................................................................................35
51. MULTIPLE PARTIES...............................................................................35
52. INTERPRETATION. ...............................................................................35
53. PROHIBITION AGAINST RECORDING..................................................................35
54. RELATIONSHIP OF PARTIES........................................................................35
55. RULES AND REGULATIONS..........................................................................35
56. RIGHT TO LEASE. ..............................................................................35
57. SECURITY INTEREST..............................................................................36
58. SECURITY FOR PERFORMANCE OF TENANT'S OBLIGATIONS...............................................36
59. FINANCIAL STATEMENTS...........................................................................36
60. ATTACHMENTS....................................................................................36
61. CONFIDENTIALITY................................................................................36
62. WAIVER OF JURY TRIAL...........................................................................37
</TABLE>
iv
<PAGE> 6
205 VAN BUREN STREET
HERNDON, VIRGINIA 22070
STANDARD OFFICE DEED OF LEASE
1. BASIC LEASE PROVISIONS.
(1) PARTIES: This Deed of Lease, dated for reference purposes only
August 20, 1999, is made by and between THE REALTY ASSOCIATES FUND
III, L.P., a Delaware limited partnership ("Landlord") and HIGH SPEED
ACCESS, a __________ corporation ("Tenant").
(2) PREMISES: Suite Number as shown on Exhibit "A" attached hereto (the
"Premises").
(3) RENTABLE AREA OF PREMISES: 12,000 rentable square feet.
(4) BUILDING ADDRESS: 205 Van Buren Street, Herndon, Virginia 22070.
(5) USE: General office and data center use, Subject to the requirements
and limitations contained in Section 6.
(6) TERM: Five (5) years.
(7) COMMENCEMENT DATE: November 1, 1999, Subject to adjustment in
accordance with Section 3 herein below.
(8) BASE RENT: $25,000.00 for the first full month's Base Rent due under
the Lease.
(9) BASE RENT PAID UPON EXECUTION: $25,000.00.
(10) SECURITY DEPOSIT: $25,000.00.
(11) TENANT'S SHARE: 9.28%.
(12) BASE YEAR: The calendar year 1999.
(13) NUMBER OF PARKING SPACES: Reserved: None. Unreserved: 42.
(14) INITIAL MONTHLY PARKING RATES PER SPACE: Reserved: N/A.
Unreserved: $0.00
(15) REAL ESTATE BROKER:
LANDLORD: Insignia/ESG, Inc.
TENANT: The Staubach Company-Northeast, Inc.
(16) ATTACHMENTS TO LEASE: Addendum; Exhibit A - "Premises", Exhibit B -
"Verification Letter", Exhibit C Rules and Regulations", Schedule 1 -
"Work Letter Agreement".
(17) ADDRESS FOR NOTICES:
LANDLORD: The Realty Associates Fund III, L.P.
c/o Insignia/ ESG, Inc.
1015 Fifteenth Street, N.W.
Suite 1000
Washington, D.C. 20005
<PAGE> 7
WITH COPY TO: TA Associates Realty
28 State Street
Boston, Massachusetts 02109
Attention: Samara Kaufman
TENANT: High Speed Access
Prior to Occupancy:
-------------------------------
-------------------------------
-------------------------------
After Occupancy: High Speed Access
205 Van Buren Street, Suite _____
Herndon, Virginia 22070
Attention: ___________________
(18) AGENT FOR SERVICE OF PROCESS: If Tenant is a corporation, the name
and address of Tenant's registered agent for service of process is:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
(19) INTERPRETATION: The Basic Lease Provisions shall be interpreted in
conjunction with all of the other terms and conditions of this Lease.
Other terms and conditions of this Lease modify and expand on the
Basic Lease Provisions. If there is a conflict between the Basic
Lease Provisions and the other terms and conditions of this Lease,
the other terms and conditions shall control.
2. PREMISES.
(1) LEASE OF PREMISES AND DEFINITION OF PROJECT. The Premises shall mean
the area shown on Exhibit A to this Lease. Landlord hereby leases to
Tenant, and Tenant hereby leases from Landlord, upon all of the
conditions set forth herein the Premises, together with certain
rights to the Common Areas (as defined in Section 2.3 below) as
hereinafter specified. The Premises shall not include an easement for
light, air or view. The building of which the Premises is a part (the
"Building"), the Common Areas, the land upon which the same are
located, along with all other buildings and improvements thereon or
thereunder, including all parking facilities, are herein collectively
referred to as the "Project."
(2) CALCULATION OF SIZE OF BUILDING AND PREMISES. The number of rentable
square feet in the Premises has been calculated in accordance with
the methods of measuring rentable square feet, as that method is
described by the Washington D.C. Association of Realtors, Inc. (the
"WDCAR Method"). If the rentable square feet in the Premises changes
after this Lease is executed by Landlord and Tenant, the Base Rent
and any advance rent shall be adjusted by multiplying the actual
number of rentable square feet in the Premises AS MEASURED IN
ACCORDANCE WITH THE WDCAR METHOD by the per square foot rental
obtained by dividing the Base Rent initially set forth In Section 1.8
by the number of rentable square feet initially set forth in Section
1.3. If the number of rentable square feet in the Premises is
changed, Tenant's Share shall be adjusted as provided in Section
4.2(a).
(3) COMMON AREAS-DEFINED. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior
boundary line of the Project that are designated by Landlord from
time to time for the general non-exclusive use of Landlord, Tenant
and the other tenants of the Project and their respective employees,
suppliers, customers and invitees, including, but not limited to,
common entrances, lobbies, corridors, stairwells, public restrooms,
elevators, parking areas,
2
<PAGE> 8
loading and unloading areas, roadways and sidewalks. Landlord may
also designate other land and improvements outside the boundaries of
the Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional
relationship to the Project.
3. TERM.
(1) TERM AND COMMENCEMENT DATE. The Term and Commencement Date of this
Lease are as specified in Sections 1.6 and 1.7. The Commencement Date
set forth in Section 1.7 is an estimated Commencement Date. Subject
to the limitations contained in Section 3.3 below, the actual
Commencement Date shall be the date possession of the Premises is
tendered to Tenant in accordance with Section 3.4 below; provided,
however, that the Term of this Lease shall be computed from the first
day of the calendar month following the Commencement Date. When the
actual Commencement Date is established by Landlord, Tenant shall,
within TWENTY (20) days after Landlord's request, complete and
execute the letter attached hereto as Exhibit "B" and deliver it to
Landlord. Tenant's failure to execute the letter attached hereto as
Exhibit "B" within said TWENTY (20) day period shall be a material
default hereunder and shall constitute Tenant's acknowledgment of the
truth of the facts contained in the letter delivered by Landlord to
Tenant.
(2) DELAY IN POSSESSION. Notwithstanding the estimated Commencement Date
specified in Section 1.7, if for any reason Landlord cannot deliver
possession of the Premises to Tenant on said date, Landlord shall not
be Subject to any liability therefor, nor shall such failure affect
the validity of this Lease or the obligations of Tenant hereunder;
provided, however, in such a case, Tenant shall not be obligated to
pay rent or perform any other obligation of Tenant under this Lease,
except as may be otherwise provided in this Lease, until possession
of the Premises is tendered to Tenant, as defined in Section 3.4. If
Landlord shall not have tendered possession of the Premises to Tenant
within one hundred twenty (120) days following the estimated
Commencement Date specified in Section 1.7, as the same may be
adjusted in accordance with Section 3.3 or in accordance with the
terms of any work letter agreement entered into by Landlord and
Tenant, Tenant may, at Tenant's option, by notice in writing to
Landlord within ten (10) days after the expiration of the one hundred
twenty (120) day period, terminate this Lease. If Tenant terminates
this Lease as provided in the preceding sentence, the parties shall
be discharged from all obligations hereunder, except that Landlord
shall return any money previously deposited with Landlord by Tenant;
and provided further, that if such written notice by Tenant is not
received by Landlord within said ten (10) day period, Tenant shall
not have the right to terminate this Lease as provided above unless
Landlord fails to tender possession of the Premises to Tenant within
two hundred forty (240) days following the estimated Commencement
Date specified in Section 1.7, as the same may be adjusted in
accordance with Section 3.3 or in accordance with the terms of any
work letter agreement entered into by Landlord and Tenant. If
Landlord is unable to deliver possession of the Premises to Tenant on
the Commencement Date due to a "Force Majeure Event," the
Commencement Date shall be extended by the period of the delay caused
by the Force Majeure Event. A Force Majeure Event shall mean fire,
earthquake, weather delays or other acts of God, strikes, boycotts,
war, riot, insurrection, embargoes, shortages of equipment, labor or
materials, delays in issuance of governmental permits or approvals,
or any other cause beyond the reasonable control of Landlord.
(3) DELAYS CAUSED BY TENANT. There shall be no abatement of rent, and
the one hundred twenty (120) day period and the two hundred forty
(240) day period specified in Section 3.2 shall be deemed extended,
to the extent of any delays caused by acts or omissions of Tenant,
Tenant's agents, employees and contractors, or for Tenant delays as
defined in the work letter agreement attached to this Lease, if any
(hereinafter "Tenant Delays"). Tenant shall pay to Landlord an amount
equal to one thirtieth (1/30th) of the Base Rent due for the first
full calendar month of the Term
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for each day of Tenant Delay. For purposes of the foregoing
calculation, the Base Rent payable for the first full calendar month
of the Term shall not be reduced by any abated rent, conditionally
waived rent, free rent or similar rental concessions, if any.
Landlord and Tenant agree that the foregoing payment constitutes a
fair and reasonable estimate of the damages Landlord will incur as
the result of a Tenant Delay. Within thirty (30) days after Landlord
tenders possession of the Premises to Tenant, Landlord shall notify
Tenant of Landlord's reasonable estimate of the date Landlord could
have delivered possession of tho Premises to Tenant but for the
Tenant Delays. After delivery of said notice, Tenant shall
immediately pay to Landlord the amount described above for the period
of Tenant Delay.
(4) TENDER OF POSSESSION. Possession of the Premises shall be deemed
tendered to Tenant when Landlord's architect or agent has determined
that (a) the improvements to be provided by Landlord pursuant to a
work letter agreement, if any, are substantially completed and, if
necessary have been approved by the appropriate governmental entity,
(b) the Project utilities are ready for use in the Premises, (c)
Tenant has reasonable access to the Premises, and (d) three (3) days
shall have expired following advance written notice to Tenant of the
occurrence of the matters described in (a), (b) and (c) above of this
Section 3.4. If improvements to the Premises are constructed by
Landlord, the improvements shall be deemed "substantially" completed
when the improvements have been completed except for minor items or
defects which can be completed or remedied after Tenant occupies the
Premises without causing substantial interference with Tenant's use
OR OCCUPANCY of the Premises.
(5) EARLY POSSESSION. If Tenant occupies the Premises prior to the
Commencement Date, such occupancy shall be subject to all provisions
of this Lease, such occupancy shall not change the termination date,
and Tenant shall pay Base Rent and all other charges provided for in
this Lease during the period of such occupancy. Provided that Tenant
does not interfere with or delay the completion by Landlord or its
agents or contractors of the construction of any tenant improvements,
Tenant shall have the right to enter the Premises up to fourteen (14)
days prior to the anticipated Commencement Date for the purpose of
installing furniture, trade fixtures, equipment, and similar items.
Tenant shall be liable for any damages or delays caused by Tenant's
activities at the Premises. Provided that Tenant has not begun
operating its business from the Premises, and Subject to all of the
terms and conditions of the Lease, the foregoing activity shall not
constitute the delivery of possession of the Premises to Tenant and
the Term of the Lease shall not commence as a result of said
activities. Prior to entering the Premises, Tenant shall obtain all
insurance it is required to obtain by the Lease and shall provide
certificates of said insurance to Landlord. Tenant shall coordinate
such entry with Landlord's building manager, and such entry shall be
made in compliance with all terms and conditions of this Lease and
the Rules and Regulations attached hereto.
4. RENT.
(1) BASE RENT. Subject to adjustment as hereinafter provided in
Section 4.3, Tenant shall pay to Landlord the Base Rent for the
Premises set forth in Section 1.8, without offset or deduction on the
first day of each calendar month during the Term of this Lease. At
the time Tenant executes this Lease it shall pay to Landlord the
advance Base Rent described in Section 1.9. Base Rent for any period
during the Term hereof which is for less than one month shall be
prorated based upon the actual number of days of tho calendar month
involved. Base Rent and all other amounts payable to Landlord
hereunder shall be payable to Landlord in lawful money of the United
States and Tenant shall be responsible for delivering said amounts to
Landlord at the address stated herein or to such other persons or to
such other places as Landlord may designate in writing.
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(2) OPERATING EXPENSE INCREASES. Tenant shall pay to Landlord during the
Term hereof, in addition to the Base Rent, Tenant's Share of the
amount by which all Operating Expenses for each Comparison Year (as
defined in Section 4.2(b) below) exceeds the amount of all Operating
Expenses (as defined in Section 4.2(c) below) for the Base Year. If
less than 95% of the rentable square feet in the Project is occupied
by tenants or Landlord is not supplying services to 95% of the
rentable square feet of the Project at any time during any calendar
year (including the Base Year), Operating Expenses for such calendar
year shall be an amount equal to the Operating Expenses which would
normally be expected to be incurred had 95% of the Project's rentable
square feet been occupied and had Landlord been supplying services to
95% of the Project's rentable square feet throughout such calendar
year (hereinafter the "Grossed Up Operating Expenses"). Landlord's
good faith estimate of Grossed Up Operating Expenses shall not be
Subject to challenge or recalculation by Tenant. Tenant's Share of
Operating Expense Increases shall be determined in accordance with
the following provisions:
(1) "Tenant's Share" is defined as the percentage set forth in
Section 1.11, which percentage has been determined by
dividing the number bf rentable square feet in the Premises
by the total number of rentable square feet in the Project
and multiplying the resulting quotient by one hundred (100).
In the event that the number of rentable square feet in the
Project or the Premises changes, Tenant's Share shall be
adjusted in the year the change occurs, and Tenant's Share
for such year shall be determined on the basis of the days
during such year that each Tenant's Share was in effect.
(2) "Comparison Year" is defined as each calendar year during
the, Term of this Lease after the Base Year. Tenant's Share
of the Operating Expense increases for the last Comparison
Year of the Term of this Lease shall be prorated according
to that portion of such Comparison Year as to which Tenant
is responsible for a share of such increase.
(3) "Operating Expenses" shall include all costs, expenses and
fees incurred by Landlord in connection with or attributable
to the Project, including but not limited to, the following
items: (i) all costs, expenses and fees associated with or
attributable to the ownership, management, operation,
repair, maintenance, improvement, alteration and replacement
of the Project, or any part thereof, including but not
limited to, the following: (A) all surfaces, coverings,
decorative items, carpets, drapes, window coverings, parking
areas, loading and unloading areas, trash areas, roadways,
sidewalks, stairways, walls, structural elements, landscaped
areas, striping, bumpers, irrigation systems, lighting
facilities, building exteriors and roofs, fences and gates;
(B) all heating, ventilating and air conditioning equipment
("HVAC") (including, but not limited to, the cost of
replacing or retrofitting HVAC equipment to comply with laws
regulating or prohibiting the use or release of
chlorofluorocarbons or hydro chlorofluorocarbons), plumbing,
mechanical, electrical systems, life safety systems and
equipment, telecommunication equipment, elevators,
escalators, tenant directories, fire detection systems
including sprinkler system maintenance and repair; (ii) the
cost of trash disposal, janitorial services and security
services and systems; (iii) the cost of all insurance
purchased by Landlord and enumerated in Section 8 of this
Lease, including any deductibles; (iv) the cost of water,
sewer, gas, electricity, and other utilities available at
the Project and paid by Landlord; (v) the cost of labor,
salaries and applicable fringe benefits incurred by
Landlord; (vi) the cost of materials, supplies and tools
used in managing, maintaining and/or cleaning the Project:
(vii) the cost of accounting fees, management fees (NOT TO
EXCEED FOUR PERCENT (4%) OF GROSS ANNUAL RENTS), legal fees
and consulting fees attributable to the ownership,
operation, management, maintenance and repair of the Project
plus the cost of any space occupied by the property manager
WHICH SUCH COST
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PERTAINING TO SPACE OCCUPIED BY THE PROPERTY MANAGER SHALL
BE APPORTIONED AMONG ALL BUILDINGS FOR WHICH THE PROPERTY
MANAGER IS RESPONSIBLE (if Landlord is the property manager,
Landlord shall be entitled to receive a fair market
management fee); (viii) the cost of operating, replacing,
modifying and/or adding improvements or equipment mandated
by any law, statute, regulation or directive of any
governmental agency and any repairs or removals necessitated
thereby (including, but not limited to, the cost of
complying with the Americans With Disabilities Act and
regulations of the Occupational Safety and Health
Administration); (ix) payments made by Landlord under any
easement, license, operating agreement, declaration,
restrictive covenant, or instrument pertaining to the
payment or sharing of costs among property owners; (x) any
business property taxes or personal property taxes imposed
upon the fixtures, machinery, equipment, furniture and
personal property used in connection with the operation of
the Project; (xi) the cost of all business licenses,
including Business Professional and Occupational License
Taxes and Business Improvements Districts Taxes, any gross
receipt taxes based on rental income or other payments
received by Landlord, commercial rental taxes or any similar
taxes or fees (xii) transportation taxes, tees or
assessments, including but not limited to, mass
transportation fees, metrorail fees, trip fees, regional and
transportation district fees; (xiii) all costs and expenses
associated with or related to the implementation by Landlord
of any transportation demand management program or similar
program; (xiv) fees assessed by any air quality management
district or other governmental or quasi-governmental entity
regulating pollution; and (xvi) the cost of any other
service provided by Landlord or any cost that is elsewhere
stated in this Lease to be an "Operating Expense". Real
Property Taxes (as defined in Section 10 hereof) shall be
paid in accordance with Section 10 below and shall not be
included in Operating Expenses. Landlord shall have the
right but not the obligation, from time to time, to
equitably allocate some or all of the Operating Expenses
among different tenants of the Project or among the
different buildings which comprise the project (the "Cost
Pools"). Such Cost Pools may include, but shall not be
limited to, the office space tenants of the Project and the
retail space tenants of the Project.
(4) Operating Expenses shall not include any expenses paid by
any tenant directly to third parties, or as to which
Landlord is otherwise reimbursed by any third party or by
insurance proceeds.
SEE ADDENDUM PARAGRAPH 1
(5) If the cost incurred in making an improvement or replacing
any equipment is not fully deductible as an expense in the
year incurred in accordance with generally accepted
accounting principles, the cost shall be amortized over the
useful life of the improvement or equipment, as reasonably
determined by Landlord, together with an interest factor on
the unamortized cost of such item equal to the lesser of (i)
twelve percent (12%) per annum, or (ii) the maximum rate of
interest permitted by applicable law.
(6) Tenant's Share of Operating Expense increases shall be
payable by Tenant within TWENTY (20) days after a reasonably
detailed statement of actual expenses is presented to Tenant
by Landlord, at Landlord's option, however, Landlord may,
from time to time, estimate IN GOOD FAITH what Tenant's
Share of Operating Expense increases will be, and the same
shall be payable by Tenant monthly during each Comparison
Year of the Term of the Lease, on the same day as the Base
Rent is due hereunder. In the event that Tenant pays
Landlord's estimate of Tenant's Share of Operating Expense
increases, Landlord shall use its best efforts to deliver to
Tenant within one
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hundred eighty (180) days after the expiration of each
Comparison Year a reasonably detailed statement (the
"Statement") showing Tenant's Share of the actual Operating
Expense increases incurred during such year. Landlord's
failure to deliver the Statement to Tenant within said
period shall not constitute Landlord's waiver of its right
to collect said amounts or otherwise prejudice Landlord's
rights hereunder, HOWEVER, LANDLORD SHALL BE DEEMED TO HAVE
WAIVED ITS RIGHT TO COLLECT SAID AMOUNTS IF LANDLORD FALLS
TO DELIVER A STATEMENT WITHIN EIGHTEEN (18) MONTHS FOLLOWING
THE EXPIRATION OF THE APPLICABLE COMPARISON Year. If
Tenant's payments under this Section 4.2(f) during said
Comparison Year exceed Tenant's Share as indicated on the
Statement, Tenant shall be entitled to credit tho amount of
such overpayment against Tenant's Share of Operating Expense
increases next falling due. If Tenant's payments under this
Section 4.2(f) during said Comparison Year were less than
Tenant's Share as indicated on the Statement, Tenant shall
pay to Landlord the amount of the deficiency within thirty
(30) days after delivery by Landlord to Tenant of the
Statement. Landlord and Tenant shall forthwith adjust
between them by cash payment any balance determined to exist
with respect to that portion of the last Comparison Year for
which Tenant is responsible for Operating Expense increases,
notwithstanding that the Term of the Lease may have
terminated before the end of such Comparison Year; and this
provision shall survive the expiration or earlier
termination of the Lease.
(7) The computation of Tenant's Share of Operating Expense
increases is intended to provide a formula for the sharing
of costs by Landlord and Tenant and will not necessarily
result in the reimbursement to Landlord of the exact costs
it has incurred.
(8) If Tenant disputes the amount set forth in the Statement,
Tenant shall have the right, at Tenant's sole expense, not
later than ONE HUNDRED TWENTY (120) days following receipt
of such Statement, to cause Landlord's books and records in
respect to the calendar year which is the Subject of the
Statement to be audited by a certified public accountant
mutually acceptable to Landlord and Tenant. The audit shall
take place at the LOCAL offices of Landlord where its books
and records are located at a mutually convenient time during
Landlord's regular business hours. Tenant's Share of
Operating Expenses shall be appropriately adjusted based
upon the results of such audit, and the results of such
audit shall be final and binding upon Landlord and Tenant.
Tenant shall have no right to conduct an audit or to give
Landlord notice that it desires to conduct an audit at any
time Tenant is in default under the Lease AFTER EXPIRATION
OF ANY APPLICABLE NOTICE AND CURE PERIODS. The accountant
conducting the audit shall be compensated on an hourly basis
and shall not be compensated based upon a percentage of
overcharges it discovers. No subtenant shall have any right
to conduct an audit, and no assignee shall conduct an audit
for any period during which such assignee was not in
possession of the Premises. Tenant's right to undertake an
audit with respect to any calendar year shall expire ONE
HUNDRED TWENTY (120) days after Tenant's receipt of the
Statement for such calendar year, and such Statement shall
be final and binding upon Tenant and shall, as between the
parties, be conclusively deemed correct, at the end of such
ONE HUNDRED TWENTY (120) day period, unless prior thereto
Tenant shall have given Landlord written notice of its
intention to audit Operating Expenses for the calendar year
which is the Subject of the Statement. If Tenant gives
Landlord notice of its intention to audit Operating
Expenses, it must commence such audit within sixty (60) days
after such notice is delivered to Landlord, and the audit
must be completed within one hundred twenty (120) days after
such notice is delivered to Landlord. If Tenant does not
commence and complete the audit within such periods, the
Statement which Tenant elected to audit shall be deemed
final and binding upon Tenant and
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shall, as between the parties, be conclusively deemed
correct. LANDLORD SHALL USE REASONABLE EFFORTS TO COOPERATE
WITH TENANT'S AUDIT. Tenant agrees that IT SHALL USE ITS
BEST EFFORTS TO KEEP the results of any Operating Expenses
audit confidential and not TO disclose SUCH RESULTS to any
other person or entity. IF SUCH AUDIT DETERMINES THAT AN
ERROR HAS BEEN MADE IN LANDLORD'S DETERMINATION AND
CALCULATION WHICH RESULTS IN AN ADJUSTMENT TO THE AMOUNTS
DETERMINED AND CALCULATED BY LANDLORD IN THE AMOUNT OF SEVEN
PERCENT (7%) OR MORE, LANDLORD SHALL PAY FOR THE FEES AND
EXPENSES OF SUCH FIRM, BUT IF SUCH ADJUSTMENTS IS LESS THAN
SEVEN PERCENT (7%), TENANT SHALL PAY FOR SUCH FEES.
SEE ADDENDUM PARAGRAPH 2
5. SECURITY DEPOSIT. Tenant shall deliver to Landlord at the time it executes
this Lease the Security Deposit set forth in Section 1.10 as security for
Tenant's faithful performance of Tenant's obligations hereunder. If Tenant
fails to pay Base Rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Landlord may use all or any
portion of said deposit for the payment of any Base Rent or other charge due
hereunder, to pay any other sum to which Landlord may become obligated by
reason of
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Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any
portion of said deposit, Tenant shall within ten (10) days after written
demand therefor deposit cash with Landlord in an amount sufficient to restore
said deposit to its full amount. Landlord shall not be required to keep said
Security Deposit separate from its general accounts. If Tenant performs all
of Tenant's obligations hereunder, said deposit, or so much thereof as has
not heretofore been applied by Landlord, shall be returned, without payment
of interest or other amount for its use, to Tenant (or, at Landlord's option,
to the last assignee, if any, of Tenant's interest hereunder) at the
expiration of the Term hereof, and after Tenant has vacated the Premises. No
trust relationship is created herein between Landlord and Tenant with respect
to said Security Deposit. Tenant acknowledges that the Security Deposit is
not an advance payment of any kind or a measure of Landlord's damages in the
event of Tenant's default. Tenant hereby waives the provisions of any law
which is inconsistent with this Section 5.
6. USE.
(1) USE. The Premises shall be used and occupied only for the purpose set
forth in Section 1.5 and for no other purpose. If Section 1.5 gives
Tenant the right to use the Premises for general office use, by way
of example and not limitation, general office use shall not include
medical office use or any similar use, laboratory use, classroom use,
any use not characterized by applicable zoning and land use
restrictions as general office use, or any use which would require
Landlord or Tenant to obtain a conditional use permit or variance
from any federal, state or local authority, or any use not
compatible, in Landlord's sole BUT REASONABLE judgment, with a first
class office building. Notwithstanding any permitted use inserted in
Section 1.5, Tenant shall not use the Premises for any purpose which
would violate the Project's certificate of occupancy, any conditional
use permit or variance applicable to tho Project or violate any
covenants, conditions or other restrictions applicable to the Project
OF WHICH TENANT HAS notice. No exclusive use has been granted to
Tenant hereunder.
(2) COMPLIANCE WITH LAW.
(1) Landlord warrants to Tenant that, to the best of Landlord's
knowledge, the Premises, in the state existing on the date
this Lease is executed by Landlord and Tenant, but without
regard to alterations or improvements to be made by the
Tenant or the use for which Tenant will occupy the Premises,
does not violate any covenants or restrictions of record, or
any applicable building code, regulation or ordinance in
effect on such date. If Tenant occupies the Premises at the
time this Lease is executed, this warranty shall be of no
force or effect.
(2) Tenant shall, at Tenant's sole expense, promptly comply with
all applicable laws, ordinances, rules, regulations, orders,
certificates of occupancy, conditional use or other permits,
variances, covenants and restrictions of record, the
recommendations of Landlord's engineers or other
consultants, and requirements of any fire insurance
underwriters, rating bureaus or government agencies, now in
effect or which may hereafter come into effect, whether or
not they reflect a change in policy from that now existing,
during the Term or any part of the Term hereof, relating in
any manner to the Premises or the occupation and use by
Tenant of the Premises. Tenant shall, at Tenant's sole
expense, comply with all requirements of the Americans With
Disabilities Act that relate to the Premises, and all
federal, state and local laws and regulations governing
occupational safety and health. Tenant shall conduct its
business and use the Premises in a lawful manner and shall
not use or permit the use of the Premises or the Common
Areas in any manner that will tend to create waste or a
nuisance or shall tend to disturb other occupants of the
Project. Tenant shall obtain, at Its sole expense, any
permit or other governmental authorization required to
operate its business
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from the Premises. Landlord shall not be liable for the
failure of any other tenant or person to abide by the
requirements of this Section or to otherwise comply with
applicable laws and regulations, and Tenant shall not be
excused from the performance of its obligations under this
Lease due to such a failure.
(3) CONDITION OF PREMISES. Except as otherwise provided in this Lease,
Tenant hereby accepts the Premises and the Project in their condition
existing as of the date this Lease is executed by Landlord and
Tenant, Subject to all applicable federal, state and local laws,
ordinances, regulations and permits governing the use of the
Premises, the Project's certificate of occupancy, any applicable
conditional use permits or variances, and any easements, covenants or
restrictions affecting the use of the Premises or the Project. Tenant
acknowledges that it has satisfied itself by its own independent
investigation that the Premises and the Project are suitable for its
intended use, and that neither Landlord nor Landlord's agents has
made any representation or warranty as to the present or future
suitability of the Premises, or the Project for the conduct of
Tenant's business.
SEE ADDENDUM PARAGRAPH 3
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
(1) LANDLORD'S OBLIGATIONS. Landlord shall keep the Project (excluding
the interior of the Premises and space leased to other occupants of
the Project) in good condition and repair COMPARABLE TO OTHER SIMILAR
OFFICE BUILDINGS IN THE RESTON/HERNDON, VIRGINIA AREA. If plumbing
pipes, electrical wiring, HVAC ducts or vents within the Premises are
in need of repaid, Tenant shall PROMPTLY notify Landlord, and
Landlord shall cause the repairs to be completed within a reasonable
time, and Tenant shall PROMPTLY pay the entire cost of the repairs to
Landlord WITHIN TWENTY (20) DAYS OF RECEIPT OF AN INVOICE. Except as
provided in Section 9.3, there shall be no abatement of rent or
liability to Tenant on account of any injury or interference with
Tenant's business with respect to any improvements, alterations or
repairs made by Landlord to the Project or any part thereof. Tenant
expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Tenant the right to make repairs
and Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Project in good order, condition and
repair. THE FOREGOING WAIVER SHALL NOT INCLUDE A WAIVER OF TENANT'S
RIGHT, IF ANY, TO BRING AN ACTION FOR CONSTRUCTIVE EVICTION OR BREACH
OF ITS COVENANT OF QUIET ENJOYMENT.
(2) TENANT'S OBLIGATIONS.
(1) Subject to the requirements of Section 7.3, Tenant shall be
responsible for keeping the Premises in good condition and
repair, ORDINARY WEAR AND TEAR EXCEPTED, at Tenant's sole
expense. By way of example, and not limitation, Tenant shall
be responsible, at Tenant's sole expense, for repairing
and/or replacing, carpet, marble, tile or other flooring,
paint, wall coverings, corridor and interior doors and door
hardware, telephone and computer equipment, Interior glass,
window treatments, ceiling tiles, shelving, cabinets,
millwork and other tenant Improvements. In addition, Tenant
shall bo responsible for tho installation, maintenance and
repair of all telephone, computer and related cabling from
the telephone terminal room on the floor on which the
Premises is located to and throughout the Premises, and
Tenant shall be responsible for any loss, cost, damage,
liability and expense (including attorneys' fees) arising
out of or related to the installation, maintenance, repair
and replacement of such cabling. If Tenant fails to keep the
Premises in good condition and repair, Landlord may, but
shall not be obligated to, make any necessary repairs UPON
REASONABLE PRIOR NOTICE TO TENANT, EXCEPT IN AN EMERGENCY
WHERE NO SUCH NOTICE SHALL BE REQUIRED. If Landlord makes
such repairs, Landlord shall bill Tenant for the cost of the
repairs as additional
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rent, and said additional rent shall be payable by Tenant
within THIRTY (30) days.
(2) On the last day of the Term hereof, or on any sooner
termination, Tenant shall surrender the Premises to Landlord
in the same condition as received, ordinary wear and tear
and casualty damage excepted, clean and free of debris and
Tenant's personal property. Tenant shall repair any damage
to tho Premises occasioned by the installation or removal of
Tenant's trade fixtures, furnishings and equipment. Tenant
shall leave the electrical distribution systems, plumbing
systems, lighting fixtures, HVAC ducts and vents, window
treatments, wall coverings, carpets and other floor
coverings, doors and door hardware, millwork, ceilings and
other tenant improvements at the Premises and in good
condition, ordinary wear and tear excepted.
(3) ALTERATIONS AND ADDITIONS.
(1) Tenant shall not, without Landlord's prior written consent,
which may be given or withheld in Landlord's sole
discretion, make any alterations, improvements, additions,
utility installations or repairs (hereinafter collectively
referred to as "Alteration(s)") in, on or about the Premises
or the Project. Alterations shall include, but shall not be
limited to, the installation or alteration of security or
fire protection systems, communication systems, millwork,
shelving, file retrieval or storage systems, carpeting or
other floor covering, window and wall coverings, electrical
distribution systems, lighting fixtures, telephone or
computer system wiring, HVAC and plumbing. At the expiration
of the Term, Landlord may require the removal of any
Alterations installed by Tenant and the restoration of the
Premises and the Project to their prior condition, at
Tenant's expense. If a work letter agreement is entered into
by Landlord and Tenant, Tenant shall not be obligated to
remove the tenant improvements constructed in accordance
with the work letter agreement. If, as a result of any
Alteration made by Tenant, Landlord is obligated to comply
with the Americans With Disabilities Act or any other law or
regulation and such compliance requires Landlord to make any
improvement or Alteration to any portion of the Project, as
a condition to Landlord's consent, Landlord shall have the
right to require Tenant to pay to Landlord prior to the
construction of any Alteration by Tenant, the entire cost of
any improvement or Alteration Landlord is obligated to
complete by such law or regulation. Should Landlord permit
Tenant to make its own Alterations, Tenant shall use only
such contractor as has been REASONABLY approved by Landlord,
and Landlord may require Tenant to provide to Landlord, at
Tenant's sole cost and expense, a lien and completion bond
in an amount equal to one and one-half times the estimated
cost of such Alterations, to insure Landlord against any
liability for mechanic's and materialmen's liens and to
insure completion of the work. In addition, Tenant shall pay
to Landlord a fee equal to THREE PERCENT (3%) of the cost of
the Alterations to compensate Landlord for the overhead and
other costs it incurs in reviewing the plans for the
Alterations and in monitoring the construction of the
Alterations. TENANT SHALL NOT BE REQUIRED TO PAY A THREE
PERCENT (3%) FEE IN CONNECT/ON WITH COSMETIC NONSTRUCTURAL
ALTERATIONS CONSISTING OF PAINTING, WALLPAPERING AND
CARPETING. Should Tenant make any Alterations without the
prior approval of Landlord, or use a contractor not
expressly approved by Landlord, Landlord may, at any time
during the Term of this Lease, require that Tenant remove
all or part of the Alterations and return the Premises to
the condition it was in prior to the making of the
Alterations. In the event Tenant makes any Alterations,
Tenant agrees to obtain or cause its contractor to obtain,
prior to the commencement of any work, "builders all risk"
insurance in an amount approved by Landlord and workers
compensation insurance.
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SEE ADDENDUM PARAGRAPH 4
(2) Any Alterations in or about the Premises that Tenant shall
desire to make shall be presented to Landlord in written
form, with plans and specifications which are sufficiently
detailed to obtain a building permit, TO THE EXTENT REQUIRED
BY LAW. If Landlord consents to an Alteration, the consent
shall be deemed conditioned upon Tenant acquiring a building
permit from the applicable governmental agencies, furnishing
a copy thereof to Landlord prior to the commencement of the
work, and compliance by Tenant with all conditions of said
permit in a prompt and expeditious manner. Tenant shall
provide Landlord with as-built plans and specifications for
any Alterations made to the Premises.
(3) Tenant shall pay, when due, all claims for labor or
materials furnished to or for Tenant at or for use in the
Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or the
Project, or any interest therein. If Tenant shall, in good
faith, contest the validity of any such lien, Tenant shall
furnish to Landlord a surety bond satisfactory to Landlord
in an amount equal to not less than one and one half times
the amount of such contested lien or claim indemnifying
Landlord against liability arising out of such lien or
claim. Such bond shall be sufficient in form and amount to
free the Project from the effect of such lien. In addition,
Landlord may require Tenant to pay Landlord's reasonable
attorneys' fees and costs in participating in such action.
(4) Tenant shall give Landlord not less than ten (10) days'
advance written notice prior to the commencement of any work
in the Premises by Tenant, and Landlord shall have the right
to post notices of non-responsibility in or on the Premises
or the Project.
(5) All Alterations (whether or not such Alterations constitute
trade fixtures or Tenant) which may be made to the Premises
by Tenant shall be paid for by Tenant, at Tenant's sole
expense, and shall be made and done in a good and
workmanlike manner and with new materials REASONABLY
satisfactory to Landlord and such Alterations shall be the
property of Landlord and remain upon and be surrendered with
the Premises at the expiration of the Term of the Lease.
Provided Tenant is not in default BEYOND THE EXPIRATION OF
ANY NOTICE AND CURE PERIOD, Tenant's personal property and
equipment, other than that which is affixed to the Premises
so that it cannot be removed without material damage to the
Premises or the Project, shall remain the property of Tenant
and may be removed by Tenant subject to the provisions of
Section 7.2(b).
(4) FAILURE OF TENANT TO REMOVE PROPERTY. If this Lease is terminated due
to the expiration of its Term or otherwise, and Tenant fails to
remove its property as required by Section 7.2(b), in addition to any
other remedies available to Landlord under this Lease, and Subject to
any other right or remedy Landlord may have under applicable law,
Landlord may remove any property of Tenant from the Premises and
store the same elsewhere at the expense and risk of Tenant.
8. INSURANCE.
(1) INSURANCE-TENANT.
(1) Tenant shall obtain and keep in force during the Term of
this Lease a commercial general liability policy of
insurance with coverages acceptable to Landlord, in
Landlord's sole discretion, which by way of example and not
limitation, protects Tenant and Landlord (as an additional
insured) against claims for bodily injury, personal injury
and property damage based upon,
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involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant
thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount of not less
than Two Million Dollars ($2,000,000) per occurrence with an
"Additional Insured-Managers and Landlords of Premises
Endorsement" and contain the "Amendment of the Pollution
Exclusion" for damage caused by heat, smoke or fumes from a
hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of
Tenant's indemnity obligations under this Lease.
(2) Tenant shall obtain and keep in force during the Term of
this Lease "all risk" extended coverage property insurance
with coverages acceptable to Landlord, in Landlord's sole
discretion. Said insurance shall be written on a one hundred
percent (100%) replacement cost basis on Tenant's personal
property, all tenant improvements Installed at the Premises
by Landlord or Tenant, Tenant's trade fixtures and other
property. By way of example and not limitation, such
policies shall provide protection against any peril included
within the classification "fire and extended coverage,"
against vandalism and malicious mischief, theft, sprinkler
leakage, earthquake damage and flood damage. If this Lease
is terminated as the result of a casualty in accordance with
Section 9, the proceeds of said insurance attributable to
the replacement of all tenant improvements at the Premises
PAID FOR BY LANDLORD, shall be paid to Landlord. If
insurance proceeds are available to repair the tenant
improvements, at Landlord's option, all insurance proceeds
Tenant is entitled to receive to repair the tenant
improvements shall be paid by the insurance company directly
to Landlord. Landlord shall select the contractor to repair
and/or replace the tenant improvements, and Landlord shall
cause the tenant improvements to be repaired and/or replaced
to the extent insurance proceeds are available.
(3) Tenant shall, at all times during the Term hereof, maintain
in effect workers' compensation insurance as required by
applicable law and business interruption and extra expense
insurance satisfactory to Landlord.
(2) INSURANCE-LANDLORD.
(1) Landlord shall obtain and keep in force a policy of general
liability insurance with coverage against such risks and in
such amounts as Landlord deems advisable insuring Landlord
against liability arising out of the ownership, operation
and management of the Project.
(2) Landlord shall also obtain and keep in force during the Term
of this Lease a policy or policies of insurance covering
loss or damage to the Project in the amount of not less than
NINETY PERCENT (90%) of the full replacement cost thereof,
as determined by Landlord from time to time. The terms and
conditions of said policies and the perils and risks covered
thereby shall be determined by Landlord, from time to time,
in Landlord's sole discretion. In addition, at Landlord's
option, Landlord shall obtain and keep in force, during the
Term of this Lease, a policy of rental interruption
insurance, with loss payable to Landlord, which insurance
shall, at Landlord's option, also cover all Operating
Expenses. At Landlord's option, Landlord may obtain
insurance coverages and/or bonds related to the operation of
the parking areas. At Landlord's option, Landlord may obtain
coverage for flood damages. In addition, Landlord shall have
the right to obtain such additional insurance as is
customarily carried by owners or operators of other
comparable office buildings in the geographical area of the
Project. Tenant will not be named as an additional insured
in any insurance policies carried by Landlord and shall have
no right to any proceeds therefrom. The
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policies purchased by Landlord shall contain such
deductibles as Landlord may determine. In addition to
amounts payable by Tenant in accordance with Section 4.2,
Tenant shall pay any increase in the property insurance
premiums for the Project over what was payable immediately
prior to the increase to the extent the increase is
specified by Landlord's insurance carrier as being caused by
the nature of Tenant's occupancy or any act or omission of
Tenant.
(3) INSURANCE POLICIES. Tenant shall deliver to Landlord copies of the
insurance policies required under Section 8.1 within fifteen (15)
days prior to the Commencement Date of this Lease, and Landlord shall
have the right to approve the terms and conditions of said policies.
Tenant's insurance policies shall not be cancelable or Subject to
reduction of coverage or other modification except after thirty (30)
days prior written notice to Landlord. Tenant shall, at least thirty
(30) days prior to the expiration of such policies, furnish Landlord
with renewals thereof. Tenant's insurance policies shall be issued by
insurance companies authorized to do business in the state in which
the Project is located, and said companies shall maintain during the
policy term a "General Policyholders' Rating" of at least "A" and a
financial rating of at least "Class X" (or such other rating as may
be required by any lender having a lien on the Project), as set forth
in the most recent edition of "Best Insurance Reports." All insurance
obtained by Tenant shall be primary to and not contributory with any
similar insurance carried by Landlord, whose insurance shall be
considered excess insurance only. Landlord, and at Landlord's option,
the holder of any mortgage or deed of trust encumbering the Project
and any person or entity managing the Project on behalf of Landlord,
shall be named as an additional insured on all insurance policies
Tenant is obligated to obtain by-Section 8.1 above. Tenant's
insurance policies shall not include deductibles in excess of Five
Thousand Dollars ($5,000).
(4) WAIVER OF SUBROGATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THIS LEASE, TENANT AND LANDLORD EACH HEREBY RELEASE AND RELIEVE THE
OTHER, AND WAIVE THEIR ENTIRE RIGHT OF RECOVERY AGAINST THE OTHER,
AND THE OTHER'S AGENTS AND EMPLOYEES, FOR DIRECT OR CONSEQUENTIAL
LOSS OR DAMAGE ARISING OUT OF OR INCIDENT TO THE PERILS COVERED BY
INSURANCE CARRIED BY SUCH PARTY (OR REQUIRED TO BE CARRIED BY SUCH
PARTY BY THIS LEASE) TO THE EXTENT OF THE INSURANCE PROCEEDS ACTUALLY
RECEIVED (OR WOULD HAVE BEEN RECEIVED HAD SUCH PARTY CARRIED THE TYPE
AND AMOUNT OF INSURANCE REQUIRED UNDER THIS LEASE), WHETHER DUE TO
THE NEGLIGENCE OF LANDLORD OR TENANT OR THEIR AGENTS, EMPLOYEES,
CONTRACTORS AND/OR INVITEES. LANDLORD AND TENANT SHALL EACH CAUSE THE
INSURANCE POLICIES THEY OBTAIN IN ACCORDANCE WITH THIS SECTION 8 TO
PROVIDE THAT THE INSURANCE COMPANY WAIVES ALL RIGHT OF RECOVERY BY
SUBROGATION AGAINST EITHER PARTY IN CONNECTION WITH ANY DAMAGE
COVERED BY ANY POLICY.
(5) COVERAGE. Landlord makes no representation to Tenant that the limits
or forms of coverage specified above or approved by Landlord are
adequate to insure Tenants
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property or Tenants obligations under this Lease and the limits of
any insurance carried by Tenant shall not limit Tenant s obligations
or liability under any indemnity provision included in this Lease or
under any other provision of this Lease.
9. DAMAGE OR DESTRUCTION.
(1) EFFECT OF DAMAGE OR DESTRUCTION. If all or part of the Project is
damaged by fire earthquake flood explosion the elements riot the
release or existence of Hazardous Substances (as defined in Section
22 below) or by any other cause whatsoever (hereinafter collectively
referred to as Damages ) but the Damages are not Material (as defined
in Section 9.2 below) Landlord shall repair the Damages to the
Project as soon as is reasonably possible and this Lease shall remain
in full force and effect. If all or part of the Project is destroyed
or Materially Damaged Landlord shall have the right in its sole and
complete discretion to repair or to rebuild the Project or to
terminate this Lease, PROVIDED LANDLORD TERMINATES ALL OTHER LEASES
IN THE Project. Landlord shall within one hundred twenty (120) days
after the discovery of such Material Damage or destruction notify
Tenant in writing of Landlord's intention to repair or to rebuild or
to terminate this Lease. Tenant shall in no event be entitled to
compensation or damages on account of annoyance or inconvenience in
making any repair or on account of construction or on account of
Landlord s election to terminate this Lease. Notwithstanding the
foregoing if Landlord shall elect to rebuild or repair the Project
after Material Damage or destruction but in good faith determines
that the Premises cannot be substantially repaired within TWO HUNDRED
SEVENTY (270) days after the date of the discovery of the Material
Damage or destruction without payment of overtime or other premiums
and the Damage to the Project will render the entire Premises
unusable during said TWO HUNDRED SEVENTY (270) day period. Landlord
shall notify Tenant thereof in writing at the time of Landlord's
election to rebuild or repair and Tenant shall thereafter have a
period of fifteen (15) BUSINESS days within which Tenant may elect to
terminate this Lease upon thirty (30) days advance written notice to
Landlord. TENANT SHALL HAVE A FURTHER RIGHT TO TERMINATE THIS LEASE
IF THE PREMISES ARE DAMAGED DURING THE LAST TWELVE (12) MONTHS OF THE
TERM OF THE LEASE AND SUCH DAMAGE CANNOT, IN LANDLORD'S REASONABLE
JUDGMENT, BE REPAIRED WITHIN NINETY (90) DAYS. Tenant s termination
right described in the preceding sentence shall not apply if the
Damage was caused by the negligent or intentional acts of Tenant or
its employees agents contractors or invitees. Failure of Tenant to
exercise said election within said fifteen (15) BUSINESS day period
shall constitute Tenants agreement to accept delivery of the Premises
under this Lease whenever tendered by Landlord provided Landlord
thereafter pursues reconstruction or restoration diligently to
completion Subject to delays caused by Force Majeure Events. If
Landlord is unable to repair the Damage to the Premises or the
Project during such TWO HUNDRED SEVENTY (270) day period due to Force
Majeure Events the TWO HUNDRED SEVENTY (270) day period shall be
extended by the period of delay caused by the Force Majeure Events.
Subject to Section 9.3 below if Landlord or Tenant terminates this
Lease in accordance with this Section 9.1, Tenant shall continue to
pay ail Base Rent Operating Expense increases Real Property Tax
increases and other amounts due hereunder which arise prior to the
date of termination.
(2) DEFINITION OF MATERIAL DAMAGE. Material Damage to the Project shall
occur if in Landlord s reasonable judgment the uninsured cost of
repairing the Damage will exceed FIFTY THOUSAND DOLLARS ($50,000). If
Insurance proceeds are available to Landlord in an amount which is
sufficient to pay the entire cost of repairing ail of the Damage to
the Project the Damage shall be deemed material if the cost of
repairing the Damage exceeds TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000). Damage to the Project shall be deemed Material if (a) the
Project cannot be rebuilt or repaired to substantially the same
condition it was in prior to the Damage due to laws or regulations in
effect at the time the repairs will be made (b) the holder of any
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mortgage or deed of trust encumbering the Project requires that
insurance proceeds available to repair the Damage in excess of FIFTY
THOUSAND DOLLARS ($50,000) be applied to the repayment of the
indebtedness secured by the mortgage or the deed of trust or (c) the
Damage occurs during the last twelve (12) months of the Term of the
Lease.
(3) ABATEMENT OF RENT. If Landlord elects to repair Damage to the Project
and ail or part of the Premises will be unusable or inaccessible to
Tenant in the ordinary conduct of its business until the Damage is
repaired and the Damage was not caused by the GROSS negligence or
intentional acts of Tenant or its employees agents contractors or
invitees Tenants Base Rent Tenant's Share of Operating Expense
increases and Tenant's Share of Real Property Taxes shall be abated
FROM THE DATE THE PREMISES ARE DAMAGED OR DESTROYED until the repairs
are completed in proportion to the amount of the Premises which is
unusable or inaccessible to Tenant in the ordinary conduct of its
Business. EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPH 5 OF THE ADDENDUM
ATTACHED HERETO, NOTWITHSTANDING the foregoing there shall be no
abatement of Base Rent Tenant s Share of Operating Expense increases
and Tenant s Share of Real Property Taxes by reason of any portion of
the Premises being unusable or inaccessible for a period equal to
five (5) consecutive business days or less. If the cause of the
Damage or destruction is an earthquake or a flood Tenant shall only
be entitled to an abatement of rent when and if Landlord receives
reimbursement for such rent from insurance proceeds if any.
(4) TENANT'S ACTS. If such Damage or destruction occurs as a result of
the GROSS negligence or the intention acts of Tenant or Tenant's
employees, agents, contractors or invitees, and the proceeds of
insurance which are actually received by Landlord are not sufficient
to pay for the repair of all of the Damage, Tenant shall pay, at
Tenant's sole cost and expense, to Landlord upon demand, the
difference between the cost of repairing the Damage and the insurance
proceeds received by Landlord.
(5) TENANT'S PROPERTY. As more fully set forth in Section 21, EXCEPT
WHERE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
LANDLORD, ITS EMPLOYEES, AGENTS OR CONTRACTORS, Landlord shall not be
liable to Tenant or its employees, agents, contractors, invitees or
customers for loss or Damage to merchandise, tenant improvements,
fixtures, automobiles, furniture, equipment, computers, files or
other property (hereinafter collectively "Tenant's property") located
at the Project. Tenant shall repair or replace all of Tenant's
property at Tenant's sole cost and expense. Tenant acknowledges that
it is Tenant's sole responsibility to obtain adequate insurance
coverage to compensate Tenant for Damage to Tenant's property.
(6) WAIVER. Landlord and Tenant hereby waive the provisions of any
statutes which relate to the termination of leases when leased
property is damaged or destroyed and agree that such event shall be
governed by the terms of this Lease.
10. REAL AND PERSONAL PROPERTY TAXES.
(1) PAYMENT OF TAXES. Tenant shall pay to Landlord during the Term
hereof, in addition to Base Rent and Tenant s Share of Operating
Expense Increases, Tenant s Share of the amount by which all Real
Property Taxes (as defined in Section 10.2 below) for each Comparison
Year exceeds the amount of ail Real Property Taxes for the Base Year.
Tenant s Share of Real Property Tax increases shall be payable by
Tenant at the same time, in the same manner and under the same terms
and conditions as Tenant pays Tenant s Share of Operating Expense
increases as provided in Section 4.2(f) of this Lease. Except as
expressly provided in Section 10.4 below, if the Real Property Taxes
incurred during any Comparison Year are less that the Real Property
Taxes incurred during the Base Year, Tenant shall not be entitled to
receive any credit, offset, reduction or benefit as a result of said
occurrence.
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(2) DEFINITION OF "REAL PROPERTY TAX." As used herein, the term Real
Property Tax shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, improvement bond or
bonds imposed on the Project or any portion thereof by any authority
having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Landlord in
the Project or in any portion thereof, unless such tax is defined as
an Operating Expense by Section 4.2(c). Real Property Taxes shall not
include income, inheritance, FRANCHISE, ESTATE, EXCISE, EXCESS
PROFITS TAXES, TRANSFER, RECORDATION OR gift taxes. UPON TENANT'S
REQUEST, LANDLORD SHALL FORWARD TO TENANT A COPY OF THE APPLICABLE
TAX STATEMENTS SETTING FORTH THE APPLICABLE TAXES ADDRESSED IN THIS
SECTION 10.2.
(3) PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings,
equipment and ail other personal property of Tenant contained in the
Premises or related to Tenant's use of the Premises, if any of
Tenants personal property shall be assessed with Landlord s real or
personal property, Tenant shall pay to Landlord the taxes
attributable to Tenant within ten (10) days after receipt of a
written statement from Landlord setting forth the taxes applicable to
Tenant s property.
(4) REASSESSMENTS. From time to time Landlord may challenge the assessed
value of the Project as determined by applicable taxing authorities
and/or Landlord may attempt to cause the Real Property Taxes to be
reduced on other grounds. If Landlord is successful in causing the
Real Property Taxes to be reduced or in obtaining a refund, rebate,
credit or similar benefit (hereinafter collectively referred to as a
"reduction"), Landlord shall, credit the reduction(s) to Real
Property Taxes for the calendar year to which a reduction applies and
to recalculate the Real Property Taxes owed by Tenant for years after
the year in which the reduction applies based on the reduced Real
Property Taxes (if a reduction applies to Tenants Base Year, the Base
Year Real Property Taxes shall be reduced by the amount of the
reduction and Tenant s Share of Real Property Tax increases shall be
recalculated for all Comparison Years following the year of the
reduction based on the lower Base Year amount). ALL costs incurred by
Landlord in obtaining the Real Property Tax reductions shall be
considered an Operating Expense and Landlord shall determine, in its
sole discretion to which years any reductions will be applied. In
addition, all accounting and related costs incurred by Landlord in
calculating new Base Years for tenants and in making all other
adjustments shall be an Operating Expense.
11. UTILITIES.
(1) SERVICES PROVIDED BY LANDLORD. Subject to all governmental rules,
regulations and guidelines applicable thereto, Landlord shall provide
HVAC to the Premises for normal office use during the times described
in Section 11.4, reasonable amounts of electricity for normal office
lighting and fractional horsepower office machines, water in the
Premises or in the Common Areas for reasonable and normal drinking
and lavatory use, replacement light bulbs and/or fluorescent tubes
and ballasts for standard overhead fixtures, and building standard
janitorial services.
(2) OCCUPANT DENSITY. Tenant shall maintain a ratio of not more than one
Occupant (as defined below) for each two hundred (200) square feet of
rentable area in the Premises, PROVIDED LANDLORD ENFORCES THE DENSITY
REQUIREMENT UNIFORMLY
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AMONG ALL TENANTS IN THE PROJECT TO THE EXTENT POSSIBLE. Landlord
shall have the right to periodically visit the Premises without
advance notice to Tenant in order to track the number of Occupants
arriving at the Premises. FOR PURPOSES OF THIS SECTION, "OCCUPANTS"
SHALL REFER COLLECTIVELY TO EMPLOYEES, VISITORS, CONTRACTORS AND
OTHER PEOPLE THAT VISIT THE PREMISES. For purposes of this Section,
"Occupants" shall not include people not employed by Tenant that
deliver or pick up mail or other packages at the Premises, employees
of Landlord or employees of Landlord's agents or contractors. Tenant
acknowledges that increased numbers of Occupants causes additional
wear and tear on the Premises and the Common Areas, additional use of
electricity, water and other utilities, and additional demand for
other Building services. Tenant's failure to comply with the
requirements of this Section shall constitute a default under Section
13.1 and Landlord shall have the right, in addition to any other
remedies it may have at law or equity, to specifically enforce Tenant
s obligations under this Section.
(3) HOURS OF SERVICE. Building services and utilities shall be provided
Monday through Friday from 8:00 a.m. to 6:00 p.m. and Saturdays from
9:00 a.m. to 1:00 p.m. Janitorial services shall be provided Monday
through Friday. HVAC and other Building services shall not be
provided at other times or on nationally recognized holidays. Tenant
acknowledges that there will be no air circulation or temperature
control within the Premises when the HVAC is not operating and,
consequently during such times the Premises may not be suitable for
human occupation or for the operation of computers and other heat
sensitive equipment. Nationally recognized holidays shall include,
but shall not necessarily be limited to, New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Landlord shall use its
best efforts to provide HVAC to Tenant at times other than those set
forth above subject to (a) the payment by Tenant of Landlord's
standard charge, as determined by Landlord from time to time, in
Landlord's sole discretion, for after hours HVAC and (b) Tenant
providing to Landlord at least one (1) business day's advance written
notice of Tenant's need for after hours HVAC. As of the date of this
Lease, and subject to future increases EQUAL TO THE ACTUAL INCREASE
IN UTILITY CHARGES, the standard charge for after hours HVC is Forty
Dollars ($40.00) per hour. Tenant shall pay all after hours HVAC
charges to Landlord within TWENTY (20) days after Landlord bills
Tenant for said charges.
(4) EXCESS USAGE BY TENANT. Notwithstanding the use set forth in
Section 1.5, Tenant shall not use Building utilities or services in
excess of those used by the average office building tenant using its
premises for ordinary office use. Tenant shall not install at the
Premises office machines, lighting fixtures or other equipment which
will generate above average heat, noise or vibration at the Premises
or which will adversely effect the temperature maintained by the HVAC
system. If Tenant does use Building utilities or services in excess
of those used by the average office building tenant, Landlord shall
have the right, in addition to any other rights or remedies it may
have under this Lease, to (a) at Tenant's expense, install separate
metering devices at the Premises, and to charge Tenant for its usage,
(b) require Tenant to pay to Landlord all costs, expenses and damages
incurred by Landlord as a result of such usage, and (c) require
Tenant to stop using excess utilities or services. IN THE EVENT
TENANT OPERATES AS A DATA CENTER, LANDLORD AGREES TO PERMIT TENANT TO
INSTALL, OPERATE, MAINTAIN AND REPLACE AN UNINTERRUPTED POWER SOURCE
(UPS), STATIONARY BATTERIES, CHARGERS, AND/OR GENERATORS PROVIDED
TENANT OBTAINS ALL NECESSARY APPROVALS, PERMITS AND LICENSES FROM ALL
GOVERNMENTAL AUTHORITIES HAVING JURISDICTION OVER SUCH MATTERS.
LANDLORD ALSO AGREES TO PERMIT TENANT, SUBJECT TO THE TERMS AND
CONDITIONS OF THIS LEASE, TO UTILIZE A PORTABLE GENERATOR DURING
EMERGENCIES, OR ON AN AS-NEEDED BASIS. IN THE EVENT THAT LANDLORD
INSTALLS SEPARATE METERING DEVICES AT THE PREMISES AS PROVIDED IN (b)
ABOVE, TENANT SHALL
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PAY TO LANDLORD, WITHIN THIRTY (30) DAYS FROM RECEIPT OF AN INVOICE
FROM LANDLORD, ALL CHARGES FOR ELECTRICITY SUPPLIED TO THE PREMISES.
AT LANDLORD'S OPTION, HOWEVER, LANDLORD MAY, FROM TIME TO TIME,
REASONABLY ESTIMATE WHAT TENANTS CHARGES FOR ELECTRICITY FOR THE
PREMISES SHALL BE, AND THE SAME SHALL BE PAYABLE BY TENANT MONTHLY
DURING THE TERM ON THE SAME DAY AS BASE RENT IS DUE HEREUNDER
PROVIDED LANDLORD AFFORDS TENANT THIRTY (30) DAYS NOTICE OF THE
AMOUNT OF SUCH ESTIMATE. LANDLORD SHALL PERIODICALLY DELIVER TO
TENANT INVOICES FOR ACTUAL ELECTRICITY SUPPLIED TO THE PREMISES. IF
TENANT'S PAYMENTS FOR ESTIMATED ELECTRICITY CHARGES EXCEED THE ACTUAL
ELECTRICITY CHARGES, THEN TENANT SHALL RECEIVE A CREDIT AGAINST THE
ESTIMATED PAYMENT FOR ELECTRICITY NEXT FALLING DUE. IF TENANT'S
PAYMENTS FOR ESTIMATED ELECTRICITY CHARGES WERE LESS THAN THE ACTUAL
ELECTRICITY CHARGES, THEN TENANT SHALL PAY TO LANDLORD THE AMOUNT OF
THE DEFICIENCY WITHIN THIRTY (30) DAYS AFTER DELIVERY BY LANDLORD TO
TENANT OF SAID INVOICE. INVOICES FOR ELECTRICITY CHARGES SHALL NOT
INCLUDE ANY MARK-UP BY LANDLORD FOR SAID ELECTRICITY. IN ADDITION,
ELECTRICITY SUPPLIED TO THE COMMON AREAS SHALL BE A COMPONENT OF
OPERATING EXPENSES FOR WHICH TENANT IS LIABLE IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 4.2 OF THE LEASE.
(5) INTERRUPTIONS. Tenant agrees that Landlord shall not be liable to
Tenant for its failure to furnish gas, electricity, telephone
service, water, HVAC or any other utility services or building
services when such failure is occasioned, in whole or in part, by
repairs, replacements, or improvements, by any strike, lockout or
other labor trouble, by inability to secure electricity, gas, water,
telephone service or other utility at the Project, by any accident,
casualty or event arising from any cause whatsoever, including the
negligence of Landlord, its employees, agents and contractors, by
act, negligence or default of Tenant or any other person or entity,
or by an other cause, and such failures shall never be deemed to
constitute an eviction or disturbance of Tenant's use and possession
of the Premises or relieve Tenant from the obligation of paying rent
or performing any of its obligations under this Lease. Furthermore,
Landlord shall not be liable under any circumstances for loss of
property or for injury to, or interference with, Tenant's business,
including, without limitation, loss of profits, however occurring,
through or in connection with or incidental to a failure to furnish
any such services or utilities. Landlord may comply with voluntary
controls or guidelines promulgated by any governmental entity
relating to the use or conservation of energy, water, gas, light or
electricity or the reduction of automobile or other emissions without
creating any liability of Landlord to Tenant under this Lease.
SEE ADDENDUM PARAGRAPH 5
1. ASSIGNMENT AND SUBLETTING.
(a LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises (hereinafter collectively a "Transfer"), without Landlord's prior
written consent, which shall not be unreasonably withheld, DELAYED OR
CONDITIONED. Landlord shall respond to Tenant's written request for consent
hereunder within thirty (30) days after Landlord's receipt of the written
request from Tenant. Any attempted Transfer without such consent shall be void
and shall constitute a material default and breach of this Lease. Tenant's
written request for Landlord's consent shall include, and Landlord's thirty (30)
day response period referred to above shall not commence, unless and until
Landlord has received from Tenant, all of the following information: (a)
financial statements for the proposed assignee for the past three (3) years, TO
THE EXTENT AVAILABLE, prepared in accordance with generally accepted accounting
principles, (b) federal tax returns for the proposed assignee for the past three
(3) years OR FOR THE PROPOSED SUBTENANT FOR THE PAST YEAR, TO THE EXTENT
AVAILABLE, (d) a detailed description of the business the assignee or subtenant
intends to operate at the Premises, (e) the proposed effective date of the
assignment or sublease, (f) a copy of the proposed sublease or assignment
agreement which includes all of the terms and conditions of the proposed
assignment or sublease, (g) a detailed
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description of any ownership or commercial relationship between Tenant and the
proposed assignee or subtenant, and (h) a detailed description of any
Alterations the proposed assignee or subtenant desires to make to the Premises.
If the obligations of the proposed assignee or subtenant will be guaranteed by
any person or entity, Tenant's written request shall not be considered complete
until the information described in (a), (b) and (c) of the previous sentence has
been provided with respect to each proposed guarantor. "Transfer" shall also
include the transfer (a) if Tenant is a corporation, and Tenant's stock is not
publicly traded over a recognized securities exchange, of more than FORTY-NINE
PERCENT (49%) of the voting stock of such corporation during the Term of this
Lease (whether or not in one or more transfers) or the dissolution, merger or
liquidation of the corporation, or (b) if Tenant is a partnership or other
entity, of more than FORTY-NINE PERCENT (49%) of the profit and loss
participation in such partnership or entity during the Term of this Lease
(whether or not in one or more transfers) or the dissolution, merger or
liquidation of the partnership or entity. If Tenant is a limited or general
partnership (or is comprised of two or more persons, individually or as
co-partners). Tenant shall not be entitled to change or convert to (i) a limited
liability company, (ii) a limited liability partnership or (iii) any other
entity which possesses the characteristics of limited liability without the
prior written consent of Landlord, which consent may be given or withheld in
Landlord's sole discretion. Tenant's sole remedy in the event that Landlord
shall wrongfully withhold consent to or disapprove any assignment or sublease
shall be to obtain an order by a court of competent jurisdiction that Landlord
grant such consent; in no event shall Landlord be liable for damages with
respect to its granting or withholding consent to any proposed assignment or
sublease. If Landlord shall exercise any option to recapture the Premises, or
shall deny a request for consent to a proposed assignment or sublease, Tenant
shall indemnify, defend and hold Landlord harmless from and against any and all
losses, liabilities, damages, costs and claims that may be made against Landlord
by the proposed assignee or subtenant, or by any brokers or other persons
claiming a commission or similar compensation in connection with the proposed
assignment or sublease.
SEE ADDENDUM PARAGRAPH 6
(b LEVERAGED BUY-OUT. The involvement by Tenant or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise) whether or not
a formal assignment or hypothecation of this Lease or Tenant's assets occurs,
which results or will result in a reduction of the "Net Worth" of Tenant as
hereinafter defined, by an amount equal to or greater than twenty-five percent
(25%)of such Net Worth of Tenant as it is represented to Landlord at the time of
the execution by Landlord of this Lease, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Tenant was or is greater, shall be considered to be an
assignment of this Lease by Tenant to which Landlord may reasonably withhold its
consent. "Net Worth" of Tenant for purposes of this Section 12.2 shall be the
net worth of Tenant (excluding any guarantors) established under generally
accepted accounting principles consistently applied.
(c STANDARD FOR APPROVAL. Landlord shall not unreasonably withhold, DELAY
OR CONDITION its consent to a Transfer provided that Tenant has complied with
each and every requirement, term and condition of this Section 12. Tenant
acknowledges and agrees that each requirement, term and condition in this
Section 12 is a reasonable requirement, term or condition. It shall be deemed
reasonable for Landlord to withhold its consent to a Transfer if any
requirement, term or condition of this Section 12 is not complied with or: (a)
the Transfer would cause Landlord to be in violation of its obligations under
another lease or agreement to which Landlord is a party; (b) in Landlord's
reasonable judgment, a proposed assignee has a smaller net worth than Tenant had
on the date this Lease was entered into with Tenant or is less able financially
to pay the rents due under this Lease as and when they are due and payable; (c)
a proposed assignee's or subtenant's business will impose a burden on the
Project's parking facilities, elevators, Common Areas or utilities that is
greater than the burden imposed by Tenant, in Landlord's reasonable judgment;
(d) the terms of a proposed assignment or subletting will allow the proposed
assignee or subtenant to exercise a right of renewal, right of expansion, right
of first offer, right of first refusal or similar right held by Tenant; (e) a
proposed assignee or subtenant refuses to enter into a written assignment
agreement or sublease, reasonably satisfactory to Landlord, which provides that
it will abide by and assume all of the terms and conditions of this Lease for
the term of any assignment or sublease and containing such other terms and
conditions as Landlord reasonably deems necessary;
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(f) the use of the Premises by the proposed assignee or subtenant will not be
FOR A use permitted by this Lease; (g) any guarantor of this Lease refuses to
consent to the Transfer or to execute a written agreement reaffirming the
guaranty; (h) Tenant is in default, BEYOND THE EXPIRATION OF ANY APPLICABLE
NOTICE AND CURE PERIOD as defined in Section 13.1 at the time of the request;
(i) if requested by Landlord, the assignee or subtenant refuses to sign a
COMMERCIALLY REASONABLE non-disturbance and attornment agreement in favor of
Landlord's lender; (j) Landlord has sued or been sued by the proposed assignee
or subtenant or has otherwise been DIRECTLY involved in a legal dispute with the
proposed assignee or subtenant; (k) the assignee or subtenant is involved in a
business which is not in keeping with the then current standards of the Project;
(l) the proposed assignee or subtenant is a person or entity then negotiating
with Landlord for the lease of space in the Project; (m) the assignment or
sublease will result in the Premises BEING USED as an executive suite); (n) the
assignee or subtenant is a governmental or quasi governmental entity or an
agency, department or instrumentality of a governmental or quasi-governmental
agency; or (o) the terms of a proposed assignment or subletting will allow the
proposed assignee or subtenant to pay a base rent less than the advertised base
rent being charged new tenants in the Building at the time of such Transfer.
(d ADDITIONAL TERMS AND CONDITIONS. The following terms and conditions
shall be applicable to any Transfer:
(i) Regardless of Landlord's consent, no Transfer shall release Tenant
from Tenant's obligations hereunder or alter the primary liability of Tenant
to pay the rent and other sums due Landlord hereunder and to perform all
other obligations to be performed by Tenant hereunder or release any
guarantor from its obligations under its guaranty.
(ii) Landlord may accept rent from any person other than Tenant pending
approval or disapproval of an assignment or subletting.
(iii) Neither a delay in the approval or disapproval of a Transfer, nor
the acceptance of rent, shall constitute a waiver or estoppel of Landlord's
right to exercise its rights and remedies for the breach of any of the terms
or conditions of this Section 12.
(iv) The consent by Landlord to any Transfer shall not constitute a
consent to any subsequent Transfer by Tenant or to any subsequent or
successive Transfer by an assignee or subtenant. However, Landlord may
consent to subsequent Transfers or any amendments or modifications thereto
without notifying Tenant or anyone else liable on the Lease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease.
(v) In the event of any default under this Lease, Landlord may proceed
directly against Tenant, any guarantors or anyone else responsible for the
performance of this Lease, including any subtenant or assignee, without first
exhausting Landlord's remedies against any other person or entity responsible
therefor to Landlord, or any security held by Landlord.
(vi) Landlord's written consent to any Transfer by Tenant shall not
constitute an acknowledgment that no default then exists under this Lease nor
shall such consent be deemed a waiver of any then existing default. (1)
(vii) The discovery of the fact that any financial statement relied
upon by Landlord in giving its consent to an assignment or subletting was
materially false shall, at Landlord's election, render Landlord's consent
null and void.
(viii) Landlord shall not liable under this Lease or under any sublease
to any subtenant.
(ix) No assignment or sublease may be modified or amended IN ANY WAY
WHICH EFFECTS LANDLORD'S RIGHTS without Landlord's prior written consent.
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(x) The occurrence of a transaction described in Section 12.2 shall
give Landlord the right (but not the obligation) to require that Tenant
immediately provide Landlord with an additional Security Deposit equal to SIX
(6) times the monthly Base Rent payable under the Lease, and Landlord may
make its receipt of such amount a condition to Landlord's consent to such
transaction.
(xi) Any assignee of, or subtenant under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for
the benefit of Landlord, to have assumed and agreed to conform and comply
with each and every term, covenant, condition and obligation herein to be
observed or performed by Tenant during the term of said assignment or
sublease, other than such obligations as are contrary or inconsistent with
provisions of an assignment or sublease to which Landlord has specifically
consented in writing.
(e ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Tenant of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(i) Tenant hereby absolutely and unconditionally assigns and transfers
to Landlord all of Tenant's interest in all rentals and income arising from
any sublease entered into by Tenant, and Landlord may collect such rent and
income and apply same toward Tenant's obligations under this Lease; provided,
however, that until a default shall occur in the performance of Tenant's
obligations under this Lease THAT IS NOT CURED WITHIN ANY APPLICABLE NOTICE
AND CURE PERIOD, Tenant may receive, collect and enjoy the rents accruing
under such sublease. Landlord shall not, by reason of this or any other
assignment of such rents to Landlord nor by reason of the collection of the
rents from a subtenant, be deemed to have assumed or recognized any sublease
or to be liable to the subtenant for any failure of Tenant to perform and
comply with any of Tenant's obligations to such subtenant under such
sublease, including, but not limited to, Tenant's obligation to return any
Security Deposit. Tenant hereby irrevocably authorizes and directs any such
subtenant, upon receipt of a written notice from Landlord stating that a
default exists in the performance of Tenant's obligations under this Lease,
to pay to Landlord the rents due as they become due under the sublease.
Tenant agrees that such subtenant shall have the right to rely upon any such
statement and request from Landlord, and that such subtenant shall pay such
rents to Landlord without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Tenant
to the contrary.
(ii) In the event Tenant shall default in the performance of its
obligations under this Lease, Landlord at its option and without any
obligation to do so, may require any subtenant to attorn to Landlord, in
which event Landlord shall undertake the obligations of Tenant under such
sublease from the time of the exercise of said option to the termination of
such sublease; provided, however, Landlord shall not be liable for any
prepaid rents or Security Deposit paid by such subtenant to Tenant or for any
other prior defaults of Tenant under such sublease.
(f TRANSFER PREMIUM FROM ASSIGNMENT OR SUBLETTING. Landlord shall be
entitled to receive from Tenant (as and when received by Tenant) as an item of
additional rent ONE-HALF (1/2) OF all amounts received by Tenant from the
subtenant or assignee in excess of the amounts payable by Tenant to Landlord
hereunder (HEREINAFTER THE "TRANSFER PREMIUM"). The Transfer Premium shall be
reduced by the reasonable brokerage commissions, legal fees, TENANT IMPROVEMENT
COSTS, AND OTHER REASONABLE AND DOCUMENTED THIRD PARTY TRANSACTION COSTs
actually paid by Tenant in order to assign the Lease or to sublet a portion of
the Premises, PROVIDED THAT TENANT PROVIDES LANDLORD WITH A BREAKDOWN OF ALL
THIRD PARTY TRANSACTION COSTS ASSOCIATED WITH SUCH TRANSFER AT THE TIME TENANT
OBTAINS LANDLORD'S CONSENT AND LANDLORD CONSENTS TO SUCH
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COSTS. "Transfer Premium" shall mean all Base Rent, additional rent or other
consideration of any type whatsoever payable by the assignee or subtenant in
excess of the Base Rent and additional rent payable by Tenant under this Lease.
If less than all of the Premises is transferred, the Base Rent and the
additional rent shall be determined on a per rentable square foot basis.
Transfer Premium shall also include, but not be limited to, key money and bonus
money paid by the assignee or subtenant to Tenant in connection with such
Transfer, and any payment in excess of fair market value for services rendered
by Tenant to the assignee or subtenant or for assets, fixtures, inventory,
equipment, or furniture transferred by Tenant to the assignee or subtenant in
connection with such Transfer.
(g LANDLORD'S OPTION TO RECAPTURE SPACE. Notwithstanding anything to the
contrary contained in this Section 12, Landlord shall have the option, by giving
written notice to Tenant within thirty (30) days after receipt of any request by
Tenant to assign this Lease or to sublease space in the Premises, to terminate
this Lease with respect to said space as of the date thirty (30) days after
Landlord's election. In the event of a recapture by Landlord, if this Lease
shall be canceled with respect to less than the entire Premises, the Base Rent,
Tenant's Share of Operating Expense increases, Tenant's Share of Real Property
Tax increases and the number of parking spaces Tenant may use shall be adjusted
on the basis of the number of rentable square feet retained by Tenant in
proportion to the number of rentable square feet contained in the original
Premises, and this Lease as so amended shall continue thereafter in full force
and effect, and upon request of either party, the parties shall execute written
confirmation of same. If Landlord recaptures only a portion of the Premises, it
shall construct and erect at its sole cost such partitions as may be required to
sever the space to be retained by Tenant from the space recaptured by Landlord.
Landlord may, at its option, lease any recaptured portion of the Premises to the
proposed subtenant or assignee or to any other person or entity without
liability to Tenant. Tenant shall not be entitled to any portion of the profit,
if any, Landlord may realize on account of such termination and reletting.
Tenant acknowledges that the purpose of this Section 12.7 is to enable Landlord
to receive profit in the form of higher rent or other consideration to be
received from an assignee or sublessee, to give Landlord the ability to meet
additional space requirements of other tenants of the Project and to permit
Landlord to control the leasing of space in the Project. Tenant acknowledges and
agrees that the requirements of this Section 12.7 are commercially reasonable
and are consistent with the intentions of Landlord and Tenant.
(h LANDLORD'S EXPENSES. In the event Tenant shall assign this Lease or
sublet the Premises or request the consent of Landlord to any Transfer, then
Tenant shall pay Landlord's reasonable costs and expenses incurred in connection
therewith, including, but not limited to, attorneys', architects', accountants',
engineers' or other consultants' fees; SUCH COSTS NOT TO EXCEED ONE THOUSAND
FIVE HUNDRED DOLLARS ($1,500.00) FOR ANY TRANSFER OR ATTEMPTED TRANSFER.
2. DEFAULT; REMEDIES.
(a DEFAULT BY TENANT. Landlord and Tenant hereby agree that the occurrence
of any one or more of the following events is a material default by Tenant under
this Lease and that said default shall give Landlord the rights described in
Section 13.2. Landlord or Landlord's authorized agent shall have the right to
execute and deliver any notice of default, notice to pay rent or quit or any
other notice Landlord gives Tenant.
(i) Tenant's failure to make any payment of Base Rent, Tenant's Share
of Operating Expense increases, Tenant's Share of Real Property Tax
increases, parking charges, charges for after hours HVAC, late charges, or
any other payment required to be made by Tenant hereunder, as and when due,
where such failure shall continue for a period of FIVE (5) BUSINESS days
after written notice thereof from Landlord to Tenant. In the event that
Landlord serves Tenant with a notice to pay rent or quit pursuant to
applicable unlawful detainer statutes, such notice shall also constitute the
notice required by this Section 13.1(a).
(ii) The abandonment of the Premises by Tenant FOR THIRTY (30)
CONSECUTIVE DAYS in which event Landlord shall not be obligated to give any
notice of default to Tenant.
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(iii) The failure of Tenant to comply with any of its obligations under
Sections 6.1, 6.2(b), 7.2, 7.3, 8, 12, 18, 20, 22, 23, 25, 33, 34, and 55 and
59 where Tenant fails to comply with its obligations or fails to cure any
earlier breach of such obligation within TWENTY (20) days following written
notice from Landlord to Tenant; PROVIDED, HOWEVER, THAT IF THE NATURE OF
TENANT'S NON-PERFORMANCE IS SUCH THAT MORE THAN TWENTY (20) DAYS ARE
REASONABLY REQUIRED FOR ITS CURE, THEN TENANT SHALL NOT BE DEEMED TO BE IN
DEFAULT IF TENANT COMMENCES SUCH CURE WITHIN SAID TWENTY (20) DAY PERIOD AND
THEREAFTER DILIGENTLY PURSUES SUCH CURE TO COMPLETION. In the event Landlord
serves Tenant with a notice to quit or any other notice pursuant to
applicable unlawful detainer statutes, said notice shall also constitute the
notice required by this Section 13.1(c).
(iv) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
(other than those referenced in Sections 13.1(a), (b) and (c), above), where
such failure shall continue for a period of THIRTY (30) days after written
notice thereof from Landlord to Tenant; provided, however, that if the nature
of Tenant's non-performance is such that more than THIRTY (30)days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within said THIRTY (30) day period and
thereafter diligently pursues such cure to completion. In the event that
Landlord serves Tenant with a notice to quit pursuant to applicable unlawful
detainer statutes, said notice shall also constitute the notice required by
this Section 13.1(d).
(v) (i) The making by Tenant or any guarantor of Tenant's obligations
hereunder of any general arrangement or general assignment for the benefit of
creditors; (ii) Tenant or any guarantor becoming a "debtor" as defined in 11
U.S.C. 101 or any successor statute thereto (unless, in the case of a
petition filed against Tenant or guarantor, the same is dismissed within
sixty (60) days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where possession is not restored to
Tenant within thirty (30) days; (iv) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within thirty (30) days; or (v) the insolvency of Tenant. In the
event that any provision of this Section 13.1 (e) is contrary to any
applicable law, such provision shall be of no force or effect.
(vi) The discovery by Landlord that any financial statement,
representation or warranty given to Landlord by Tenant, or by any guarantor
of Tenant's obligations hereunder was materially false at the time given.
Tenant acknowledges that Landlord has entered into this Lease in material
reliance on such information.
(vii) If Tenant is a corporation, a partnership, or a limited liability
company, the dissolution or liquidation of Tenant.
(viii) If Tenant's obligations under this Lease are guaranteed;
(i) the death of a guarantor, (ii) the termination of a guarantor's liability
with respect to this Lease other than in accordance with the terms of such
guaranty, (iii) a guarantor becoming insolvent or the subject of a bankruptcy
filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach
basis.
(b) REMEDIES.
(i) In the event of any material default or breach of this Lease by
Tenant, Landlord may, at any time thereafter, with or without notice or
demand, and without limiting Landlord in the exercise of any right or remedy
which Landlord may have by reason of such default:
(1) terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease and the Term hereof shall terminate
and Tenant shall immediately surrender possession of the Premises to
Landlord. If
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Landlord terminates this Lease, Landlord may recover from Tenant (A) the
worth at the time of award of the unpaid rent which had been earned at the
time of termination; (B) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; (C) the worth at the time of
award of the amount by which the unpaid rent for the balance of the Term
after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; and (D) any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's
failure to perform its obligations under the Lease or which in the
ordinary course of things would be likely to result therefrom, including,
but not limited to, the cost of recovering possession of the Premises,
expenses of releasing, including necessary renovation and alteration of
the Premises, reasonable attorneys' fees, any real estate commissions
actually paid by Landlord and the unamortized value of any free rent,
reduced rent, tenant improvement allowance or other economic concessions
provided by Landlord. The "worth at time of award" of the amounts referred
to in Section 13.2(a)(i)(A) and (B) shall be computed by allowing interest
at the lesser of ten percent (10%) per annum or the maximum interest rate
permitted by applicable law. The worth at the time of award of the amount
referred to in Section 1 3.2(a)(i)(C) shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of Baltimore
at the time of award plus one percent (1%). For purposes of this Section
13.2(a)(1), "rent" shall be deemed to be all monetary obligations required
to be paid by Tenant pursuant to the terms of this Lease.
(2) maintain Tenant's right of possession in which event Landlord
shall have the remedy which permits Landlord to continue this Lease in
effect after Tenant's breach and abandonment and recover rent as it
becomes due.
(3) collect sublease rents (or appoint a receiver to collect such
rent) and otherwise perform Tenant's obligations at the Premises, it being
agreed, however, that the appointment of a receiver for Tenant shall not
constitute an election by Landlord to terminate this Lease.
(4) pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Premises
are located.
(ii) No remedy or election hereunder shall be deemed exclusive, but
shall, wherever possible, be cumulative with all other remedies at law or in
equity. The expiration or termination of this Lease and/or the termination of
Tenant's right to possession of the Premises shall not relieve Tenant of
liability under any indemnify provisions of this Lease as to matters
occurring or accruing during the Term hereof or by reason of Tenant's
occupancy of the Premises.
(iii) If Tenant abandons or vacates the Premises, Landlord may re-enter
the Premises and such re-entry shall not be deemed to constitute Landlord's
election to accept a surrender of the Premises or to otherwise relieve Tenant
from liability for its breach of this Lease. No surrender of the Premiss
shall be effective against Landlord unless Landlord has entered into a
written agreement with Tenant in which Landlord expressly agrees to (i)
accept a surrender of the Premises and (ii) relieve Tenant of liability under
the Lease. The delivery by Tenant to Landlord of possession of the Premises
shall not constitute the termination of the Lease or the surrender of the
Premises.
(c) DEFAULT BY LANDLORD. Landlord shall not be in default under this Lease
unless Landlord fails to perform obligations required of Landlord within thirty
(30) days after written notice by Tenant to Landlord and to the holder of any
mortgage or deed of trust encumbering the Project whose name and address shall
have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for its cure, then
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Landlord shall not be in default if Landlord commences performance within such
thirty (30) day period and thereafter diligently pursues the same to completion.
In no event shall Tenant have the right to terminate this Lease as a result of
Landlord's default, and Tenant's remedies shall be limited to damages and/or an
injunction. This Lease and the obligations of Tenant hereunder shall not be
affected or impaired because Landlord is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of a Force Majeure Event, and the time for Landlord's
performance shall be extended for the period of any such delay. Any claim,
demand, right or defense by Tenant that arises out of this Lease or the
negotiations which preceded this Lease shall be barred unless Tenant commences
an action thereon, or interposes a defense by reason thereof, within ONE (1)
YEAR after the date of the inaction, omission, event or action that gave rise to
such claim, demand, right or defense.
(d) LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Rent, Tenant's Share of Operating Expense increases, Tenant's
Share of Real Property Tax increases, parking charges, after hours HVAC charges,
or other sums due hereunder will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and accounting
charges and late charges which may be imposed on Landlord by the terms of any
mortgage or trust deed encumbering the Project. Accordingly, if any installment
of Base Rent, Tenant's Share of Operating Expense increases, Tenant's Share of
Real Property Tax increases, parking charges, after hours HVAC charges or any
other sum due from Tenant shall not be received by Landlord WITHIN FIVE (5) DAYS
OF when such amount shall be due, then, without any requirement for notice or
demand to Tenant, Tenant shall immediately pay to Landlord a late charge equal
to FIVE PERCENT (5%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder including the assessment of interest under
Section 13.5. NOTWITHSTANDING THE FOREGOING, LANDLORD AGREES TO WAIVE IMPOSITION
OF SUCH LATE CHARGES ON ONE (1) OCCASION IN ANY TWELVE (12) MONTH PERIOD
PROVIDED THE OVERDUE PAYMENT IS MADE WITHIN SEVEN (7) BUSINESS DAYS AFTER
LANDLORD GIVES TENANT WRITTEN NOTICE THAT PAYMENT WAS NOT MADE WHEN DUE.
(e) INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Landlord that is not paid when due shall bear interest at the
lesser of ten percent (10%) per annum, or the maximum rate permitted by
applicable law. Payment of such interest shall not excuse or cure any default by
Tenant under this Lease; provided, however, that interest shall not be payable
on late charges incurred by Tenant nor on any amounts upon which late charges
are paid by Tenant.
(f) PAYMENT OF RENT AND SECURITY DEPOSIT AFTER DEFAULT. If Tenant fails to
pay Base Rent, Tenant's Share of Operating Expense increases, Tenant's Share of
Real Property Tax increases, parking charges or any other monetary obligation
due hereunder on the date it is due, after Tenant's SECOND failure to pay any
monetary obligation on the date it is due IN ANY TWELVE (12) MONTH PERIOD, at
Landlord's option, all monetary obligations of Tenant hereunder shall thereafter
be paid by cashiers check, and Tenant shall, upon demand, provide Landlord with
an additional Security Deposit equal to three (3) months' Base Rent. If Landlord
has required Tenant to make said payments by cashiers check or to provide an
additional Security Deposit, Tenant's failure to make a payment by cashiers
check or to provide an additional Security Deposit, shall be a material default
hereunder.
3. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT. All covenants and
agreements to be kept or performed by Tenant under this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to perform any of its obligations under this Lease, within
a reasonable time after such performance is required by the terms of this Lease,
Landlord may, but shall not be obligated to, after three (3) BUSINESS days'
prior written notice to Tenant, make any such payment or perform any such act on
Tenant's behalf without waiving its rights based upon any default of Tenant and
without releasing Tenant from any obligations hereunder. Tenant shall pay to
Landlord, within TWENTY (20) days after delivery
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by Landlord to Tenant of statements therefor, an amount equal to the
expenditures reasonably made by Landlord in connection with the remedying by
Landlord of Tenant's defaults pursuant to the provisions of this Section 14.
4. CONDEMNATION. If any portion of the Premises or the Project are taken
under the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein called "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs provided that if so much of the
Premises or Project are taken by such Condemnation as would substantially and
adversely affect the operation and profitability of Tenant's business conducted
from the Premises, and said taking lasts for ninety (90) days or more, Tenant
shall have the option to be exercised only in writing within thirty (30) days
after Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within thirty (30) days after the condemning authority
shall have taken possession), to terminate this Lease as of the date the
condemning authority takes such possession. If a taking lasts for less than
ninety (90) days, Tenant's rent shall be equitably abated during said period but
Tenant shall not have the right to terminate this Lease. If Tenant does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the rent, Tenant's Share of Operating Expenses and Tenant's Share of Real
Property Tax increases shall be reduced in the proportion that the usable floor
area of the Premises taken bears to the total usable floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Tenant and
no reduction of rent shall occur with respect thereto or by reason thereof.
Landlord shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Tenant of such election within thirty (30) days after receipt of
notice of a taking by Condemnation of any part of the Premises or the Project.
Any award for the taking of all or any part of the Premises or the project under
the power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Landlord, whether such award shall be made
as compensation for diminution in value of the leasehold, for good will, for the
taking of the fee, as severance damages, or as damages for tenant improvements;
provided, however, that Tenant shall be entitled to any separate award for loss
of or damage to Tenant's removable personal property and for moving expenses. In
the event that this Lease is not terminated by reason of such Condemnation, and
subject to the requirements of any lender that has made a loan to Landlord
encumbering the Project, Landlord shall to the extent of severance damages
received by Landlord in connection with such Condemnation, repair any damage to
the Project caused by such Condemnation except to the extent that Tenant has
been reimbursed therefor by the condemning authority. Tenant shall pay any
amount in excess of such severance damages required to complete such repair.
This Section, not general principles of law or the Commonwealth of Virginia Code
of Civil Procedure shall govern the rights and obligations of Landlord and
Tenant with respect to the Condemnation of all or any portion of the Project.
5. VEHICLE PARKING.
(a) USE OF PARKING FACILITIES. During the Term and subject to the rules
and regulations attached hereto as Exhibit "C", as modified by Landlord from
time to time (the "Rules"), Tenant shall be entitled to use the number of
parking spaces set forth in Section 1.13 in the parking facility of the Project
at the monthly rate applicable from time to time for monthly parking as set by
Landlord and/or its licensee. Landlord may, in its sole discretion, assign
tandem parking spaces to Tenant and designate the location of any reserved
parking spaces. For purposes of this Lease, a "parking space" refers to the
space in which one (1) motor vehicle is intended to park (e.g., a tandem parking
stall includes two tandem parking spaces). Landlord reserves the right at any
time to relocate Tenant's reserved and unreserved parking spaces. If Tenant
commits or allows in the parking facility any of the activities prohibited by
the Lease or the Rules, then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Tenant, which cost shall be
immediately payable by Tenant upon demand by Landlord. Tenant's parking rights
are the personal rights of Tenant and Tenant shall not transfer, assign, or
otherwise convey its parking rights separate and apart from this Lease.
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(b) PARKING CHARGES. The initial monthly parking rate per parking space is
set forth in Section 1.14 and is subject to change by Landlord, in Landlord 's
sole discretion, upon five (5) days' prior written notice to Tenant. Monthly
parking fees shall be payable in advance prior to the first day of each calendar
month. Visitor parking rates shall be determined by Landlord from time to time
in Landlord's sole discretion. The parking rates charged to Tenant or Tenant's
visitors may not be the lowest parking rates charged by Landlord for the use of
the parking facility. Notwithstanding anything to the contrary contained herein,
any tax imposed on the privilege of occupying space in the parking facility,
upon the revenues received by Landlord from the parking facility or upon the
charges paid for the privilege of using the parking facility by any governmental
or quasi-governmental entity may be added by Landlord to the monthly parking
charges paid by Tenant at any time, or Landlord may require Tenant and other
persons using the parking facility to pay said amounts directly to the taxing
authority. IN NO EVENT SHALL TENANT OR TENANT'S VISITORS BE OBLIGATED TO PAY
PARKING CHARGES DURING THE INITIAL TERM OF THIS LEASE.
6. BROKER'S FEE. Tenant and Landlord each represent and warrant to the other
that neither has had any dealings or entered into any agreements with any
person, entity, broker or finder other than the persons, if any, listed in
Section 1.15, in connection with the negotiation of this Lease, and no other
broker, person, or entity is entitled to any commission or finder's fee in
connection with the negotiation of this Lease, and Tenant and Landlord each
agree to indemnify, defend and hold the other harmless from and against any
claims, damages, costs, expenses, attorneys' fees or liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings, actions or agreements of the
indemnifying party.
7. ESTOPPEL CERTIFICATE.
(a) DELIVERY OF CERTIFICATE. Tenant shall at any time upon not less than
ten (10) BUSINESS days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing certifying such information as
Landlord may reasonably request including, but not limited to, the following:
(a) that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) (b) the date to which the Base Rent and
other charges are paid in advance and the amounts so payable, (c) that there are
not, to Tenant's knowledge, any uncured defaults or unfulfilled obligations on
the part of Landlord, or specifying such defaults or unfulfilled obligations, if
any are claimed, (d) that all tenant improvements to be constructed by Landlord,
if any, have been completed in accordance with Landlord's obligations and (e)
that Tenant has taken possession of the Premises. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Project.
(b) FAILURE TO DELIVER CERTIFICATE. IF TENANT SHALL FALL TO EXECUTE AND
DELIVER SUCH STATEMENT WITHIN SUCH TEN (10) BUSINESS DAYS, THEN LANDLORD SHALL
SEND TENANT A SECOND WRITTEN REQUEST FOR SUCH STATEMENT. IF TENANT SHALL FAIL TO
SO EXECUTE AND DELIVER SUCH WRITTEN STATEMENT WITHIN FIVE (5) BUSINESS DAYS
AFTER THIS SECOND REQUEST THEN, AT Landlord's option, the failure of Tenant to
deliver such statement within such time FRAMES shall constitute a material
default of Tenant hereunder, or it shall be conclusive upon Tenant that (a) this
Lease is in full force and effect, without modification except as may be
represented by Landlord, (b) there are no uncured defaults in Landlord's
performance, (c) not more than one month's Base Rent has been paid in advance,
(d) all tenant improvements to be constructed by Landlord, if any, have been
completed in accordance with Landlord's obligations and (e) Tenant has taken
possession of the Premises.
8. LANDLORD'S LIABILITY. Tenant acknowledges that Landlord shall have the
right to transfer all or any portion of its interest in the Project and to
assign this Lease to the transferee. Tenant agrees that in the event of such a
transfer Landlord shall automatically be released from all liability under this
Lease ARISING AFTER SUCH TRANSFER; and Tenant hereby agrees to look solely to
Landlord's transferee for the performance of Landlord's obligations hereunder
after the date of the transfer. Upon such a transfer, Landlord shall, at its
option, return Tenant's Security Deposit to Tenant or transfer Tenant's Security
Deposit to Landlord's transferee and, in either event, Landlord shall have no
further liability to Tenant for the return of its Security Deposit. Subject to
the rights of any lender holding a mortgage or deed of trust encumbering all or
part of the Project, Tenant agrees to look solely to Landlord's equity interest
in the Project (WHICH FOR PURPOSES HEREIN SHALL
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INCLUDE ANY APPLICABLE INSURANCE OR CONDEMNATION PROCEEDS) for the collection of
any judgment requiring the payment of money by Landlord arising out of (a)
Landlord's failure to perform its obligations under this Lease or (b) the
negligence or willful misconduct of Landlord its partners, employees and agents.
No other property or assets of Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of any judgment or writ
obtained by Tenant against Landlord. No partner, employee or agent of Landlord
shall be personally liable for the performance of Landlord's obligations
hereunder or be named as a party in any lawsuit arising out of or related to,
directly or indirectly, this Lease and the obligations of Landlord hereunder.
The obligations under this Lease do not constitute personal obligations of the
individual partners of Landlord and Tenant shall not seek recourse against the
individual partners of Landlord or their assets.
9. INDEMNITY. Tenant hereby agrees to indemnify, defend and hold harmless
Landlord, and its employees, partners, agents, contractors, lenders and ground
lessors (said persons and entities are hereinafter collectively referred to as
the "Indemnified Parties") from and against any and all liability, loss, cost,
damage, claims, loss of rents, liens, judgments, penalties, fines, settlement
costs, investigation costs, the cost of consultants and experts, attorneys fees,
court costs and other legal expenses, the effects of environmental
contamination, the cost of environmental testing, the removal, remediation
and/or abatement of the effects of Hazardous Substances or Medical Waste (as
those terms are defined below), insurance policy deductibles and other expenses
(hereinafter collectively referred to as "Losses") arising out of or related to
an "Indemnified Matter" (as defined below). For purposes of this Section 20, an
"Indemnified Matter" shall mean any matter for which one or more of the
Indemnified Parties incurs liability or Losses if the Losses arise out of or
involve, directly or indirectly, (a) Tenant's or its employees agents,
contractors or invitees (all of said persons or entities are hereinafter
collectively referred to as "Tenant Parties") use or occupancy of the Premises
or the Project, (b) any act, omission or neglect of a Tenant Party, (c) Tenant's
failure to perform any of its obligations under the Lease, (d) the existence,
use or disposal of any Hazardous Substance (as defined in Section 22 below)
brought on to the Project by a Tenant Party, (e) the existence, use or disposal
of any Medical Waste (as described in Section 23 below) brought on to the
Project by a Tenant Party or (f) any other matters for which Tenant has agreed
to indemnify Landlord pursuant to any other provisions of this Lease. Tenant's
obligations hereunder shall include, but shall not be limited to (a)
compensating the Indemnified Parties for Losses arising out of Indemnified
Matters within ten (10) days after written demand from an Indemnified Party and
(b) providing a defense, with counsel reasonably satisfactory to the Indemnified
Party, at Tenant's sole expense, within ten (10) days after written demand from
the Indemnified Party, of any claims, action or proceeding arising out of or
relating to an Indemnified Matter whether or not litigated or reduced to
Judgment and whether or not well founded. If Tenant is obligated to compensate
an Indemnified Party for Losses arising out of an Indemnified Matter, Landlord
shall have the immediate and unconditional right, but not the obligation,
without notice or demand to Tenant, to pay the Losses to the Common Areas,
another tenant's premises or to any other part of the Project to be repaired and
to compensate other tenants of the Project or other persons or entities for
Losses arising out of an Indemnified Matter. The Indemnified Parties need not
first pay any Losses to be indemnified hereunder. Tenant's obligations under
this Section shall not be released, reduced or otherwise limited because one or
more of the Indemnified Parties are or may be actively or passively negligent
with respect to an Indemnified Matter or because an Indemnified Party is or was
partially responsible for the Losses incurred. This indemnity is intended to
apply to the fullest extent permitted by applicable law. Tenant's obligations
under this Section shall survive the expiration or termination of this Lease
unless specifically waived in writing by Landlord after said expiration or
termination.
10. EXEMPTION OF LANDLORD FROM LIABILITY. EXCEPT WHERE CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT BY LANDLORD, ITS EMPLOYEES, AGENTS OR
CONTRACTORS, Tenant hereby agrees that Landlord shall not be liable for Injury
to Tenant's business or any loss of income therefrom or for loss of or damage to
the merchandise, tenant improvements, fixtures, furniture, equipment, computers,
files, automobiles, or other property of Tenant, Tenant's employees, agents,
contractors or invitees, or any other person in or about the Project, nor shall
Landlord be liable for injury to the person of Tenant, Tenant's employees,
agents, contractors or invitees, whether such damage or injury is caused by or
results from any cause whatsoever including, but not limited to, theft, criminal
activity at the Project, negligent security measures, bombings or bomb scares,
Hazardous Substances or Medical Waste, fire, steam, electricity, gas, water or
rain, flooding,
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breakage of pipes, sprinklers, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Project, or from other
sources or places, or from new construction or the repair, alteration or
improvement of any part of the Project, and UNLESS the cause of the damage or
injury arises out of Landlord's or its employees, agents or contractors gross
NEGLIGENCE or intentional acts. Landlord shall not be liable for any damages
arising from any act or neglect of any employees, agents, contractors or
invitees of any other tenant, occupant or user of the Project, nor from the
failure of Landlord to enforce the provisions of the lease of any other tenant
of the Project. Tenant, as a material part of the consideration to Landlord
hereunder, hereby assumes all risk of damage to Tenant's property or business or
injury to persons, in, upon or about the Project arising from any cause,
EXCLUDING Landlord's GROSS negligence or the GROSS negligence of its employees,
agents or contractors, and Tenant hereby waives all claims in respect thereof
against Landlord, its employees, agents and contractors.
SEE ADDENDUM PARAGRAPH 7
11. HAZARDOUS MATERIAL.
(a) DEFINITION AND CONSENT. The term "Hazardous Substance" as used in
this Lease shall mean any product, substance, chemical, material or waste whose
presence, nature, quantity and/or intensity of existence, use, manufacture,
disposal, transportation, spill, release or affect, either by itself or in
combination with other materials expected to be on the Premises, is either: (a)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (b) regulated or monitored by any governmental entity, (c) a
basis for liability of Landlord to any governmental entity or third party under
any federal, state or local statute or common law theory or (d) defined as a
hazardous material or substance by any federal, state or local law or
regulation. Except for small quantities of ordinary office supplies such as
copier toner, liquid paper, glue, ink and common household cleaning materials,
Tenant shall not cause or permit any Hazardous Substance to be brought, kept, or
used in or about the Premises or the Project by Tenant, its agents, employees,
contractors or invitees.
(b) DUTY TO INFORM LANDLORD. If Tenant knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on or under or about the Premises or the
Project, Tenant shall immediately give written notice of such fact to Landlord.
Tenant shall also immediately give Landlord (without demand by Landlord) a copy
of any statement, report, notice, registration, application, permit, license,
given to or received from, any governmental authority or private party, or
persons entering or occupying the Premises, concerning the presence, spill,
release, discharge of or exposure to, any Hazardous Substance or contamination
in, on or about the Premises or the Project.
(c) INSPECTION; COMPLIANCE. Landlord and Landlord's employees, agent,
contractors and lenders shall have the right to enter the Premises at any time
in the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Tenant with this Section 22. Landlord shall have the right to employ experts
and/or consultants in connection with its examination of the Premises and with
respect to the Installation, operation, use monitoring, maintenance, or removal
of any Hazardous Substance on or from the Premises. The costs and expenses of
any such inspections shall be paid by the party requesting same, unless a
contamination, caused or materially contributed to by Tenant, is found to exist
or be imminent, or unless the inspection is requested or ordered by governmental
authority as the result of any such existing or imminent violation or
contamination. In any such case, Tenant shall upon request reimburse Landlord
for the cost and expenses of such inspection.
12. MEDICAL WASTE.
(a) DISPOSAL OF MEDICAL WASTE. Tenant hereby agrees, at Tenant's sole
expense, to dispose of its medical waste in compliance with all federal. state
and local laws, rules and regulations relating to the disposal of medical waste
and to dispose of the medical waste in a prudent and reasonable manner. Tenant
shall not place any medical waste in refuse containers emptied by Landlord's
janitorial staff or in the Project's refuse containers. At Landlord's option, in
Landlord's
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sole discretion, Landlord shall have the right, upon sixty (60) days' advance
written notice to Tenant, at any time and from time to time, to elect to provide
medical waste disposal services to Tenant. If Landlord elects to provide medical
waste disposal services to Tenant, all costs incurred by Landlord in providing
such services shall be paid by Tenant to Landlord as additional rent. Landlord
may bill Tenant for said costs based upon the actual cost of providing said
services to Tenant, as determined by Landlord, in Landlord's sole discretion, or
Landlord may bill said expenses based upon Tenant's Share of the total cost of
providing said services.
(b) DUTY TO INFORM LANDLORD. Within ten (10) days following Landlord's
written request, Tenant shall provide Landlord with any information requested by
Landlord concerning the existence, generation or disposal of medical waste at
the Premises, including, but not limited to, the following information: (a) the
name, address and telephone number of the person or entity employed by Tenant to
dispose of its medical waste, including a copy of any contract with said person
or entity, (b) a list of each type of medical waste generated by Tenant at the
Premises and a description of how Tenant disposes of said medical waste, (c) a
copy of any laws, rules or regulations in Tenant's possession relating to the
disposal of the medical waste generated by Tenant, and (d) copies of any
licenses or permits obtained by Tenant in order to generate or dispose of said
medical waste. Tenant shall also immediately provide to Landlord (without demand
by Landlord) a copy of any notice, registration, application, permit, or license
given to or received from any governmental authority or private party, or
persons entering or occupying the Premises, concerning the presence, release,
exposure or disposal of any medical waste in or about the Premises or the
Project.
(c) INSPECTION; COMPLIANCE. Landlord and Landlord's employees, agents,
contractors and lenders shall have the right to enter the Premises at any time
in the case of an emergency, and otherwise at reasonable times, for the purpose
of verifying compliance by Tenant with this Section 23. Landlord shall have the
right to employ experts and/or consultants in connection with its examination of
the Premises and with respect to the generation and disposal of medical waste on
or from the Premises. The cost and expenses of any such inspection shall be paid
by Landlord, unless it is determined that Tenant is not disposing of its medical
waste in a manner permitted by applicable law, in which case Tenant shall
immediately reimburse Landlord for the cost of such inspection.
13. TENANT IMPROVEMENTS. Tenant acknowledges and agrees that Landlord shall
not be obligated to construct any tenant improvements on behalf of Tenant unless
a work letter agreement (the 'Work Letter") is attached to this Lease as
Schedule 1. If a space plan is attached to the Work Letter, the space plan shall
not be binding on Landlord unless the space plan has been approved by Landlord
In writing. Except as set forth in a Work Letter, it is specifically understood
and agreed that Landlord has no obligation and has made no promises to alter,
remodel, improve, renovate, repair or decorate the Premises, the Project, or any
part thereof, or to provide any allowance for such purposes, and that no
representations respecting the condition of the Premises or the Project have
been made by Landlord to Tenant.
SEE ADDENDUM PARAGRAPH 8
14. SUBORDINATION.
(a) EFFECT OF SUBORDINATION. This Lease, and any Option (as defined in
Section 26 below) granted hereby, upon Landlord's written election, shall be
Subject and subordinate to any ground lease, mortgage, deed of trust, or any
other hypothecation or security now or hereafter placed upon the Project and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed if Tenant is not in default BEYOND THE
EXPIRATION OF ANY APPLICABLE NOTICE AND CURE PERIOD and so long as Tenant shall
pay the rent and observe and perform all of the provisions of this Lease, unless
this Lease is otherwise terminated pursuant to its terms. At the request of any
mortgagee, trustee or ground lessor, Tenant shall attorn to such person or
entity. If any mortgagee, trustee or ground lessor shall elect to have this
Lease and any Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall give written notice thereof to Tenant, this
Lease and such Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options
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are dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof. In the event of the foreclosure
of a security device, the new owner shall not (a) be liable for any act or
omission of any prior landlord or with respect to events occurring prior to its
acquisition of title, (b) be liable for the breach of this Lease by any prior
landlord, (c) be subject to any offsets or defenses which Tenant may have
against the prior landlord or (d) be liable to Tenant for the return of its
Security Deposit. IN THE EVENT THAT THE PROJECT SHALL BECOME SUBJECT TO ANY LIEN
OF ANY GROUND LEASE, MORTGAGE, DEED OF TRUST OR ANY OTHER HYPOTHECATION OR
SECURITY AFTER THE COMMENCEMENT DATE, LANDLORD SHALL USE REASONABLE EFFORTS TO
OBTAIN A SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ON BEHALF OF
TENANT.
(b) EXECUTION OF DOCUMENTS. Tenant agrees to execute and acknowledge any
documents Landlord reasonably requests that Tenant execute to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Tenant acknowledges that the subordination agreement may give the lender
the right, in the lender's sole discretion, to continue this Lease in effect or
to terminate this Lease in the event of a foreclosure sale. Tenant's failure to
execute such documents within ten (10) days after written demand shall
constitute a material default by Tenant hereunder
15. OPTIONS.
(a) DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (1) the right or option to extend the Term of this Lease or
to renew this Lease, and (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Project or the right of first offer to
lease other space within the Project, and (3) the right or option to terminate
this Lease prior to its expiration date or to reduce the size of the Premises.
Any Option granted to Tenant by Landlord must be evidenced by a written option
agreement attached to this Lease as a rider or addendum or said option shall be
of no force or effect.
(b) OPTIONS PERSONAL. Each Option granted to Tenant in this Lease, if
any, is personal to the original Tenant and ANY PERMITTED TRANSFEREE AS DEFINED
IN PARAGRAPH 6 OF THE ADDENDUM AND may be exercised only by the original Tenant
OR PERMITTED TRANSFEREE while occupying the entire Premises and may not be
exercised or be assigned, voluntarily or involuntarily, by or to any person or
entity other than Tenant. The Options, if any, herein granted to Tenant are not
assignable separate and apart from this Lease, nor may any Option be separated
from this Lease in any manner, either by reservation or otherwise. If at any
time an Option is exercisable by Tenant, the Lease has been assigned, or a
sublease exists as to MORE THAN TWENTY FIVE PERCENT (25%) of the Premises IN THE
AGGREGATE, the Option shall be deemed null and void and neither Tenant nor any
assignee or subtenant shall have the right to exercise the Option.
(c) MULTIPLE OPTIONS. In the event that Tenant has multiple Options to
extend or renew this Lease a later Option cannot be exercised unless the prior
Option to extend or renew this Lease has been so exercised.
(d) EFFECT OF DEFAULT ON OPTIONS. Tenant shall have no right to exercise
an Option if Tenant is in default BEYOND ANY APPLICABLE NOTICE AND CURE PERIOD
of any of the terms, covenants or conditions of this Lease. The period of time
within which an Option may be exercised shall not be extended or enlarged by
reason of Tenant's inability to exercise an Option because of the provisions of
this Section 26.4.
(e) LIMITATIONS ON OPTIONS. Notwithstanding anything to the contrary
contained in any rider or addendum to this Lease, any options, rights of first
refusal or rights of first offer
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granted hereunder shall be Subject and secondary to Landlord's right to first
offer and lease any such space to any tenant who is then occupying or leasing
such space at the time the space becomes available for leasing and shall be
Subject and subordinated to any other options, rights of first refusal or rights
of first offer previously given to any other person or entity.
(f) NOTICE OF EXERCISE OF OPTION. Notwithstanding anything to the
contrary contained in Section 40, Tenant may only exercise an option by
delivering its written notice of exercise to Landlord by certified mail, return
receipt and date of delivery requested. It shall be Tenant's obligation to prove
that such notice was so sent in a timely manner and was delivered to Landlord by
the U.S. Postal Service.
SEE ADDENDUM PARAGRAPH 9
16. LANDLORD RESERVATIONS. Landlord shall have the right: (a) to change the
name and address of the Project or Building upon not less than ninety (90) days
prior written notice; (b) to, at Tenant's expense, provide and install Building
standard graphics on or near the door of the Premises and such portions of the
Common Areas as Landlord shall determine, in Landlord's sole discretion; (c) to
permit any tenant the exclusive right to conduct any business as long as such
exclusive right does not conflict with any rights expressly given herein; and
(d) to place signs, notices or displays upon the roof, interior, exterior or
Common Areas of the Project. Tenant shall not use a representation (photographic
or otherwise) of the Building or the Project or their name(s) in connection with
Tenant's business or suffer or permit anyone, except in an emergency, to go upon
the roof of the Building. Landlord reserves the right to use the exterior walls
of the Premises, and the area beneath, adjacent to and above the Premises,
together with the right to install, use, maintain and replace equipment,
machinery, pipes, conduits and wiring through the Premises, which serve other
parts of the Project, provided that Landlord's use does not unreasonably
interfere with Tenant's use of the Premises.
17. CHANGES TO PROJECT. Landlord shall have the right, in Landlord's sole
discretion, from time to time, to make changes to the size, shape, location,
number and extent of the improvements comprising the Project (hereinafter
referred to as "Changes") including, but not limited to, the Project interior
and exterior, the Common Areas, elevators, escalators, restrooms, HVAC,
electrical systems, communication systems, fire protection and detection
systems, plumbing systems, security systems, parking control systems, driveways,
entrances, parking spaces, parking areas and landscaped areas. In connection
with the Changes, Landlord may, among other things, erect scaffolding or other
necessary structures at the Project, limit or eliminate access to portions of
the Project, including portions of the Common Areas, or perform work in the
Building, which work may create noise, dust or leave debris in the Building.
Tenant hereby agrees that such Changes and Landlord's actions in connection with
such Changes shall in no way constitute a constructive eviction of Tenant or
entitle Tenant to any abatement of rent. Landlord shall have no responsibility
or for any reason be liable to Tenant for any direct or indirect injury to or
interference with Tenant's business arising from the Changes, nor shall Tenant
be entitled to any compensation or damages from Landlord for any inconvenience
or annoyance occasioned by such Changes or Landlord's actions in connection with
such Changes. LANDLORD SHALL USE COMMERCIALLY REASONABLE EFFORTS TO MINIMIZE
UNREASONABLE INTERFERENCE WITH TENANT'S USE AND OCCUPANCY OF THE PREMISES DURING
ANY SUCH CHANGES.
18. SUBSTITUTION OF OTHER PREMISES.
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19. HOLDING OVER. If Tenant remains in possession of the Premises or any
part thereof after the expiration or earlier termination of tho term hereof with
Landlord's consent, such occupancy shall bo a tenancy from month to month upon
all the terms and conditions of this Lease pertaining to tho obligations of
Tenant, except that tho Base Rent payable shall be ONE HUNDRED FIFTY PERCENT
(150%) of the Base Rent payable immediately preceding the termination date of
this lease or and all Options, if any, shall be deemed terminated and be of no
further effect. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the Term hereof without Landlord's consent,
Tenant shall, at Landlord's option, be treated as a tenant at sufferance or a
trespasser. Nothing contained herein shall be construed to constitute Landlord's
consent to Tenant holding over at the expiration or earlier termination of the
Term. Tenant hereby agrees to indemnify, hold harmless and defend Landlord from
any cost, loss, claim or liability (including attorneys' fees) Landlord may
incur as a result of Tenant's failure to surrender possession of the Premises to
Landlord upon the termination of this Lease.
20. LANDLORD'S ACCESS.
(a) ACCESS. UPON REASONABLE ADVANCE WRITTEN NOTICE, EXCEPT IN THE EVENT
OF AN EMERGENCY, WHERE NO NOTICE SHALL BE REQUIRED, Landlord and Landlord's
agent's contractors and employees shall have the right to enter the Premises at
reasonable times for the purpose of inspecting the Premises, performing any
services required of Landlord, showing the Premises to prospective purchasers,
lenders, or tenants, undertaking safety measures and making alterations,
repairs, improvements or additions to the Premises or to the Project. In the
event of an emergency, Landlord may gain access to the Premises by any
reasonable means, and Landlord shall not be liable to Tenant for damage to the
Premises or to Tenant's property resulting from such access. Landlord may at any
time place on or about the Building for sale or for lease signs and Landlord may
at any time during the last one hundred twenty (120) days of the Term hereof
place on or about the Premises for lease signs.
(b) KEYS. Landlord shall have the right to retain keys to the locks on
the entry doors to the Premises and all interior doors at the Premises. At
Landlord's option, Landlord may require Tenant to obtain all keys to door locks
at the Premises from Landlord's engineering staff or Landlord's locksmith and to
only use Landlord's engineering staff or Landlord's locksmith to change locks at
the Premises. Tenant shall pay Landlord's or its locksmith's standard charge for
all keys and other services obtained from Landlord's engineering staff or
locksmith.
21. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have
no obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Project, and Landlord shall have no liability
to Tenant due to its failure to provide such services. Tenant assumes all
responsibility for the protection of Tenant, its agents, employees, contractors
and invitees and the property of Tenant and of Tenant's agents, employees,
contractors and invitees from acts of third parties. Nothing herein contained
shall prevent Landlord, at Landlord's
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<PAGE> 40
sole option, from implementing security measures for the Project or any part
thereof, in which event Tenant shall participate in such security measures and
the cost thereof shall be included within the definition of Operating Expenses,
and Landlord shall have no liability to Tenant and its agents, employees,
contractors and invitees arising out of Landlord's negligent provision of
security measures. Landlord shall have the right, but not the obligation, to
require all persons entering or leaving the Project to identify themselves to a
security guard and to reasonably establish that such person should be permitted
access to the Project. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED FN
THIS SECTION 32, LANDLORD SHALL, THROUGHOUT THE TERM OF THIS LEASE AND ANY
EXTENSIONS THEREOF, PROVIDE ACCESS CONTROL MEASURES COMMENSURATE WITH THOSE
SERVICES BEING PROVIDED AT THE TIME OF EXECUTION OF THIS LEASE.
22. EASEMENTS. Landlord reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not
unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign
any of the aforementioned documents within ten (10) days after Landlord's
request and Tenant's failure to do so shall constitute a material default by
Tenant. The obstruction of Tenant's view, air, or light by any structure erected
in the vicinity of the Project, whether by Landlord or third parties, shall in
no way affect this Lease or impose any liability upon Landlord.
23. TRANSPORTATION MANAGEMENT. Tenant shall fully comply at its sole expense
with all present or future programs implemented or required by any governmental
or quasi-governmental entity or Landlord to manage parking, transportation, air
pollution, or traffic in and around the Project or the metropolitan area in
which the Project is located.
24. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
25. TIME OF ESSENCE. Time is of the essence with respect to each of the
obligations to be performed by Tenant and Landlord under this Lease.
26. DEFINITION OF ADDITIONAL RENT. All monetary obligations of Tenant to
Landlord under the terms of this Lease, including, but not limited to, Base
Rent, Tenant's Share of Operating Expenses, Tenant's Share of Real Property
Taxes, parking charges, late charges and charges for after hours HVAC shall be
deemed to be rent.
27. INCORPORATION OF PRIOR AGREEMENTS. This Lease and the attachments listed
in Section 1.16 contain all agreements of the parties with respect to the lease
of the Premises and any other matter mentioned herein. No prior or
contemporaneous agreement or understanding pertaining to any such matter shall
be effective. Except as otherwise stated in this Lease, Tenant hereby
acknowledges that no real estate broker nor Landlord or any employee or agents
of any of said persons has made any oral or written warranties or
representations to Tenant concerning the condition or use by Tenant of the
Premises or the Project or concerning any other matter addressed by this Lease.
28. AMENDMENTS. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification.
29. NOTICES. Subject to the requirements of Section 26.6 of this Lease, all
notices required or permitted by this Lease shall be in writing and may be
delivered (a) in person (by hand, by messenger or by courier service), (b) by
U.S. Postal Service regular mail, (c) by U.S. Postal Service certified mail,
return receipt requested, OR (d) by U.S. Postal Service Express Mail, Federal
Express or other overnight courier, or and shall be deemed sufficiently given if
served in a manner specified in this Section 40. Any notice permitted or
required hereunder, and any notice to pay rent or quit or similar notice, shall
be deemed personally delivered to Tenant on the date the notice is personally
delivered to any employee of Tenant at the Premises. The addresses set forth in
Section 1.17 of this Lease shall be the address of each party for notice
purposes. Landlord or Tenant may by written notice to the other specify a
different address for notices purposes, except that upon Tenant's taking
possession of the Premises, the Premises shall
35
<PAGE> 41
constitute Tenant's address for the purpose of mailing or delivering notices to
Tenant. A copy of all notices required or permitted to be given to Landlord
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Landlord may from time to time hereinafter designate by written
notice to Tenant. Any notice sent by regular mail or by certified mail, return
receipt requested, shall be deemed given ON THE DATE RECEIVED BY THE APPROPRIATE
PARTY. Notices delivered by U.S. Express Mail, Federal Express or other courier
shall be deemed given on the date delivered by the carrier to the appropriate
party's address for notice purposes. A copy of all notices delivered to a party
by facsimile transmission shall also be mailed to the party on the date the
facsimile transmission is completed. If notice is received on Saturday, Sunday
or a legal holiday, it shall be deemed received on the next business day.
Nothing contained herein shall be construed to limit Landlord's right to serve
any notice to pay rent or quit or similar notice by any method permitted by
applicable law, and any such notice shall be effective if served in accordance
with any method permitted by applicable law whether or not the requirements of
this Section have been met.
30. WAIVERS. No waiver by Landlord or Tenant of any provisions hereof shall
be deemed a waiver of any other provision hereof or of any subsequent breach by
Landlord or Tenant of the same or any other provision. Landlord's consent to, or
approval of, any act shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by Tenant. The
acceptance of rent hereunder by Landlord shall not be a waiver of any preceding
breach by Tenant of any provision hereof, other than the failure of Tenant to
pay the particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of partial payment of any sum due from Tenant shall be deemed a waiver
by Landlord of its right to receive the full amount due, nor shall any
endorsement or statement on any check or accompanying letter from Tenant be
deemed an accord and satisfaction. Tenant hereby waives for Tenant and all those
claiming under Tenant all rights now or hereafter existing to redeem by order or
judgment of any court or by legal process or writ, Tenant's right of occupancy
of the Premises after termination of this Lease.
31. COVENANTS. This Lease shall be construed as though the covenants
contained herein are independent and not dependent and Tenant hereby waives the
benefit of any statute to the contrary. All provisions of this Lease to be
observed or performed by Tenant are both covenants and conditions.
32. BINDING EFFECT, CHOICE OF LAW. Subject to any provision hereof
restricting assignment or subletting by Tenant, this Lease shall bind the
parties, their heirs, personal representatives, successors and assigns. This
Lease shall be governed by the laws of the state in which the Project is located
and any litigation concerning this Lease between the parties hereto shall be
initiated in the county in which the Project is located.
33. ATTORNEYS' FEES. If Landlord or Tenant brings an action to enforce the
terms hereof or declare rights hereunder, the prevailing party in any such
action, or appeal thereon, shall be entitled to its reasonable attorneys' fees
and court costs to be paid by the losing party as fixed by the court in the same
or separate suit, and whether or not such action is pursued to decision or
judgment. The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
and court costs reasonably incurred in good faith. Landlord shall be entitled to
reasonable attorneys' fees and all other costs and expenses incurred in the
preparation and service of notices of default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such default. Landlord and Tenant agree that attorneys' fees incurred with
respect to defaults and bankruptcy are actual pecuniary losses within the
meaning of Section 365(b)(1)(B) of the Bankruptcy Code or any successor statute.
34. AUCTIONS. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas.
The holding of any auction on the Premises or Common Areas in violation of this
Section 45 shall constitute a material default hereunder.
36
<PAGE> 42
35. SIGNS. Tenant shall not place any sign upon the Premises (including on
the inside or the outside of the doors or windows of the Premises) or the
Project without Landlord's prior written consent, which may be given or withheld
in Landlord's sole discretion. Landlord shall have the right to place any sign
it deems appropriate on any portion of the Project except the interior of the
Premises. Any sign Landlord permits Tenant to place upon the Premises shall be
maintained by Tenant, at Tenant's sole expense. If Landlord permits Tenant to
include its name in the Building's directory, the cost of placing Tenant's name
in the directory and the cost of any subsequent modifications thereto shall be
paid by Tenant, at Tenant's sole expense.
36. MERGER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not result in
the merger of Landlord's and Tenant's estates, and shall, at the option of
Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
37. QUIET POSSESSION. Subject to the other terms and conditions of this
Lease, and the rights of any lender, and provided Tenant is not in default
hereunder, Tenant shall have quiet possession of the Premises for the entire
term hereof, Subject to all of the provisions of this Lease.
38. AUTHORITY. If Tenant is a corporation, trust, general or limited
partnership, or other entity, Tenant, and each individual executing this Lease
on behalf of such entity, represents and warrants that such individual is duly
authorized to execute and deliver this Lease on behalf of said entity, that said
entity is duly authorized to enter into this Lease, and that this Lease is
enforceable against said entity in accordance with its terms. If Tenant is a
corporation, trust or partnership, Tenant shall deliver to Landlord upon demand
evidence of such authority satisfactory to Landlord.
39. CONFLICT. Except as otherwise provided herein to the contrary, any
conflict between the printed provisions, exhibits, addenda or riders of this
Lease and the typewritten or handwritten provisions, if any, shall be controlled
by the typewritten or handwritten
40. MULTIPLE PARTIES. If more than one person or entity is named as Tenant
herein, the obligations of Tenant shall be the joint and several responsibility
of all persons or entities named herein as Tenant. Service of a notice in
accordance with Section 40 on one Tenant shall be deemed service of notice on
all Tenants.
41. INTERPRETATION. This Lease shall be interpreted as if it was prepared by
both parties and ambiguities shall not be resolved in favor of Tenant because
all or a portion of this Lease was prepared by Landlord. The captions contained
in this Lease are for convenience only and shall not be deemed to limit or alter
the meaning of this Lease. As used in this Lease the words tenant and landlord
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine gender.
42. PROHIBITION AGAINST RECORDING. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant. Landlord shall have the
right to record a memorandum of this Lease, and Tenant shall execute,
acknowledge and deliver to Landlord for recording any memorandum prepared by
Landlord.
43. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed
or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, Joint venturer or any
association between Landlord and Tenant.
44. RULES AND REGULATIONS. Tenant agrees to abide by and conform to the Rules
and to cause its employees, suppliers, customers and invitees to so abide and
conform. Landlord shall have the right, from time to time, to modify, amend and
enforce the Rules. Landlord shall not be responsible to Tenant for the failure
of other persons including, but not limited to, other tenants, their agents,
employees and invitees to comply with the Rules. LANDLORD AGREES TO ENFORCE THE
RULES IN
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<PAGE> 43
A UNIFORM AND NONDISCRIMINATORY MANNER. IF ANY CONFLICT EXISTS BETWEEN THE RULES
AND THE PROVISIONS OF THIS LEASE, THE LATER SHALL CONTROL.
45. RIGHT TO LEASE. Landlord reserves the absolute right to effect such other
tenancies in the Project as Landlord in its sole discretion shall determine, and
Tenant is not relying on any representation that any specific tenant or number
of tenants will occupy the Project.
46. SECURITY INTEREST. In consideration of the covenants and agreements
contained herein, and as a material consideration to Landlord for entering into
this Lease, Tenant hereby unconditionally grants to Landlord a continuing
security interest in and to all personal property of Tenant located or left at
the Premises and the Security Deposit, if any, and any advance rent payment or
other deposit, nor in or hereafter delivered to or coming into the possession,
custody or control of Landlord, by or for the account of Tenant, together with
any increase in profits or proceeds from such property. The security interest
granted to landlord hereunder secures payment and performance of all obligations
of Tenant under this Lease now or hereafter arising or existing, whether direct
or indirect, absolute or contingent, or due or to become due. In the event of a
default under this Lease which is not cured within the applicable grace period,
if any, Landlord is and shall be entitled to all the rights, powers and remedies
granted a secured party under the Commonwealth of Virginia Commercial Code and
otherwise available at law or in equity, including, but not limited to, the
right to retain as damages the personal property, Security Deposit and other
funds held by Landlord, without additional notice or demand regarding this
security interest. Tenant agrees that it will execute such other documents or
Instruments as may be reasonably necessary to carry out and effectuate the
purpose and terms of this Section, or as otherwise reasonably requested by
Landlord, including without limitation, execution of a UCC-1 financing
statement. Tenant's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Tenant hereunder and, at
Landlord's option, Landlord shall have the right to execute such documents on
behalf of Tenant as Tenant's attorney-in-fact. Tenant does hereby make,
constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact, and
Landlord shall have the right to execute such documents in Tenant's name. Tenant
hereby waives any rights it may have under the Commonwealth of Virginia Civil
Code which are inconsistent with Landlord's rights under this Section.
Landlord's rights under this Section are in addition to Landlord's rights under
Sections 5 and 13. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION
57 OF THIS LEASE, THE SECURITY INTEREST GRANTED BY TENANT TO LANDLORD SHALL BE
AUTOMATICALLY SUBORDINATED TO THE SECURITY INTEREST, IF ANY, GRANTED TO TENANT'S
LENDERS IN THE ORDINARY COURSE OF TENANT'S BUSINESS. AT TENANT'S REQUEST,
LANDLORD SHALL EXECUTE A LIEN WAIVER, THE FORM OF WHICH SHALL BE REASONABLY
SATISFACTORY TO LANDLORD, WAIVING LANDLORD'S SECURITY INTEREST IN THE COLLATERAL
DESCRIBED IN ANY SUCH LIEN WAIVER (WHICH COLLATERAL SHALL EXCLUDE THE
IMPROVEMENTS AND ANY FIXTURES INSTALLED IN THE PREMISES).
47. SECURITY FOR PERFORMANCE OF TENANT'S OBLIGATIONS. Notwithstanding any
Security Deposit held by Landlord pursuant to Section 5 and any security
interest held by Landlord pursuant to Section 57, Tenant hereby agrees that in
the event of a default by Tenant, Landlord shall be entitled to seek and obtain
a writ of attachment and/or a temporary protective order and Tenant hereby
waives any rights or defenses to contest such a writ of attachment and/or
temporary protective order on the basis of the Commonwealth of Virginia Code of
Civil Procedure or any other related statute or rule.
48. FINANCIAL STATEMENTS. From time to time, at Landlord's request, BUT NOT
MORE THAN TWO (2) TIMES IN ANY TWELVE (12) MONTH PERIOD, Tenant shall cause the
following financial information to be delivered to Landlord, at Tenant's sole
cost and expense, upon not less than ten (10) BUSINESS days' advance written
notice from Landlord: (a) a current financial statement for Tenant , (b) a
current financial statement for any guarantor(s) of this Lease and the
guarantor's financial statements for the previous two accounting years and (c)
such other financial information pertaining to Tenant or any guarantor as
Landlord or any lender or purchaser of Landlord may reasonably request. All
financial statements shall be prepared in accordance with generally accepted
accounting principals consistently applied and, if such is the normal practice
of Tenant, shall be audited by an independent certified public accountant.
Tenant hereby authorizes Landlord, from time to time, without notice to Tenant,
to obtain a credit report or credit history on Tenant form any credit reporting
company.
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<PAGE> 44
49. ATTACHMENTS. The items listed in Section 1.16 are a part of this Lease
and are incorporated herein by this reference.
50. CONFIDENTIALITY. Tenant acknowledges and agrees that the terms of this
Lease are confidential and constitute propriety information of Landlord.
Disclosure of the terms hereof could adversely affect the ability of Landlord to
negotiate other leases with respect to the Project and may impair Landlord's
relationship with other tenants of the Project. Tenant agrees that it and its
partners, officers, directors, employees, brokers, and attorneys, if any, shall
not disclose the terms and conditions of this Lease to any other person or
entity without the prior written consent of Landlord which may be given or
withheld by Landlord, in Landlord's sole discretion. It is understood and agreed
that damages alone would be an inadequate remedy for the breach of this
provision by Tenant, and Landlord shall also have the right to seek specific
performance of this provision and to seek injunctive relief to prevent its
breach or continued breach.
51. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR
CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER
LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER
ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY
OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR
REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.
LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THIS
LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS
LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND
TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN
THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS
EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD'S AGENT AND
SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE
THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE
PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD AND TENANT ONLY WHEN
FULLY EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED
ORIGINAL OF THIS LEASE TO TENANT.
<TABLE>
<S> <C>
THE REALTY ASSOCIATES FUND HIGH SPEED ACCESS,
III, L.P., a Delaware limited partnership a _______________ corporation
By: Realty Associates Fund III GP Limited Partnership, By: /s/ High Speed Access Corp.
General Partner -----------------------------------
-----------------------------------
By: Realty Fund III GP, Inc., (print name)
General Partner
Its:
----------------------------------
(print title)
By: /s/ Realty Fund III GP, Inc.
------------------------------------
------------------------------------
(print name)
Its:
-----------------------------------
(print title)
</TABLE>
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<PAGE> 45
ADDENDUM
THIS ADDENDUM (the "Addendum") is attached to the Lease dated as of August
20, 1999 by and between THE REALTY ASSOCIATES FUND III, L.P., a Delaware limited
partnership ("Landlord") and HIGH SPEED ACCESS, a __________ ("Tenant") and
incorporated herein by reference thereto. To the extent that there are any
conflicts between the provisions of the Lease and the provisions of this
Addendum, the provisions of this Addendum shall supersede the conflicting
provisions of the Lease.
1. OPERATING EXPENSE INCREASES. Notwithstanding anything to the contrary
contained in the definitions of Operating Expenses set forth in Section 4.2(c)
of the Lease, Operating Expenses shall not include the following:
(a) costs incurred by Landlord for capital improvements, unless made with the
reasonable expectation to reduce Operating Expenses or required by law;
(b) landlord's general corporate overhead and general administrative
expenses;
(c) advertising and promotional expenditures;
(d) costs incurred to provide services or other benefits to other tenants or
occupants of a type that are not provided or available to Tenant hereunder;
(e) rental payments to any ground lessor or Landlord;
(f) payments in respect of overhead or profit to subsidiaries or affiliates
of Landlord, or to any party as a result of a non-competitive selection process,
for management or other services on or to the Building, or for supplies or other
materials to the extent that the costs of such services, supplies, or materials
exceed the costs that would have bene paid had the services, supplies, or
materials been provided by parties unaffiliated with the Landlord on a
competitive basis;
(g) expenses for which Landlord is reimbursed (either by an insurer,
condemnor, tenant, warrantor or otherwise);
(h) the cost of acquiring sculptures, paintings and other art work;
(i) costs of correcting any violations under The Americans with Disabilities
Act or any applicable environmental law existing as of the Commencement Date;
(j) costs relating to maintaining Landlord's existence, either as a
corporation, partnership, trust or other entity or changing Landlord's form of
ownership;
(k) costs directly resulting from the gross negligence of willful misconduct
of Landlord, its employees, agents or contractors;
(l) costs incurred to contain, abate, remove or otherwise clean up the
Building or the Land required as a result of the presence of Hazardous Materials
in, about or below the Building or the Land to the extent caused by landlord or
another tenant;
(m) expenses for the correction of defects in Landlord's initial construction
of the Building or Project;
(n) salaries, wages and benefits of any employee above the level of senior
property manager;
(o) expenses incurred in leasing or procuring tenants for the Building
(including lease commissions, advertising expenses);
<PAGE> 46
(p) Landlord's net income and franchise taxes; and
(q) costs associated with trade shows that occur in the Building.
2. BASE RENT INCREASE. Section 4.3 of the Lease is hereby deleted in its
entirety and the following Section 4.3 is substituted in its place: "The Base
Rent set forth in Section 1.8 hereinabove shall be adjusted annually on each
anniversary of the Commencement Date (unless the Commencement Date is other than
the first day of a month, in which event the Base Rent shall be adjusted
annually commencing on the first anniversary of the first day of the calendar
month following the Commencement Date) during the Term of the Lease as follows:
<TABLE>
<CAPTION>
Lease Period in Months Annual Base Rent Monthly Base Rent
---------------------- ---------------- -----------------
<S> <C> <C>
01-12 $300,000.00 $25,000.00
13-36 $309,000.00 $25,750.00
37-48 $318,270.00 $26,522.50
49-60 $327,828.84 $27,319.07
61-72 $337,663.68 $28,138.64
</TABLE>
3. CONDITION OF PREMISES. Section 6.3 of the Lease is hereby amended by
adding the following to the end of Section 6.3: "Landlord warrants to Tenant
that, to the best of Landlord's knowledge, the Building, in the state existing
on the date this Lease is executed by Landlord and Tenant, but without regard to
alterations or improvements to be made by Tenant or the use for which Tenant
will occupy the Premises, does not violate any covenants or restrictions of
record, or any applicable building code, regulation or ordinance in effect on
such date. To the extent that the Landlord receives any notice from a
governmental entity that the Building is not in compliance with the Americans
with Disabilities Act ("ADA") and the Landlord is obligated pursuant to a final
determination to undertake action in order to comply with ADA, then in such
event Landlord agrees to undertake such remedial action at Landlord's sold cost
and expense. To the extent that such notice requires action with regard to
Tenant's particular use of the Premises, Tenant shall be obligated to undertake
such action at Tenant's sole cost and expense."
4. ALTERATIONS AND ADDITIONS. Section 7.3(a) of the Lease is hereby modified
by inserting the following at the end of such Section 7.3(a): "Notwithstanding
anything to the contrary in Section 7.3(a), Tenant shall have the right to make
cosmetic, non-structural Alterations to the Premises without obtaining
Landlord's prior written consent and without obtaining Landlord's approval of
Tenant's contractor, provided that (i) such Alterations do not exceed Ten
Thousand Dollars ($10,000.00) in cost in any one instance; (ii) such Alterations
do not exceed Fifty Thousand Dollars ($50,000.00) in cost over the term of the
Lease; and (iii) Tenant provides Landlord with prior written notice of its
intention to make such Alterations together with the plans and specifications
for the same. To the extent Landlord's consent is required pursuant to
Subsection (a) herein, Landlord agrees to notify Tenant concurrently with
Landlord's decision concerning such Alteration whether Landlord will require
Tenant to remove such Alteration at the end of the Term. For purposes of the
Lease, it shall be deemed reasonable for Landlord to require Tenant to perform
Alterations during non-business hours if such Alterations will create
unreasonable noise, noxious fumes or otherwise interfere with the quiet
enjoyment of the other tenants in the Building."
5. INTERRUPTION IN SERVICES. Notwithstanding anything contained in Section 11
or Section 28 of the Lease to the contrary, if any interruption of utilities or
services or the making of any Changes under Section 28 of the Lease shall
continue for more than five (5) consecutive business days and shall render any
portion of the Premises unusable for the normal conduct of Tenant's business,
and if Tenant does not in fact use or occupy such portion of the Premises, then
all Base Rent and additional rent payable hereunder with respect to such portion
of the Premises which Tenant does not occupy shall be abated retroactively to
the first (1st) business day of such interruption or the making of such Changes
and such abatement shall continue until full use of such portion of the Premises
is restored to Tenant. Except in the case of emergency, the Landlord will give
Tenant at least one (1) business day prior notice if Landlord intends to
interrupt any services
2
<PAGE> 47
required to be furnished by the Landlord or make any Changes that may
unreasonably interfere with Tenant's occupancy of the Premises.
6. ASSIGNMENT. "Notwithstanding anything to the contrary contained in Section
12 of the Lease, Tenant shall have the right, without Landlord's consent, upon
thirty (30) days advance written notice to Landlord, to assign the Lease or
sublet the whole or any part of the Premises (i) to any entity or entities which
are owned by Tenant, or which owns Tenant, (ii) in connection with the sale or
transfer of substantially all of the assets of the Tenant or the sale or
transfer of substantially all of the outstanding ownership interests in Tenant,
or (iii) in connection with a merger, consolidation or other corporate
reorganization of Tenant (each of the transactions reference din the above
subparagraphs (i), (ii), and (iii) are hereinafter referred to as a "Permitted
Transfer," and each surviving entity shall hereinafter be referred to as a
"Permitted Transferee"); provided, that such assignment or sublease is subject
to the following conditions:
(i) Tenant shall remain fully liable under the terms of the Lease;
(ii) such Permitted Transfer shall be subject to all of the terms, covenants
and conditions of the Lease;
(iii) such Permitted Transferee has a net worth at least equal to the net
worth of Tenant as of the date of this Lease; and
(iv) such Permitted Transferee shall expressly assume the obligations of
Tenant under the Lease by a document reasonably satisfactory to Landlord.
7. INDEMNITY BY LANDLORD. Notwithstanding the provisions of Sections 20 and
21 of the Lease to the contrary, Tenant shall not be required to indemnify and
hold Landlord harmless from any loss, cost, liability, damage or expense
(collectively, "Claims"), to any person, property or entity resulting from the
gross negligence or willful misconduct of Landlord or its agents, contractors or
employees, in connection with Landlord's activities at the Project, and Landlord
hereby indemnifies and saves Tenant harmless from any such Claims. Each party's
agreement to indemnify and hold the other harmless set forth above are not
intended to, and shall not relive any insurance carrier of its obligations under
policies required to be carried by landlord or Tenant pursuant to the provisions
of the Lease to the extent that such policies cover the results of such acts or
conduct. Landlord's and Tenant's obligations under this Paragraph 7 shall
survive the expiration or termination of this Lease unless specifically waived
in writing by either party after said expiration or termination.
8. TENANT IMPROVEMENTS. Landlord shall construct improvements
("Improvements") for the Premiss in accordance with the Work Letter Agreement
attached hereto as Schedule 1. In connection thereto, Landlord hereby grants to
Tenant an "Improvement Allowance" of up to Ten and 00/100 Dollars ($10.00) per
rentable square foot of space in the Premises (i.e., 12,000 rentable square feet
multiplied by $10.00 = $120,000.00), which Improvement Allowance shall be used
only for the items specified in the Cost Breakdown, as that term is defined in
the Work Letter Agreement and must be sued prior to the expiration of the first
(1st) Lease Year.
9. OPTION TO RENEW. Subject to the provisions of Section 26 of the Lease, and
provided that Tenant is not in default beyond any applicable cure period, at the
time of Tenant's exercise of the Option, Tenant shall have one (1) five (5) year
option to renew this Lease. Tenant shall provide to Landlord on a date which is
prior to the date that the option period would commence (if exercised) by at
least one hundred eighty (180) days and not more than two hundred seventy (270)
days, a written notice of the exercise of the option to extend the Lease for the
additional option term, time being of the essence. Such notice shall be given in
accordance with Section 40 of the Lease as modified by Section 26.6 hereof. If
notification os the exercise of this Option is not so given and received, all
options granted hereunder shall automatically expire. Base Rent applicable to
the Premises for the Option Term shall be equal to the Fair Market Rental as
defined below. All other terms and conditions of the Lease shall remain the
same.
(b) If the Tenant exercises the Option, the Landlord shall determine the Fair
Market Rental by using its good faith judgment. Landlord shall provide Tenant
with written notice of such
3
<PAGE> 48
amount within fifteen (15) days after Tenant exercises its Option. Tenant shall
have thirty (30) days ("Tenant's Review Period") after receipt of Landlord's
notice of the new base rent within which to accept such rental. In the event
Tenant fails to accept in writing such rental proposal by Landlord, then such
proposal shall be deemed rejected and Landlord and Tenant shall attempt to agree
upon such Fair Market Rental, using their best good faith efforts. If Landlord
and Tenant fail to reach agreement within fifteen (15) days following Tenant's
Review Period ("Outside Agreement Date") then the parties shall each within ten
(10) days following the Outside Agreement Date appoint a real estate broker who
shall be licensed in the Commonwealth of Virginia and who specializes in the
field of commercial office space leasing in the Northern Virginia market, has at
least five (5) years of experience and is recognized within the field as being
reputable and ethical. If one party does not timely appoint a broker, then the
broker appointed by the other party shall promptly appoint a broker for such
party. Such two individuals shall each determine within ten (10) days after
their appointment such base rent. If such individuals do not agree on base rent,
then the two individuals shall, within five (5) days, render separate written
reports of their determinations and together appoint a third similarly qualified
individual having the qualifications described above. If the two brokers are
unable to agree upon a third broker, the third broker shall be appointed by the
President of the Northern Virginia Board of Realtors. In the event the Northern
Virginia Board of Realtors is no longer in existence, the third broker shall be
appointed by the President of its successor organization. If no successor
organization is in existence, the third broker shall be appointed by the Chief
Judge of the Circuit Court of Fairfax County, Virginia. The third individual
shall within ten (10) days after his or her appointment make a determination of
such base rent. The third individual shall determine which of the determinations
of the first two individual is closest to his own and the determination that is
closest shall be final and binding upon the parties, and such termination may be
enforced in any court of competent jurisdiction. Landlord and Tenant shall each
bear the cost of its broker and shall share equally the cost of the third
broker. Upon determination of the base rent payable pursuant to this Section,
the parties shall promptly execute an amendment to this Lease stating the rent
to determined.
(c) The term "Fair Market Rental" shall mean the annual amount per rentable
square foot that a willing, comparable renewal tenant would pay and a willing,
comparable landlord of a similar office building would accept at arm's length
for similar office space, giving appropriate consideration to the following
matters: (i) annual rental rates per rentable square foot; (ii) the type of
escalation clauses (including, without limitation, operating expenses, real
estate taxes, and CPI) and the extent of liability under the escalation clauses
(i.e., whether determined on a "net lease" basis or by the increases over a
particular base year or base dollar amount); (iii) rent abatement provisions
reflecting free rent and/or no rent during the lease term; (iv) length of lease
term; (v) size and location of premises being leased; (vi) other generally
applicable terms and conditions of tenancy for similar space; (viii) location of
Premises within Building; (viii) other allowances and concessions; (ix) credit
of applicable tenant; (x) brokerage commissions; (xi) comparable vacancy; and
(xii) existing conditions of the space; provided, however, Tenant shall not be
entitled to any tenant improvement or refurbishment allowance. The Fair Market
Rental may also designate periodic rental increases, a new Base Year and similar
economic adjustments. The Fair Market Rental shall be the Fair Market Rental in
effect as of the beginning of the Option period, even though the determination
may be made in advance of that date, and the parties may use recent trends in
rental rates in determining the proper Fair Market Rental as of the beginning of
the Option period.
4
<PAGE> 1
EXHIBIT 10.5
SUBLEASE
This Sublease is made as of the 20th day of August, by and between R
SQUARED DISTRIBUTING OF COLORADO, A COLORADO CORPORATION (hereinafter referred
to as "Sublandlord") and HIGH SPEED ACCESS CORP., A DELAWARE CORPORATION
(hereinafter referred to as "Subtenant") with regard to the following facts.
RECITALS
A. Sublandlord is the tenant under that certain LEASE AGREEMENT WITH
EXECUTIVE BUSINESS PARK LIMITED PARTNERSHIP, A COLORADO LIMITED PARTNERSHIP (THE
"LANDLORD"), DATED SEPTEMBER 6, 1989, AS AMENDED BY A FIRST AMENDMENT TO LEASE
DATED APRIL 30, 1992, A SECOND AMENDMENT TO LEASE DATED SEPTEMBER 17, 1992, A
THIRD AMENDMENT TO LEASE DATED FEBRUARY 1, 1994, A FOURTH AMENDMENT TO LEASE
DATED NOVEMBER 30, 1994, AND A FIFTH AMENDMENT TO LEASE DATED AUGUST 13, 1996
(THE "MASTER LEASE"), a copy of which Master Lease is attached hereto as Exhibit
A and by this reference made a part hereof concerning approximately 33,074
rentable square feet of office space known as Suite 200 (the "Premises"),
consisting of approximately 15,056 rentable square feet on the 2nd floor and
18,018 rentable square feet on the 1st floor of the building (the "Building")
located at 11211 E.
Arapahoe Road, Englewood, Colorado.
B. Subtenant desires to sublease from Sublandlord the Premises (which
shall be hereafter referred to as the "Subleased Premises") and Sublandlord has
agreed to sublease the Subleased Premises to Subtenant upon the terms, covenants
and conditions herein set forth.
AGREEMENT
In consideration of the mutual covenants contained herein, the
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows.
1. Sublease. Sublandlord hereby subleases and demises to Subtenant and
Subtenant hereby hires and takes from Sublandlord the Subleased Premises in its
current "AS IS" and "with all faults" condition. Subtenant acknowledges and
agrees that Sublandlord is under no obligation to make any additions,
improvements, or alterations whatsoever in or to the Subleased Premises.
2. Term. The term of this Sublease shall commence on September 1, 1999,
with respect to the 2nd floor and January 1, 2000 with respect to the 18,018
rentable square feet on the 1st floor, and shall end, unless sooner terminated,
as provided in the Master Lease, on September 30, 2001.
3. Rent; Security Deposit.
3.1 Base Rent. Subtenant shall pay Base Rent during the term
of this Sublease in the amount of $7.00 triple net ("NNN") per rentable square
foot of the Subleased Premises per year, payable monthly in advance on the first
day of each month in equal monthly installments as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PERIOD RENTABLE SQUARE FEET BASE RENT PER RSF MONTHLY BASE RENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9/1/99 - 12/31/99 15,056 $7.00 $8,782.67
- ----------------------------------------------------------------------------------------------------------------------
1/1/00 - 9/30/01 33,074 $7.00 $19,293.17
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 8
<PAGE> 2
Furthermore, in the event that the term of this Sublease shall begin or end on a
date which is not the first day of a month, Base Rent shall be prorated as of
such date.
3.2 Security Deposit; Waiver of Liens and Claims on
Subtenant's Personal Property. Concurrent with Subtenant's execution of this
Sublease, Subtenant shall deliver to Sublandlord (by negotiable instrument
payable directly to the Landlord) the first month's Base Rent. In addition,
Subtenant shall deliver to Sublandlord (by negotiable instrument payable jointly
to Landlord and Sublandlord) Additional Rent in the amount of $13,224.19
((($7.00/RSF + $3.54/RSF) x 15,056)/12) plus the amount of $29,050.00
((($7.00/RSF + $3.54/RSF) x 33,074)/12) as a Security Deposit with respect to
Subtenant's obligations under this Sublease, to be held by Sublandlord in
accordance with Section 2.B. of the Master Lease (reinstated with regard to this
Sublease). In exchange for Subtenant's remittance of such Security Deposit, and
notwithstanding any other provisions hereof, Sublandlord hereby waives any and
all claims and/or liens it may have under this Sublease with respect to
Subtenant's computer and phone system equipment and other personal property
(some or all of which may be leased by other commercial banking institutions)
located in or about the Subleased Premises, regardless of whether a default has
occurred or is continuing under this Sublease. Sublandlord shall also cooperate
with and assist Subtenant in acquiring an identical waiver from the Landlord.
3.3 Additional Rent-Operating Expenses. Subtenant shall also
pay as Additional Rent during each calendar year or partial calendar year during
the term hereof Subtenant's Pro Rata Share of Operating Expenses and Real Estate
Taxes for the Subleased Premises pursuant to the same terms and conditions of
Section 2.C of the Master Lease. SUBTENANT'S PRO RATA SHARE FOR THE SUBLEASED
PREMISES IS 46.86% AND LANDLORD'S ESTIMATE OF ADDITIONAL RENT FOR 1999 IS $3.54
PER RENTABLE SQUARE FOOT.
4. Use, Alterations. The Premises shall be used for general offices,
including a call center/help desk, equipment test/staging and network operating
center, not inconsistent with the character and type of tenancy found in
comparable first class office buildings in the Denver, Colorado metropolitan
area and for no other purposes without the prior written consent of Sublandlord.
Except as herein to be provided, Subtenant covenants and agrees to use the
Premises in accordance with the provisions of the Master Lease and for no other
purpose and otherwise in accordance with the terms and conditions of the Master
Lease and this Sublease. Sublandlord agrees, and shall acquire Landlord's
agreement, to allow Subtenant, at Subtenant's expense and in accordance with
Section 7 of the Master Lease, Alterations (provided that Subtenant shall be
entitled to use its own contractors subject to Landlord's consent not to be
unreasonably withheld), to install an enclosed diesel-powered backup generator
on a concrete pad in a mutually-agreeable parking space outside the building
(near the loading dock) and run conduit into and through the building conduit
with appropriate interface and connections to the building's electrical systems.
Subtenant at its expense will remove such generator and related wiring/conduit
prior to or contemporaneous with the termination of this Sublease. Subtenant
further covenants and agrees that any other improvements or alterations to the
Subleased Premises shall be subject to the terms and provisions of Section 7 of
the Lease and the prior written consent of Sublandlord, which shall not be
unreasonably withheld or delayed.
5. Master Lease. As applied to this Sublease, the words "Landlord" and
"Tenant" as used in the Master Lease shall be deemed to refer to Sublandlord and
Subtenant hereunder, respectively. Subtenant and this Sublease shall be subject
in all respects to the terms of, and the rights of the Landlord under, the
Master Lease. Except as otherwise expressly provided in Section 7 hereof, the
covenants, agreements, terms, provisions and conditions of the Master Lease
insofar as they relate to the Subleased Premises and insofar as they are not
inconsistent with the terms of this Sublease are made a part of and incorporated
into this Sublease as if recited herein in full, and the rights and obligations
of the Landlord
Page 2 of 8
<PAGE> 3
and the Tenant under the Master Lease shall be deemed the rights and obligations
of Sublandlord and Subtenant respectively hereunder and shall be binding upon
and inure to the benefit of Sublandlord and Subtenant respectively. As between
the parties hereto only, in the event of a conflict between the terms of the
Master Lease and the terms of this Sublease shall control.
6. Landlord's Performance Under Master Lease.
6.1 Subtenant recognizes that Sublandlord is not in a position
to render any of the services or to perform any of the obligations required of
Sublandlord by the terms of this Sublease. Therefore, notwithstanding anything
to the contrary contained in this Sublease, Subtenant agrees that performance by
Sublandlord of its obligations hereunder are conditional upon due performance by
the Landlord of its corresponding obligations under the Master Lease and
Sublandlord shall not be liable to Subtenant for any default of the Landlord
under the Master Lease. Subtenant shall not have any claim against Sublandlord
unless such failure or refusal is a result of Sublandlord's act or failure to
act by reason of the Landlord's failure or refusal to comply with any of the
provisions of the Master Lease. This Sublease shall remain in full force and
effect notwithstanding the Landlord's failure or refusal to comply with any such
provisions of the Master Lease. Subtenant covenants and warrants that it fully
understands and agrees to be subject to and bound by all of the covenants,
agreements, terms, provisions and conditions of the Master Lease, except as
modified herein. Furthermore, Subtenant and Sublandlord further covenant not to
take any action or do or perform any act or fail to perform any act which would
result in the failure or breach of any of the covenants, agreements, terms,
provisions or conditions of the Master Lease on the part of the Tenant
thereunder.
6.2 Whenever the consent of Landlord shall be required by, or
Landlord shall fail to perform its obligations under, the Master Lease,
Sublandlord agrees to use its best efforts to obtain such consent and/or
performance on behalf of Subtenant.
6.3 Sublandlord represents and warrants to Subtenant that the
Master Lease is in full force and effect, all obligations of both Landlord and
Sublandlord thereunder have been satisfied and Sublandlord has neither given nor
received a notice of default pursuant to the Master Lease.
6.4 Sublandlord covenants as follows: (i) not to voluntarily
terminate the Master Lease without the Subtenant's consent, (ii) not to modify
the Master Lease so as to adversely affect Subtenant's rights hereunder without
the Subtenant's consent, and (iii) to take all actions reasonably necessary to
preserve the Master Lease, including the payment of any incremental Base Rent
due Landlord under the Master Lease. Subtenant shall the right but not the
obligation to cure any default, monetary or otherwise, by Sublandlord under the
Master Lease, and demand indemnification and/or recover damages for same from
Sublandlord.
6.5 Subtenant hereby acknowledges and agrees that Landlord
shall not be bound by any of the terms, covenants, conditions, provisions or
agreements of the Sublease, except as may be specifically set forth in
Landlord's Consent to Sublease Agreement (the "Consent") of even date herewith.
7. Variations from Master Lease. The following covenants, agreements,
terms, provisions and conditions of the Master Lease are hereby modified or not
incorporated herein:
7.1 Notwithstanding anything to the contrary set forth in
Sections 1 and 2 [Term; Base Rent; Security Deposit] of the Master Lease, the
term of this Sublease and base rent payable under
Page 3 of 8
<PAGE> 4
this Sublease and the amount of the Security Deposit required of Subtenant shall
be as set forth in Sections 2 and 3 above.
7.2 The parties hereto represent and warrant to each other
that neither party dealt with any broker or finder in connection with the
consummation of this Sublease other than Oliver Real Estate and Grubb & Ellis
Company and each party agrees to indemnify, hold and save the other party
harmless from and against any and all claims for brokerage commissions or
finder's fees arising out of either of their acts in connection with this
Sublease. The provisions of this Section 7.2 shall survive the expiration or
earlier termination of this Sublease.
7.3 Notwithstanding anything contained in the Master Lease to
the contrary, as between Sublandlord and Subtenant only, all insurance proceeds
or condemnation awards received by Sublandlord under the Master Lease shall be
deemed to be the property of Subtenant.
7.4 Any notice which may or shall be given by either party
hereunder shall be either delivered personally or sent by certified mail, return
receipt requested, addressed to the party for whom it is intended at the
following designated addresses:
To Subtenant: High Speed Access Corp.
Attn: John G. Hundley
4100 East Mississippi Ave., Suite 1150
Denver, CO 80246
Phone: 303.256.2000
Fax: 303.256.2001
To Sublandlord: Vangard Technology
Attn: Mr. Richard Winslow
11211 E. Arapahoe Rd., Suite 200
Englewood, CO 80112
Phone: 303.790.6090
Fax: 303.799.9297
7.5 All amounts payable hereunder by Subtenant shall be
remitted to Sublandlord by negotiable instrument payable to the Landlord.
7.6 Sublandlord shall deliver the Subleased Premises to
Subtenant in its current "as is" condition.
7.7 Subtenant shall not be required to remove any improvements
located in the Subleased Premises upon the expiration of the term hereof.
7.8 The following provisions of the Master Lease shall be
deemed deleted for the purpose of incorporation by reference in this Sublease:
None.
8. Indemnity. Subtenant hereby agrees to indemnify and hold Sublandlord
harmless from and against any and all claims, losses and damages, including,
without limitation, reasonable attorneys' fees and disbursements, which may at
any time be asserted against Sublandlord by (a) the Landlord for failure of
Subtenant to perform any of the covenants, agreements, terms, provisions or
conditions contained in the Master Lease which by reason of the provisions of
this Sublease Subtenant is obligated to perform, or (b) any person by reason of
Subtenant's use and/or occupancy of the Subleased Premises.
Page 4 of 8
<PAGE> 5
The provisions of this Section 8 shall survive the expiration or earlier
termination of the Master Lease and/or this Sublease, except to the extent any
of the foregoing is caused or by the negligence of Sublandlord.
9. Cancellation of Master Lease. In the event of the cancellation or
termination of the Master Lease for any reason whatsoever or of the involuntary
surrender of the Master Lease by operation of law prior to the expiration date
of this Sublease, if Landlord agrees to accept the tenancy created hereby as
provided in Section 3 of the Consent (hereinafter defined). Subtenant agrees to
make full and complete attornment to the Landlord under the Master Lease for the
balance of the term of this Sublease and upon the then executory terms hereof at
the option of the Landlord at any time during Subtenant's occupancy of the
Premises, which attornment shall be evidenced by an agreement in form and
substance reasonably satisfactory to the Landlord. Subtenant agrees to execute
and deliver such an agreement at any time within ten (10) business days after
request of the Landlord.
10. Certificates. Each party hereto shall at any time and from time to
time as requested by the other party upon not less than ten (10) days' prior
written notice, execute, acknowledge and deliver to the other party, a statement
in writing certifying that this Sublease is unmodified and in full force and
effect (or if there have been modifications that the same is in full force and
effect as modified and stating the modifications, if any) certifying the dates
to which rent and any other charges have been paid and stating whether or not,
to the knowledge of the person signing the certificate, that the other party is
not in default beyond any applicable grace period provided herein in performance
of any of its obligations under this Sublease, and if so, specifying each such
default of which the signer may have knowledge, it being intended that any such
statement delivered pursuant hereto may be relied upon by others with whom the
party requesting such certificate may be dealing.
11. Assignment or Subletting. Subject further to all of the rights of
the Landlord under the Master Lease and the restrictions contained in the Master
Lease, Subtenant shall not be entitled to assign this Sublease or to sublet all
or any portion of the Premises without the prior written consent of Sublandlord,
which consent may not be unreasonably withheld.
12. Severability. If any term or provision of this Sublease or the
application thereof to any person or circumstances shall, to any extent, be
invalid and unenforceable, the remainder of this Sublease or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each term
or provision of this Sublease shall be valid and be enforced to the fullest
extent permitted by law.
13. Entire Agreement; Waiver. This Sublease contains the entire
agreement between the parties hereto and shall be binding upon and inure to the
benefit of their respective heirs, representatives, successors and permitted
assigns. Any agreement hereinafter made shall be ineffective to change, modify,
waive, release, discharge, terminate or effect an abandonment hereof, in whole
or in part, unless such agreement is in writing and signed by the parties
hereto.
14. Captions and Definitions. Captions to the Sections in this Sublease
are included for convenience only and are not intended and shall not be deemed
to modify or explain any of the terms of this Sublease.
15. Further Assurances. The parties hereto agree that each of them,
upon the request of the other party, shall execute and deliver, in recordable
form if necessary, such further documents, instruments or agreements and shall
take such further action that may be necessary or appropriate to effectuate the
purposes of this Sublease.
Page 5 of 8
<PAGE> 6
16. Governing Law. This Sublease shall be governed by and in all
respects construed in accordance with the internal laws of the State of
Colorado.
17. Default. The occurrence or existence of any one or more of the
following events or circumstances shall constitute a material default hereunder
by Subtenant.
(i) Subtenant shall fail to pay when due any amounts
payable hereunder;
(ii) Subtenant shall vacate or abandon the Subleased
Premises;
(iii) Subtenant shall fail to perform or observe any
other provision of this Sublease or the Master Lease to be
performed or observed by Subtenant and such failure continues for
ten (10) days after written notice thereof to Subtenant (or for
such period, if any, but not to exceed the shorter of the time for
cure set forth in the Master Lease, if any, or twenty (20) days if
the default is of such nature that it cannot be cured within such
ten (10)-day period, provided that Subtenant commences to remedy
such default within such ten (10)-day period and proceeds with
reasonable diligence thereafter to cure such default.
18. Remedies. If Subtenant shall default under this Sublease as set
forth in Section 17 above, Sublandlord shall, subject to Section 3.2 hereof,
have the following rights and remedies, in addition to all other remedies at law
or equity and none of the following, whether or not exercised by Sublandlord,
shall preclude the exercise of any other right or remedy whether herein set
forth or existing at law or equity:
a. Sublandlord shall have the right to terminate this Sublease
by giving Subtenant written notice at any time. No act by or on behalf of
Sublandlord, such as entry of the Subleased Premises by Sublandlord to perform
maintenance and repairs and efforts to relet the Subleased Premises, other than
giving Subtenant written notice of termination, shall terminate this Sublease.
If Sublandlord gives such notice, this Sublease and the term as well as the
right, title and interest of Subtenant under this Sublease shall wholly cease
and expire in the same manner and with the same force and effect (except as to
Subtenant's liability) on the date specified in such notice as if such date were
the expiration date of the term without the necessity of reentry or any other
act on Sublandlord's part, any requirement for any other act or notice by
Sublandlord being hereby waived by Subtenant. If this Sublease is terminated,
Subtenant shall be and remain liable to Sublandlord for damages as hereinafter
provided and Sublandlord shall be entitled to recover forthwith from Subtenant
as damages an amount equal to the total of:
(i) all sums accrued and unpaid at the time of termination of the
Sublease, and
(ii) the amount of all other sums that would have been payable
hereunder if the Sublease had not been terminated, less the
net proceeds, if any, of any reletting of the Subleased
Premises which reletting Sublandlord shall undertake with
reasonable diligence, after deducting all Sublandlord's
expenses in connection with such reletting.
No provision(s) of this Sublease shall limit or prejudice the right of
Sublandlord to prove for and obtain as liquidated damages by reason of any
termination of this Sublease, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the proceedings
in which, such damages are to be proved, whether or not such amount be greater,
equal to, or less than the amount referred to above.
Page 6 of 8
<PAGE> 7
b. Sublandlord may, on thirty (30) written notice to
Subtenant, reenter and take possession of the Subleased Premises or any part
thereof, and repossess the same as of Sublandlord's former estate and expel
Subtenant and those claiming through or under Subtenant, and without prejudice
to any remedies for arrears of rent or preceding breach of covenants. If
Sublandlord elects to reenter as provided in this Section 18, or if Sublandlord
takes possession pursuant to legal proceedings or pursuant to any notice
provided by law, Sublandlord may, from time to time, without terminating this
Sublease, relet the Subleased Premises or any part thereof. No such reentry,
repossession or reletting of the Subleased Premises by Sublandlord shall be
construed as an election on Sublandlord's part to terminate this Sublease unless
a written notice of termination is given to Subtenant by Sublandlord. No such
reentry, repossession or reletting of the Subleased Premises shall relieve
Subtenant of its liability and obligation under this Sublease, all of which
shall survive such reentry, repossession or reletting.
19. Counterparts. This Sublease may be executed in multiple
counterparts, and when each party has so executed a counterpart of this
Sublease, all counterparts together shall be deemed to be one complete and
binding Sublease.
20. Consent of Landlord. The validity of this Sublease shall be subject
to the Landlord's prior written consent hereto pursuant (the "Consent") to the
terms of the Master Lease, and if Landlord's consent shall not be obtained and a
copy thereof delivered to Subtenant within twenty (20) days of the date hereof,
Subtenant shall have the option to cancel this Sublease by notice to Sublandlord
within thirty (30) days from the date hereof. Landlord's consent shall not be
deemed to create any privity of contract between Subtenant and Landlord.
[Left Intentionally Blank]
Page 7 of 8
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed as of the day and year first above written.
"Sublandlord"
R SQUARED DISTRIBUTING OF COLORADO,
D/B/A VANGARD TECHNOLOGY, INC.
a Colorado Corporation
By: /s/ R Squared Distributing of Colorado
----------------------------------------
Printed Name:
------------------------------
Its:
---------------------------------------
Date:
--------------------------------------
STATE OF COLORADO
COUNTY OF _____________________
SUBSCRIBED AND SWORN TO before me, a Notary Public, this _________ day of
______________________, 1999 by _____________________________________________ as
__________________________ of ___________________________________.
______________________________________Notary Public
My commission expires: _______________________________
"Subtenant":
HIGH SPEED ACCESS CORP.
a Delaware corporation
By: /s/ High Speed Access Corp.
----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
Date:
--------------------------------
STATE OF COLORADO
COUNTY OF ______________________________
SUBSCRIBED AND SWORN TO before me, a Notary Public, this _________ day of
______________________, 1999 by _____________________________________________ as
__________________________ of ___________________________________.
______________________________________Notary Public
My commission expires: _______________________________
Page 8 of 8
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0
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