<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
APPLIEDTHEORY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 16-1491253
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
</TABLE>
40 CUTTER MILL ROAD, SUITE 405
GREAT NECK, NEW YORK 11021
(516) 466-8422
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID A. BUCKEL
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
40 CUTTER MILL ROAD, SUITE 405
GREAT NECK, NEW YORK 11021
(516) 466-8422
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FRANK E. MORGAN II, ESQ. WILLIAM F. SCHWITTER, ESQ.
DEWEY BALLANTINE LLP PAUL, HASTINGS, JANOFSKY & WALKER LLP
1301 AVENUE OF THE AMERICAS 399 PARK AVENUE, 31ST FLOOR
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10022-4697
(212) 259-8000 (212) 318-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) AMOUNT OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock ($.01 par value)...................... $57,500,000 $15,985
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of common stock that the Underwriters have the option to
purchase to cover any over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1999
PROSPECTUS
SHARES
APPLIEDTHEORY CORPORATION
COMMON STOCK
------------------------
This is an initial public offering of shares of common stock of
AppliedTheory Corporation. We are selling all of the shares of common stock
offered under this prospectus.
There is currently no public market for our shares. It is currently estimated
that the initial public offering price will be between $ and
$ per share. We intend to apply to have our common stock approved for
listing on the Nasdaq National Market under the symbol "ATHY."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
------------------------
The underwriters may, under certain circumstances, purchase up to an additional
shares of common stock from us at the initial public offering
price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
------------------------
BEAR, STEARNS & CO. INC.
CIBC WORLD MARKETS
LEHMAN BROTHERS
The date of this prospectus is , 1999
<PAGE> 3
[INSIDE FRONT COVER -- GRAPHIC OF ARROW WITH NOTES. TEXT:]
[ENTERPRISE SOLUTIONS]
[APPLIEDTHEORY DELIVERS SOLUTIONS TO OUR CUSTOMERS THAT CREATE TRUE ENTERPRISE
PORTALS LINKING INTERNAL SYSTEMS AND DATABASES, WEBSITE PRESENCE, AND INTERNET
ACCESS.]
[VPNS & SECURITY]
[- SECURE OUTSOURCED WANS FOR INTRANET AND EXTRANET APPLICATIONS]
[- END TO END MANAGEMENT SERVICES]
[- FIREWALL INSTALLATION, CONFIGURATION AND MANAGEMENT]
[- NETWORK AND SECURITY CONSULTING]
[WEB HOSTING]
[- HOSTING AND SUPPORT FOR MISSION CRITICAL APPLICATIONS]
[- GUARANTEED BANDWIDTH AVAILABILITY]
[- PERFORMANCE AND QUALITY OF SERVICE GUARANTEES]
[- VIRTUALLY LINKED, DISTRIBUTED DATA CENTERS]
[- FEATURING SECURITY, GEOGRAPHIC DIVERSITY, ENHANCED CONTENT CACHING,
MIRRORING AND LOAD BALANCING]
[ENTERPRISE PORTAL DEVELOPMENT]
[- LINKING EXISTING DATABASES AND LEGACY SYSTEMS WITH THE WEB]
[- DEVELOPING NEW DATA DRIVEN APPLICATIONS]
[- CREATING OPEN, UNIVERSAL INTERFACES TO BUSINESS-CRITICAL INFORMATION]
[- DELIVERING APPLICATIONS THAT ARE INTEROPERABLE, SCALABLE, SUPPORT
E-COMMERCE]
[- STANDARDS-BASED SOFTWARE TO LINK WITH SUPPLIERS', PARTNERS' AND
CUSTOMERS' SYSTEMS]
[INTERNET INTEGRATION]
[- ANALYSIS, PROTO-TYPING AND IMPLEMENTATION]
[- THIRD-PARTY SOFTWARE EXPERTISE INCLUDING DATABASES, OPERATING SYSTEMS
AND FIREWALLS]
[- TRAINED AND CERTIFIED STAFF]
[INTERNET ACCESS]
[- THE GEMINI2000 NETWORK, THE FIRST COAST-TO-COAST NEXT GENERATION
INTERNET BACKBONE TO CARRY BOTH RESEARCH AND COMMERCIAL TRAFFIC]
[- DEDICATED CONNECTIONS TO PROVIDE CUSTOMERS WITH RELIABLE, CONTINUOUS
ACCESS TO THE INTERNET]
[- VPN TECHNOLOGIES]
[- NETWORK AND SECURITY CONSULTING]
[- SECURE DIAL-UP INTERNET ACCESS
[- HARDWARE AND SOFTWARE IMPLEMENTATION]
------------------------
AppliedTheory is a service mark of AppliedTheory Corporation. Gemini2000
Network is a trademark of IXC Internet Services, Inc.
<PAGE> 4
PROSPECTUS SUMMARY
Unless otherwise indicated, all information in this prospectus assumes that
the underwriters' over-allotment option will not be exercised and gives effect
to our reorganization as a Delaware corporation prior to consummation of this
offering. This summary highlights some of the information in this prospectus. It
may not contain all of the information that is important to you. To understand
this offering fully, you should read the entire prospectus carefully, including
the risk factors and the financial statements. All references to "we," "us,"
"our" or "AppliedTheory" in this prospectus mean AppliedTheory Corporation.
NYSERNet.net, Inc. and NYSERNet.org, Inc., of which NYSERNet.net, Inc. is the
sole member, are referred to interchangeably throughout this prospectus as
"NYSERNet." IXC Internet Services, Inc. is referred to throughout this
prospectus as "IXC." Grumman Hill Group LLC and Grumman Hill Investment III, LP,
a private equity fund advised by Grumman Hill Group LLC, are referred to
interchangeably throughout this prospectus as "Grumman Hill."
APPLIEDTHEORY CORPORATION
OUR COMPANY
We are a leading provider of Internet solutions, offering an extensive
array of high performance, reliable and scalable Internet technology products
and services that can be tailored to meet our customers' requirements. We
provide the following solutions, either individually or as part of a one-stop
package:
- Internet integration and enterprise portal development, including custom
software application development, integration of legacy systems and Web
site design and development;
- Web hosting, consisting of custom hosting solutions and outsourcing,
shared server, dedicated server and co-location hosting solutions; and
- Internet connectivity, including virtual private network (VPN) solutions,
network and security consulting and dedicated Internet access.
We market our products and services to mid-sized businesses (including
mid-size departments of larger businesses) and public sector institutions, which
we believe are increasingly demanding one-stop solutions for Internet services
due to the difficulty and expense of managing and integrating the products and
services of multiple Internet Protocol (IP)-based vendors. Our comprehensive
suite of IP-based services enables our customers to capitalize on the wide
variety of critical data communication opportunities made possible by the
Internet.
Superior customer service is a cornerstone of our operational strategy. Our
97% customer satisfaction in the second half of 1998, based on completed
surveys, demonstrates our exceptional performance. As a result, our revenue
churn has averaged less than 0.15% over the last two years, a rate which is well
below industry averages. As of December 31, 1998, we had over 650 direct and
indirect enterprise customers in a wide range of industries, which customers
include:
- Bank of New York, General Electric Corporation, theglobe.com, Inc., NEC
Corporation, Road Runner Computer Systems, Inc. (a joint venture of Time
Warner, MediaOne Group, Inc., Microsoft Corporation, Compaq Computer
Corporation and Advance/Newhouse Partnership), Eastman Kodak Company,
KPMG Peat Marwick LLP, Northrop Grumman Corporation and Bell Atlantic
Corp.;
- through NYSERNet, Cornell University, Columbia University, New York
University, the New York Public Library and the New York City Board of
Education; and
- through the New York State Department of Labor, the U.S. Department of
Labor and a consortium of 46 states and territories.
Our existing network consists primarily of a robust, regional backbone.
Together with IXC, a significant equity holder in our company, we are in the
process of deploying the Gemini2000 Network, the
<PAGE> 5
first coast-to-coast, next generation Internet backbone network to carry both
research and commercial traffic. The Gemini2000 Network is a fully redundant,
high performance national network that will enable us to offer Internet access
and backbone transport services at speeds that are 100 to 1,000 times greater
than those generally available to end users today. We also intend to build three
new distributed data centers, co-located at Gemini2000 Network super-core sites,
linked together to form a "virtual gigacenter." Our network and distributed data
centers will enable us to offer our customers:
- greater network reliability;
- lower downtime;
- simpler configurations for connecting multiple site locations;
- specialized VPN solutions;
- faster downloading of data;
- reduced Web server load; and
- better disaster recovery.
Historically, we have generated our revenues using a small sales force and
have expanded our customer base primarily through word of mouth. We are rapidly
building our sales and marketing efforts nationally to more aggressively pursue
customers. We have targeted 29 metropolitan areas throughout the United States
with high concentrations of businesses and intend to grow our direct sales force
by more than 100 over the next two years. These targeted markets coincide with
IXC's points of presence (POPs), where we plan to have a physical local
presence.
We were incorporated in November 1995, and spun-off in October 1996 from
NYSERNet, a not-for-profit consortium that was one of the founding institutions
of the Internet, to pursue commercial IP-based opportunities. In August 1998,
IXC and Grumman Hill invested $12.9 million and $6.5 million to acquire
approximately 2.9 million and 1.5 million shares of our common stock. We issued
1.15 million of these shares for net proceeds of approximately $5.0 million. Our
corporate headquarters are located at 40 Cutter Mill Road, Suite 405, Great
Neck, New York 11021, and our telephone number at that location is (516)
466-8422.
OUR INDUSTRY
The Internet has grown rapidly in the 1990s and has emerged as a global
medium for communications and commerce. The Internet's growth is driven by a
number of factors, including the large and increasing number of cheaper, faster
and more powerful multimedia home and office computers, advances in network
designs, greater availability of Internet-based software and applications, the
emergence of useful content and e-commerce technologies and convenient, fast and
inexpensive Internet access. According to International Data Corporation (IDC),
the total number of Internet users worldwide reached 69 million in 1997 and will
increase to approximately 320 million by 2002.
The Internet presents a compelling profit opportunity for businesses, as it
enables them to reduce operating costs, access valuable information and reach
new markets. Likewise, the Internet presents a compelling opportunity for public
sector institutions, as it helps them serve their constituencies more cost-
effectively and conveniently and comply with certain federal and state mandates.
To take advantage of these opportunities, organizations must have:
- an open universal interface (a doorway or "enterprise portal" to the
Internet);
- Web site presence; and/or
- Internet access.
2
<PAGE> 6
Expanded uses of the Internet and greater demands for existing
Internet-based applications are driving an evolution and expansion in Internet
services, as well as the networks over which they are delivered. Examples of
existing and next generation uses of the Internet include the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
EXISTING USES NEXT GENERATION ENHANCEMENTS NEXT GENERATION NEW SERVICES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
E-mail Distance learning Telemedicine
Basic e-commerce Graphics-intensive e-commerce Full-motion video downloading
Web site presence High-capacity interactive Web sites Multi-media interactive
virtual
reality sites
Low-quality video conferencing High-quality, real-time video
conferencing
Order entry Inventory control
- ----------------------------------------------------------------------------------------------------
</TABLE>
OUR MARKET OPPORTUNITY
To take full advantage of the communication and commerce opportunities made
available by the Internet, enterprises will require more than a basic
connection. They will need:
- fast and reliable connections to the Internet;
- sophisticated Web sites to attract and retain users and customers;
- access to enterprise information for internal communication and for their
Web sites; and
- to procure and manage the services and operations to integrate all these
needs.
While all organizations face challenges in meeting these needs, we believe
mid-sized businesses (including mid-size departments of larger businesses) and
government agencies, in particular, have an acute problem. Generally, they
maintain small information technology (IT) departments and do not have the
resources to internally develop and manage all the components of their Internet
strategies.
Traditionally, enterprises have sought solutions from a variety of service
providers (including system integrators, Internet service providers (ISPs),
hardware and software vendors and telecommunication companies), each of which
satisfies one or two elements of the total Internet problem. We believe these
enterprises will demand a single provider that offers all elements of Internet
solutions -- design, integration, implementation, Internet connection and
operational management.
OUR SOLUTION
We believe that mid-sized businesses (including mid-size departments of
larger businesses) and public sector institutions are increasingly demanding
one-stop solutions for Internet services due to the difficulty and expense of
managing and integrating the products and services of multiple IP-based vendors.
Our comprehensive suite of IP-based products and services enables our customers
to capitalize on the wide variety of data communication opportunities made
possible by the Internet.
We offer an extensive array of high performance, reliable and scalable
Internet products and services, including Internet integration and enterprise
portal development, Web hosting services and Internet connectivity. We integrate
these services to offer customized, IP-based applications and services that
enable our commercial customers to extend their enterprises, leverage existing
legacy databases and systems and take advantage of Internet-based marketing
opportunities. Public sector customers similarly benefit by making greater use
of the Internet to serve their constituencies more cost-effectively and
conveniently, as well as comply with certain federal and state mandates.
Key advantages we offer our customers include:
- FLEXIBLE AND SCALABLE INTERNET SOLUTIONS. Our Internet integration and
enterprise portal development solutions are customized to meet our
customers' needs. These solutions make use of our customers' existing
legacy databases and systems and provide them with highly integrated
IP-based capabilities that deliver high performance. Our solutions are
designed to easily accommodate a large
3
<PAGE> 7
and rapidly growing number of users, as well as to facilitate
distribution of the application over geographically dispersed servers.
Our custom billing software for burstable service and our ability to
access incremental bandwidth through our strategic relationship with IXC
allow us to quickly scale solutions to meet a customer's needs. For
example, upon completion of the Gemini2000 Network, we will offer dynamic
bandwidth management, empowering our customers to monitor, regulate and
allocate bandwidth usage within their organizations, all from their
desktops.
- ROBUST AND RELIABLE INFRASTRUCTURE. Our existing network consists
principally of a robust, regional backbone which has had customer uptime
performance of over 99.9% over the last three years. Together with IXC,
we are in the process of deploying the Gemini2000 Network, the first
coast-to-coast, next generation Internet backbone network to carry both
research and commercial traffic. The Gemini2000 Network is a fully
redundant, high performance national network that will enable us to offer
Internet access and backbone transport services at speeds which are 100
to 1,000 times greater than those generally available to end users today.
It will also enable us to offer our customers greater network
reliability, lower downtime, simpler configurations for connecting
multiple site locations and remote access VPNs.
- ADVANCED DATA MANAGEMENT. Our distributed data centers will enable our
customers to provide their customers and end-users with the fastest,
clearest and most reliable Web access available today, allowing for data
mirroring, load balancing re-direction, redundancy and content caching.
These features will benefit our customers through faster downloading of
data, reduced Web server load, greater network reliability and
performance and better disaster recovery. Distributed data centers
typically present a challenge to IT administrators because they result in
less efficient use of resources, require synchronization of data in
almost real time and are more complex in their operation. However, the
advanced architecture of the Gemini2000 Network will enable us to tie our
distributed data centers together to form a single "virtual gigacenter,"
thereby allowing us to deliver to our customers all the advantages of
distributed data centers without the corresponding difficulties.
- SUPERIOR CUSTOMER SUPPORT. Our mission is to provide the best customer
support in the Internet business. We invest heavily in systems and
training, understand the technical requirements of our customers and work
with them to optimize business objectives through the Internet. Our 97%
customer satisfaction in the second half of 1998, based on completed
surveys, demonstrates our exceptional performance. As a result, our
revenue churn over the last two years has averaged less than 0.15%, a
rate which is well below industry averages.
OUR STRATEGY
Our objective is to become the leading national provider of advanced
Internet technology solutions to mid-sized businesses (including mid-size
departments of larger businesses) and selected public sector organizations. To
achieve this objective, our strategy is to:
- OFFER ONE-STOP SOLUTIONS TO THE BUSINESS MID-MARKET AND PUBLIC
SECTORS. We will market our one-stop solutions to mid-sized businesses
(including mid-size departments of larger businesses) and public sector
organizations, initially focusing on sophisticated users of the Internet
within these markets. We believe these markets are seeking single vendors
who can provide a full set of Internet technology solutions. We believe
the Gemini2000 Network, our new data centers and our expertise in
providing Internet enterprise portal development, Web hosting and
Internet connectivity position us well to serve these markets.
- RAPIDLY EXPAND SALES AND MARKETING EFFORTS. Historically, we have
generated our revenues using a small sales force and have secured our
customer base primarily through word of mouth. We are rapidly building
our sales and marketing efforts nationally to more aggressively pursue
customers. We have targeted 29 metropolitan areas throughout the United
States with high concentrations of
4
<PAGE> 8
businesses and intend to grow our direct sales force by more than 100
over the next two years. These targeted markets coincide with IXC's POPs,
where we plan to have a physical local presence.
- LEVERAGE PUBLIC SECTOR EXPERIENCE AND RELATIONSHIPS. We have extensive
experience working with clients in the academic and government sectors,
which we believe are underserved markets. We designed, continually
develop and maintain America's Job Bank (AJB), an enterprise-wide Web
site and Intranet developed for the United States Employment Service. AJB
is one of the largest and most visited employment sites in the United
States, averaging over 2.3 million hits per day. We have leveraged the
experience gained from this project to become a leader in providing
custom applications development and outsourcing to federal and state
governments. Working with NYSERNet and other non-profit institutions
allows us to benefit from the research and development activities of
those early adopters of leading edge technologies and applications. We
have been chosen to operate the NYSERNet2000 Network, one of the first
examples of next generation gigabit networks in the United States. We
intend to further leverage our relationships in targeting new university,
government and business customers.
- COMPLETE NATIONAL NETWORK BUILDOUT. Currently, we offer Internet
enterprise portal development and limited Web hosting services on a
national scale, while our Internet access and VPN offerings are limited
primarily to New York State. Much of the physical infrastructure required
for the Gemini2000 Network is already in place, and it is intended that
the network will be fully operational by the end of September 1999. When
complete, the Gemini2000 Network will total over 70,000 miles of OC48
capacity, eight super-core sites and over 100 POPs. We intend to build
three new data centers, which will be co-located at Gemini2000 Network
super-core sites. These data centers will be linked together to form a
"virtual gigacenter," benefiting customers through faster downloading,
reduced Web server load, greater network reliability and performance and
better disaster recovery.
- MINIMIZE CAPITAL EXPENDITURES. We intend to focus on the delivery of
value-added Internet technology solutions, rather than the direct
ownership and management of physical infrastructure. IXC has publicly
announced its intention to complete construction of, and maintain, the
Gemini2000 Network physical infrastructure, including all connectivity
electronics. We will be responsible for designing and implementing
integration systems to connect customers to the Gemini2000 Network, as
well as all the first line customer service functions, which are much
less capital intensive.
- JOINTLY MARKET AND SELL WITH IXC. We intend to work closely with IXC to
jointly market and sell Gemini2000 Network products and services through
Web and print media advertising, trade shows and other lead generation
activities and by making presentations to clients of both companies.
Because the Gemini2000 Network is a joint offering, sales generated by
either IXC or us will yield a revenue stream for both companies.
- ACQUIRE COMPLEMENTARY ASSETS OR BUSINESSES. We intend to
opportunistically consider acquisitions of complementary assets,
technologies and businesses that offer the potential to expand the speed
of our sales and marketing efforts, increase our customer base or enhance
the breadth, depth and variety of our product offerings.
RISK FACTORS
This offering involves a high degree of risk. See "Risk Factors" beginning
on page 9.
5
<PAGE> 9
THE OFFERING
Common stock offered by us.... shares(1)
Common stock outstanding after
the offering.................. shares(2)
Use of proceeds............... We intend to use the net proceeds from the
offering for expansion of our sales and
marketing efforts and working capital and
general corporate purposes, including possible
acquisitions. See "How We Intend to Use the
Proceeds from the Offering."
Dividend policy............... We currently intend to retain any future
earnings for our business and, therefore, do
not anticipate paying cash dividends on our
common stock in the foreseeable future.
Proposed Nasdaq National
Market symbol................. ATHY
- ---------------
(1) If the underwriters exercise the option granted to them in connection with
the offering to purchase additional shares of common stock to cover
over-allotments, the total number of shares to be offered would increase by
up to shares.
(2) Based on the number of shares outstanding at January 31, 1999. Excludes
2,665,555 shares of common stock reserved for issuance pursuant to
outstanding options under our stock option plan at a weighted average
exercise price of $2.39 per share.
6
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The financial data shown below has been derived from and should be read in
conjunction with our audited Financial Statements, included elsewhere in this
prospectus. The information set forth below should also be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Results of operations for the periods presented are not necessarily
indicative of results of operations for future periods.
<TABLE>
<CAPTION>
PREDECESSOR(a) APPLIEDTHEORY
-------------- ----------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31
SEPTEMBER 30, DECEMBER 31, ------------------------
1996 1996 1997 1998
-------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total net revenues............................ $ 6,226 $ 3,076 $ 15,172 $ 22,563
Total costs and expenses...................... 10,146 4,838 20,672 27,764
------- ---------- ---------- ----------
Loss from operations.......................... (3,920) (1,762) (5,500) (5,201)
------- ---------- ---------- ----------
Net loss attributable to common
stockholders................................ (3,925) (1,762) (6,057) (5,977)
======= ========== ========== ==========
Basic and diluted loss per common share....... $ (.27) $ (.93) $ (.71)
========== ========== ==========
Shares used in computing basic and diluted
loss per share.............................. 6,500,000 6,504,165 8,443,960
Other data:
EBITDA(b)..................................... $(3,762) $ (1,681) $ (4,405) $ (3,529)
Capital expenditures(c)....................... -- 506 1,270 2,480
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED(d)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 1,786 $
Working capital (deficiency).............................. (3,249)
Total assets.............................................. 10,518
Current portion of long-term debt and capital lease
obligations............................................. 551 551
Long-term debt and capital lease obligations, less current
portion................................................. 5,979 5,979
Borrowings from NYSERNet. net, Inc. ...................... 2,957 2,957
Redeemable preferred stock................................ 1,500
Total stockholders' equity (deficit)...................... (9,007)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------
1997 1998
----------------------------------------------- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarterly Statement of
Operations Data:
Total net revenues......... $3,617 $ 3,908 $ 3,755 $ 3,892 $5,334 $ 4,782 $ 6,188 $ 6,259
Total costs and expenses... 4,301 5,099 5,295 5,977 5,829 5,932 7,450 8,553
------ ------- ------- ------- ------ ------- ------- -------
Loss from operations....... (684) (1,191) (1,540) (2,085) (495) (1,150) (1,262) (2,294)
------ ------- ------- ------- ------ ------- ------- -------
Net loss attributable to
common stockholders...... (762) (1,316) (1,710) (2,269) (689) (1,344) (1,455) (2,489)
====== ======= ======= ======= ====== ======= ======= =======
Other Data:
EBITDA(b).................. $ (482) $ (961) $(1,306) $(1,656) $ (135) $ (750) $ (839) $(1,805)
Capital expenditures(c).... 451 501 223 95 597 243 345 1,295
</TABLE>
7
<PAGE> 11
- ---------------
(a) The operating activities prior to October 1, 1996 were conducted as a
nonincorporated "division" of NYSERNet and are considered to constitute a
predecessor business. The financial data presented for the years ended
December 31, 1994 and 1995 and for the nine months ended September 30, 1996
reflect these activities on a "carved-out" basis from the historical
financial statements of NYSERNet.
(b) EBITDA is loss from operations before interest, taxes, depreciation and
amortization. EBITDA is presented because management believes that certain
investors find it to be a useful tool for measuring a company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations, as defined by generally accepted accounting principles, and
should not be considered as a substitute for net loss as an indicator of
AppliedTheory's operating performance or cash flow as a measure of
liquidity, and should be examined in conjunction with the financial
statements and related notes of AppliedTheory included elsewhere in this
prospectus.
(c) Capital expenditures include assets acquired with debt and exclude assets
acquired through capital lease financing.
(d) Adjusted to give effect to this offering and the receipt by AppliedTheory of
the estimated net proceeds therefrom.
------------------------
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the sections "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and include statements regarding our, or our directors' or officers',
intent, belief or current expectations with respect to, among other things: (1)
trends affecting our financial condition or results of operations; and (2) our
business and growth strategies. Actual events or results could differ materially
from those discussed in this prospectus. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" and in the other
sections of this prospectus. Such forward-looking statements speak only as of
the date of this prospectus, and we caution potential investors not to place
undue reliance on such statements.
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RISK FACTORS
Any investment in our common stock involves a high degree of risk. This
section describes some, but not all, of the risk factors involved in purchasing
our common stock. You should carefully consider these risk factors and the other
information in this prospectus before purchasing shares of our common stock.
WE HAVE A LIMITED OPERATING HISTORY.
We have a limited operating history. We were incorporated in 1995 and
commenced operations in late 1996. As a result, our business model is still in
development. Our business and prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of development, particularly those of rapidly evolving Internet
services companies. These risks relate to, among other things, our ability to:
- buildout operations infrastructure;
- expand sales structure and marketing programs;
- increase awareness of our brand;
- provide services to our customers that are reliable and cost-effective;
- respond to technological development or service offerings by competitors;
and
- attract and retain qualified personnel.
We may not be successful in addressing these risks. If we are not
successful, our business or future financial or operating results could be hurt.
WE HAVE A HISTORY OF LOSSES.
We have incurred net losses and negative cash flows from operations in each
quarterly and annual period since inception and expect to continue to do so for
the foreseeable future. At December 31, 1998, we had an accumulated deficit of
approximately $14.6 million. Our ability to achieve profitability is dependent
in large part upon the successful completion of the Gemini2000 Network and the
successful implementation of our nationwide expansion strategy. We experienced
net losses of approximately $5.8 million in each of the years ended December 31,
1997 and 1998. We cannot assure you that we will be able to achieve or sustain
revenue growth or profitability on either a quarterly or an annual basis.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH OUR NATIONWIDE GROWTH STRATEGY.
To date, most of our revenues have been derived from customers located in
New York State. Our business strategy is to become a leading national provider
of advanced Internet technology solutions to mid-sized businesses (including
mid-size departments of larger businesses) and select public sector
organizations. Among other things, if any of the following occur, our business
could be hurt:
- significant delays in the roll-out of the Gemini2000 Network or our new
data centers;
- our products and services are not accepted by current or potential
customers;
- the technology upon which the Gemini2000 Network is based is overtaken;
- we fail to successfully implement our sales and marketing strategy; or
- we fail in our efforts to build a national sales force.
Our rapid growth strategy is likely to place a significant strain on our
resources.
Our future success depends in large part on our ability to manage any
achieved growth in our business. Additionally, for our business strategy to
succeed, we have assumed that:
- we will be able to expand our business with new and current customers;
- we will be able to develop and offer new products and services, and our
products and services will be successful;
- we will be able to retain key employees and hire new employees; and
- any future business we may develop or acquire will perform in a
satisfactory manner.
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However, we cannot guarantee that any of these will occur.
OUR ANNUAL AND QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS.
Our annual and quarterly operating results have fluctuated significantly in
the past and may fluctuate significantly in the future as a result of a variety
of factors, many of which are outside of our control. These factors include:
- demand for and market acceptance of our services;
- fluctuations in data communications and telecommunications costs;
- reliable continuity of service and network availability;
- customer retention;
- the timing and success of our marketing efforts;
- the timing and magnitude of capital expenditures, including costs
relating to the expansion of operations;
- the timely expansion of existing facilities and completion of new
facilities;
- the ability to increase bandwidth as necessary;
- fluctuations in bandwidth used by customers;
- the timing and magnitude of expenditures for sales and marketing;
- introductions of new services or enhancements by us and our competitors;
- the timing of customer installations and related payments;
- the ability to maintain or increase peering;
- provisions for customer discounts;
- the introduction by third parties of new Internet services;
- increased competition in our markets;
- growth of Internet use and establishment of Internet operations by
mainstream enterprises;
- changes in our and our competitors' pricing policies;
- changes in regulatory laws and policies;
- economic conditions specific to the Internet industry; and
- general economic factors.
In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly in respect of telecommunications, depreciation, and
interest expense and personnel, and therefore our results of operations are
particularly sensitive to fluctuations in revenue.
You should not rely on annual or quarter-to-quarter comparisons of our
results of operations as an indication of future performance. It is possible
that in some future periods our results of operations may be below the
expectations of public market analysts and investors. If this were to occur, the
price of our common stock may fall. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE ARE DEPENDENT UPON CONTINUED GROWTH IN THE MARKET FOR OUR PRODUCTS AND
SERVICES AND CONTINUED INTERNET INFRASTRUCTURE DEVELOPMENT.
Our market is new and rapidly evolving. Whether the market for our products
and services will continue to grow is uncertain. The market for our products and
services may be inhibited for a number of reasons, such as:
- the reluctance of businesses to outsource their Internet integration and
enterprise portal development, Web hosting and Internet connectivity
needs;
- the inability to market our products and services to new customers;
- the inability to differentiate the products and services we offer from
those of our competitors; and
- the inability to maintain and strengthen our brand awareness.
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In addition, our success depends in large part on continued growth in the
use of the Internet. Our business would be adversely affected if Internet usage
does not continue to grow. Internet usage may be inhibited for a number of
reasons, such as:
- access costs;
- inadequate network infrastructure;
- security concerns;
- uncertainty of legal and regulatory issues concerning use of the
Internet;
- inconsistent quality of service; and
- lack of availability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or the Internet's performance
and reliability may decline. Similarly, Web sites have experienced interruptions
in their service as a result of outages and other delays occurring throughout
the Internet network infrastructure. If these outages or delays occur
frequently, use of the Internet as a commercial or business medium could, in the
future, grow more slowly or decline. This could hurt our business.
WE OPERATE IN AN EXTREMELY COMPETITIVE MARKET.
The market for Internet-based services is extremely competitive. There are
no substantial barriers to entry, and we expect that competition will intensify
in the future. We believe that the primary competitive factors in our markets
are:
- technical expertise in developing applications focused on Web integration
and IP-centric solutions;
- a reliable and robust network infrastructure;
- network security;
- price;
- flexibility and willingness to consult with customers about how to deploy
Internet solutions in meaningful ways;
- quality customer care;
- experienced and knowledgeable salesforce and engineers;
- customization;
- breadth of service offerings;
- brand recognition;
- broad geographic presence; and
- financial resources.
Our current and prospective competitors generally may be divided into the
following three groups:
- Internet service providers (ISPs), such as Concentric Network Corp.,
Exodus Communications, Globix Corporation, PSINet Inc., UUNET, Frontier
Global Center, GTE/BBN, Digex, Inc., Verio, Inc., and other national and
regional providers;
- telecommunications companies, such as AT&T Corp., Cable & Wireless
P.L.C., Sprint Corporation, MCI WorldCom, Inc., the regional Bell
operating companies (RBOCs), competitive local exchange carriers (CLECs)
and various cable companies; and
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- IT integrators and outsourcing firms, such as the Big 5 accounting firms,
EDS Corp. and similar entities.
Many of these competitors have greater market presence, engineering and
marketing capabilities, and financial, technological and personnel resources
than us. As a result, as compared to us, our competitors may be able to develop
and expand their network infrastructures and services offerings more efficiently
or more quickly, adapt more swiftly to new or emerging technologies and changes
in customer requirements, take advantage of acquisitions and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products and services. Also, they may succeed in developing and expanding their
communications and network infrastructures more quickly than can be done with
the Gemini2000 Network. In addition to the companies named above, various
organizations have entered into or are forming joint ventures or consortiums to
provide services similar to ours.
We believe that new competitors, including large computer hardware,
software, media and other technology and telecommunications companies, will
enter the tailored value-added network services market, resulting in even
greater competition. Certain telecommunications companies and online services
providers are currently offering or have announced plans to offer Internet or
online services, or to expand their network services. Other companies, including
America Online Inc., BBN Corp. and PSINet Inc., have also obtained or expanded
their Internet access products and services as a result of acquisitions. These
acquisitions may permit our competitors to devote greater resources to the
development and marketing of new competitive products and services and the
marketing of existing competitive products and services. In addition, the
ability of some of our competitors to bundle other services and products with
VPN services or Internet access services could place our company at a
competitive disadvantage. Certain companies are also exploring the possibility
of providing or are currently providing high-speed data services using
alternative delivery methods such as over the cable television infrastructure,
through direct broadcast satellites and over wireless transmission systems. We
may not be able to, or we may find significant constraints in catching up with,
new technologies. See "-- We are subject to risks relating to rapid
technological change and evolving industry standards."
As a result of increased competition and consolidation in the industry, we
could encounter significant pricing pressure, which in turn could result in
significant reductions in the average selling price of our services. We may not
be able to offset such price reductions even if we obtain an increase in the
number of our customers or higher revenue from enhanced services, or even if we
manage to reduce our costs. Increased price or other competition could result in
erosion of our market share and could significantly hurt our business. We cannot
assure you that we will have the financial resources, technical expertise or
marketing and support capabilities to continue to compete successfully.
WE DERIVE SIGNIFICANT REVENUE FROM TWO CUSTOMERS.
We currently derive a substantial portion of our total revenue from two
customers -- NYSERNet, a not-for-profit corporation which is also one of our
major shareholders, and the New York State Department of Labor (NYSDOL). For the
years ended December 31, 1997 and 1998, revenue from NYSERNet represented
approximately 47% and 37% of our total revenue. Our current agreement to provide
services through NYSERNet has an initial term of three years, ending October 1,
2001, and is automatically renewable for successive one year terms. While the
agreement only allows termination by either party under special circumstances,
it is still possible that NYSERNet could terminate the agreement or cease
working with us. In addition, we derive a significant portion of our revenue
from our contract with NYSDOL for the development and maintenance of the
America's Job Bank Web site and Intranet. For the years ended December 31, 1997
and 1998, revenue under this agreement represented 16% and 28%, respectively, of
our total revenue. The NYSDOL agreement is subject to cancellation by NYSDOL
upon 15 days notice. We cannot assure you that revenue from customers that have
accounted for significant revenue in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical levels in any
future period. Revenue derived from a limited number of customers may continue
to represent a significant portion of our total revenue. The loss of one or more
of our major customers could significantly hurt our business.
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THE SCALABILITY OF THE GEMINI2000 NETWORK IS UNPROVEN.
Due to its limited deployment, the ability of the Gemini2000 Network to
connect and manage a large number of customers or a large quantity of traffic at
high transmission speeds is unproven. We also face risks related to this
network's ability to be scaled up to our expected customer levels while
maintaining superior performance. As we increase the number of our customers or
as bandwidth usage increases, we may need to make additional investments in our
infrastructure to maintain adequate downstream data transmission speeds, the
availability of which may be limited or the cost of which may be significant.
Additional network capacity may not be available from IXC or other third-party
suppliers as it is needed by us, and, as a result, our network may not be able
to achieve or maintain a sufficiently high capacity of data transmission. Any
failure on our part to achieve or maintain high-capacity data transmission could
significantly reduce consumer demand for our services and hurt our business.
Although the Gemini2000 Network has been designed with a redundant backbone, we
could experience failures relating to individual network POPs or even
catastrophic failure of the entire network.
We may need to further expand and adapt our network infrastructure in the
future as the number of users and the amount of information they wish to
transport increases and as we respond to changing customer requirements. Any
future expansion and adaptation of our telecommunications and hosting facility
infrastructure could require substantial financial, operational, technical and
management resources. If we are required to expand our network significantly and
rapidly due to increased usage, additional stress will be placed upon our
network hardware, traffic management systems and hosting facilities.
WE FACE THE RISK OF SYSTEM FAILURE.
To succeed, we must be able to operate our network management
infrastructure 24 hours per day, seven days per week without interruption. Our
operations depend upon our ability to protect our network infrastructure,
equipment and customer data against damage from human error or "acts of God."
Even if we take precautions, the occurrence of a natural disaster or other
unanticipated problems could result in interruptions in the services we provide
to our customers. Also, while the national telecommunications network and
Internet infrastructure have historically developed in an orderly manner, there
is no guarantee that this will continue as the network expands and more
services, users and equipment connect to these networks. Failure by our
telecommunications providers to provide the data communications capacity as
needed for any reason could cause interruptions in the services we provide. Any
damage or failure that causes interruptions in our operations could hurt our
business.
At this time, we do not have a formal disaster recovery plan. Although we
have attempted to build redundancy into our network and hosting facilities, our
network is currently subject to various single points of failure. For example, a
problem with one of our routers or switches could cause an interruption in the
services we provide to some of our customers. Any interruptions in service
could:
- cause end users to seek damages for losses incurred;
- require us to spend more money replacing existing equipment, expanding
facilities or adding redundant facilities;
- cause us to spend money on existing or new equipment and infrastructure
earlier than we had planned;
- damage our reputation for reliable service;
- cause existing end users and resellers to cancel our contracts; or
- make it more difficult for us to attract new end users and partners.
Any of these results could hurt our business.
WE ARE DEPENDENT UPON NETWORK INFRASTRUCTURE.
On February 4, 1999, IXC announced that it had hired an investment bank to
advise it on strategic alternatives. We are unable to predict the result of this
process or the impact it may have on us. Any failure by IXC to complete
construction of, or deploy and maintain, the Gemini2000 Network could hurt
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our business. Although IXC has publicly announced its intention to complete
construction of the Gemini2000 Network, we do not have a written agreement
obligating them to do so.
In addition to IXC, we also use the infrastructure of other communications
carriers. Our success partly depends upon the capacity, scalability, reliability
and security of the network infrastructure we lease from telecommunications
network suppliers such as Bell Atlantic Corp. and Sprint Corporation. Our
current projections for utilization of our network require rapid expansion of
the capacity of the network to avoid constraints that would adversely affect the
performance of the system. The expansion and adaptation of our network
infrastructure will require substantial financial, operational and management
resources. We cannot assure you that we will be able to expand or adapt our
network infrastructure to meet additional demand or to meet our customers'
changing requirements or evolving industry standards on a timely basis at a
commercially reasonable cost, or at all. In addition, if demand for usage of our
network were to increase faster than projected or were to exceed our current
forecasts, the network could experience capacity constraints which would hurt
the performance of the system.
We also depend on the telecommunications suppliers referred to above to
provide uninterrupted and "bug" free service through their telecommunications
networks. If such companies greatly increased the prices for their services or
if the telecommunications capacity available to us was insufficient for our
business purposes, and we were unable to use alternative networks or pass along
any increased costs to our customers, it could hurt our business.
WE FACE SIGNIFICANT SYSTEM SECURITY RISKS.
Despite the implementation of network security measures, the core of our
network infrastructure is vulnerable to computer viruses, break-ins and similar
disruptive problems caused by Internet users. Such problems caused by third
parties could lead to interruptions and delays or to the cessation of service to
our customers. Furthermore, such inappropriate use of the network by third
parties could also jeopardize the security of confidential information stored in
our computer systems and in those of our customers. This could result in our
liability for damages and our reputation could suffer, thereby deterring
potential customers from working with us.
We rely upon encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information. Although we intend to continue to
implement industry-standard security measures, such industry-standard measures
occasionally have been circumvented in the past. Therefore, we cannot assure you
that the measures we implement will not be circumvented in the future. The costs
and resources required to eliminate computer viruses and alleviate other
security problems may result in interruptions, delays or cessation of service to
our customers, which could hurt our business, financial condition and results of
operations.
WE HAVE LIMITED BRAND AWARENESS.
To remain successful, we must maintain and strengthen our brand awareness.
While many of our competitors have well-established brands in Internet services,
we have not yet introduced a national branded offering. In order to build our
brand awareness, our marketing efforts must succeed, and we must provide high
quality services. We expect to increase our marketing budget substantially as
part of our brand building efforts. Our business could be hurt if we cannot
increase our brand awareness and acceptance.
WE ARE SUBJECT TO RISKS RELATING TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING
INDUSTRY STANDARDS
The markets for our products and services are characterized by rapidly
changing technology, evolving industry standards, changes in customer needs,
emerging competition and frequent new product and service
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introductions. Our future success will depend, in part, on our ability to
accomplish all of the following in a timely and cost-effective manner:
- effectively use leading technologies;
- continue to develop our technical expertise;
- enhance our products and current networking services;
- develop new products and services that meet changing customer needs;
- advertise and market our products and services; and
- influence and respond to emerging industry standards and other changes.
We cannot assure you that we will be successful in effectively using or
developing new technologies, introducing new services or enhancing our existing
services on a timely basis, or that such new technologies or enhancements will
achieve market acceptance. Our pursuit of necessary technological advances may
require substantial time and expense. In addition, we cannot assure you that we
will succeed in adapting our network service business to alternate access
devices and conduits.
Our ability to compete successfully is dependent, in part, upon the
continued compatibility and interoperability of our services with products and
architectures offered by various other members of the industry. Although we
intend to support emerging standards in the market for Internet access, we
cannot assure you that we will be able to conform to new standards in a timely
fashion and maintain a competitive position in the market. Our services rely on
the continued widespread commercial use of TCP/IP, both of which are industry
standards to facilitate the transfer of data. Alternative open protocol and
proprietary protocol standards could emerge and become widely adopted causing a
reduction in the use of TCP/IP, which could render our services obsolete and
unmarketable. Our failure to anticipate the prevailing standard or the failure
of a common standard to emerge could hurt our business.
THERE ARE RISKS ASSOCIATED WITH OUR GOVERNMENT CONTRACTS.
Contracts with various government agencies accounted for approximately 45%
of our revenues in the year ended December 31, 1998. Government contracts are
often subject to a competitive bidding process as governed by applicable federal
and state statutes and regulations. The procurement process for government
contracts is complex and can be very time consuming.
Because of our contracts with governmental agencies, we are required to
comply with certain government regulations and policies. For instance, we are
required to maintain employment policies relating to equal opportunity and we
are subject to audit by the government to confirm our compliance with such
policies. If we fail to comply with the government's regulations as they apply
to government contractors, we may face sanctions including substantial fines and
disqualification from future awards of government contracts.
Contracts with governmental agencies are or may be subject to various
risks, including unilateral termination by the government for the convenience of
the government and reductions in services or modifications in contractual terms
due to changes in the government's requirements or budgetary restraints.
In addition, the government may not continue to fund our programs. Even if
funding continues, we may not obtain such funding. We cannot assure you that we
will be able to procure additional government contracts, that we will be able to
retain our existing government contracts or, if retained, that all of such
contracts will be fully funded.
WE MAY BE EXPOSED TO RISKS ASSOCIATED WITH ACQUISITIONS.
Although we do not currently have any agreements, arrangements or
understandings with respect to any such acquisitions, we may seek to acquire
assets, technologies or businesses complementary to our
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operations. Any such future acquisitions would be accompanied by the risks
commonly encountered in acquisitions such as:
- the difficulty of assimilating the operations and personnel of acquired
companies,
- the potential disruption of our business,
- the inability of our management to maximize our financial and strategic
position by the incorporation of an acquired technology or business into
our service offerings,
- the difficulty of maintaining uniform standards, controls, procedures and
policies,
- the potential loss of key employees of acquired businesses, and the
impairment of relationships with employees and customers as a result of
changes in management.
We cannot assure you that any completed acquisition will enhance our
business. If we proceed with one or more significant acquisitions in which the
consideration consists of cash, a substantial portion of our available cash,
including proceeds of this offering, could be used to consummate the
acquisitions. If we were to consummate one or more acquisitions in which the
consideration consisted of stock, our stockholders could suffer significant
dilution of their interest in us. Acquisitions required to be accounted for
under the purchase method could result in significant goodwill and/or
amortization charges for acquired technology.
WE ARE DEPENDENT ON CERTAIN SOURCES OF SUPPLY.
We rely on other companies to supply certain key components of our network
infrastructure, including telecommunications services and networking equipment,
which, in the quantities and quality we require, are available from limited
sources. The routers, switches and modems used by both Gemini2000 and our
existing network are available from a limited number of suppliers. Co-location
facilities and field service for equipment at all but one of our existing POPs
are provided under contract by one vendor.
Any failure of our sole or limited source suppliers to provide products or
components to our network infrastructure could hurt our business.
WE OPERATE IN AN UNCERTAIN REGULATORY ENVIRONMENT.
Operators of value-added networks like us that provide access to
transmission facilities only as part of a data services package are currently
excluded from regulations that apply to "telecommunications carriers." As we are
such an operator, we are not currently subject to direct regulation by the
Federal Communications Commission, or FCC, or any other governmental agency,
other than regulations applicable to businesses in general. However, in the
future, we may become subject to regulation by the FCC or another regulatory
agency as a provider of basic telecommunications services.
Currently, the FCC is reviewing its regulatory position and could impose
regulation, similar to or different than that of a telecommunications carrier,
on the network transport feature of a value-added network operator like us.
Also, the FCC could conclude that notwithstanding our value-added services like
protocol conversion, computer processing, and interaction with customer-supplied
information, we are not eligible to be classified as an enhanced or information
service provider and then could regulate all or part of our activities as basic
telecommunications services. In addition, while state public utility commissions
generally have declined to regulate enhanced or information services, some other
states do regulate in limited circumstances certain aspects of enhanced
services, such as where they are provided by local exchange carriers. Therefore,
we cannot assure you that our activities will continue to be exempt from
regulation by either or both federal or state agencies. Our business could
suffer depending upon the extent to which our activities are regulated or are
proposed to be regulated.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the FCC in the same manner as
other telecommunications services. The growing use of the Internet has burdened
the existing telecommunications infrastructure in many areas and certain
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local telephone carriers have petitioned the FCC to regulate Internet service
providers and online service providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. Moreover, it
may take years to determine the extent to which existing laws relating to issues
such as property ownership, libel and personal privacy are applicable to the
Internet. The adoption of any new laws or regulations relating to the Internet
could significantly hurt our business.
In addition, the growth of the Internet, coupled with publicity regarding
Internet fraud, may lead to the enactment of more stringent consumer protection
laws. These laws may impose additional burdens on our business.
THERE ARE RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH OUR NETWORK.
While there are currently few laws or regulations which specifically
regulate Internet communications, laws and regulations directly applicable to
online commerce or Internet communications are becoming more prevalent. If we
become subject to claims that we have violated U.S. or foreign laws, even if we
successfully defend against these claims our business could be hurt. Moreover,
new laws that impose restrictions on our ability to follow current business
practices or increase our costs of doing business could hurt our business. These
laws and regulations could expose us to substantial liability.
Congress has recently enacted laws and regulations concerning the Internet.
There is much uncertainty regarding the marketplace impact of these laws. In
addition, various jurisdictions already have enacted laws covering intellectual
property, privacy, libel and taxation that could affect our business by virtue
of their impact on online commerce.
It is possible that claims will be made against online services companies
and Internet access providers under both U.S. and foreign law for defamation,
negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through their networks. Several
private lawsuits seeking to impose such liability upon online services companies
and Internet access providers are currently pending. If any of these actions
succeed, we might be required to respond by investing substantial resources or
discontinuing certain service or product offerings. The increased attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could also have a negative impact on the growth of Internet use.
Although we carry liability insurance, it may not be adequate to compensate us
or it may not cover us in the event we become liable for information carried on
or disseminated through our networks. Any costs not covered by insurance
incurred as a result of such liability or asserted liability could hurt our
business.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH THE YEAR 2000.
The risks posed by the Year 2000 issue could hurt our business in a number
of significant ways. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will not distinguish 21st century dates from 20th century
dates. This may result in system failures or miscalculations causing disruptions
of operations, including, among others, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
We are currently conducting a Year 2000 readiness review including
assessment, implementation, testing and contingency planning. After evaluating
our internally developed software, we believe that such software is Year 2000
compliant. However, we utilize software and hardware developed by third parties
both for our network and for our internal information systems. Therefore, we are
seeking assurances from our vendors that their products are Year 2000 compliant.
We expect to continue assessing and testing our internal IT and non-IT
systems during this year. However, we may experience material unanticipated
problems and costs caused by undetected errors or defects in our systems.
In addition, Year 2000 issues may also impact other entities with which we
do business, including, for example, those responsible for maintaining telephone
and Internet communications and other suppliers. If
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these entities fail to take preventive or corrective actions in a timely manner,
the Year 2000 issue could hurt our business in ways which are not now
quantifiable.
We do not have any information regarding the Year 2000 status of our
customers, most of whom are private companies. If our customers experience Year
2000 problems which result in business interruptions or otherwise impact their
operations, we could experience a decrease in the demand for our services, which
could hurt our business.
To date, we have not incurred and we do not foresee any significant
expenses associated with our Year 2000 plan. Apart from the risk that we may not
achieve Year 2000 compliance, we believe that a loss of revenues, which could be
significant, would arise if our major customers or providers fail to achieve
Year 2000 readiness. We have not yet developed a comprehensive contingency plan
to address the issues which may result from such failure.
THERE IS UNCERTAINTY AS TO OUR ABILITY TO OBTAIN FUTURE FINANCING TO MEET OUR
CAPITAL NEEDS.
We currently anticipate that our available cash resources, combined with
the net proceeds from the issuance of the common stock and financing available
under a $6.2 million line of credit with NYSERNet, will be sufficient to meet
our anticipated working capital and capital expenditure requirements for the
foreseeable future. However, we cannot assure you that these resources will be
sufficient for our anticipated working capital and capital expenditure
requirements. We may need to raise additional funds through public or private
debt or equity financings in order to:
- take advantage of unanticipated opportunities or acquisitions of
complementary assets, technologies or businesses;
- develop new products; or
- respond to unanticipated competitive pressures.
We may also raise additional funds through public or private debt or equity
financings if such financings become available on favorable terms. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our then current stockholders may be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. If additional funds are raised through the issuance
of debt securities, such securities would have certain rights, preferences and
privileges senior to those of the holders of our common stock and the terms of
such debt could impose restrictions on our operations. If additional funds
become necessary, additional financing may not be available on terms favorable
to us, or at all. If adequate funds are not available or are not available on
acceptable terms, we may not be able to take advantage of unanticipated
opportunities, develop new products or otherwise respond to unanticipated
competitive pressures. Such inability could hurt our business. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
OUR EXISTING STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WILL BE ABLE TO
EXERCISE CONTROL OVER US.
Immediately following the offering, NYSERNet, IXC and Grumman Hill, will
beneficially own approximately % , % and %, respectively, of our
outstanding common stock. In addition, our executive officers and directors will
beneficially own a total of approximately % of our outstanding common
stock. Accordingly, NYSERNet, IXC, Grumman Hill and our officers and directors,
whether acting alone or together, will be able to exert considerable influence
during any stockholder vote, including any vote on the election and removal of
directors and any merger, consolidation or sale of all or substantially all of
our assets, and to control our management and affairs. Such control could
discourage others from initiating potential merger, takeover or other change in
control transactions. As a consequence our business could be hurt. In addition,
NYSERNet has two representatives on our Board of Directors and IXC and Grumman
Hill each have one representative on our Board of Directors. Grumman Hill has a
significant equity interest in IXC. NYSERNet, IXC, Grumman Hill and our officers
and directors may have conflicts of interests among themselves and, in addition,
the interests of NYSERNet, IXC,
18
<PAGE> 22
Grumman Hill and our officers and directors could conflict with the interests of
our other stockholders. See "Management," "Certain Transactions" and "Principal
Stockholders."
WE ARE DEPENDENT ON KEY PERSONNEL.
We are dependent on the continued services of our key personnel, including
our senior management. We have entered into employment agreements with Richard
Mandelbaum, Lawrence B. Helft, James D. Luckett, Denis J. Martin, Mark A. Oros
and David A. Buckel. We expect that we will need to hire additional personnel in
all areas. The competition for personnel throughout our industry is intense. At
times, we have experienced difficulty in attracting qualified new personnel. If
we do not succeed in attracting new, qualified, personnel or retaining and
motivating our current personnel, our business could suffer. See
"Business -- Employees" and "Management."
THERE HAS BEEN NO PRIOR TRADING MARKET FOR OUR COMMON STOCK; OUR STOCK PRICE MAY
BE VOLATILE.
There has not been a prior public market for our common stock. We will
apply for quotation on the Nasdaq National Market. We cannot assure you that an
active trading market will develop or be sustained, nor can we provide you with
any guarantees as to how liquid that market might become nor can we guarantee
that the price of our common stock will not decline below the initial public
offering price. We will negotiate the initial public offering price for our
common stock with the representatives of the underwriters; such price may not be
indicative of prices that will prevail in the trading market. Factors such as
variations in our revenue, earnings and cash flow and announcements of new
service offerings, technological innovations or price reductions by us, our
competitors or providers of alternative services could cause the market price of
our common stock to fluctuate substantially. The stock market has experienced
significant price and volume fluctuations. In particular, the market prices of
securities of technology companies, especially Internet-related companies, have
been highly volatile. Investors may not be able to resell their shares at or
above the initial public offering price. Such broad market fluctuations, as well
as any shortfall in revenue or earnings compared to securities analysts'
expectations, changes in analysts' recommendations or projections and general
economic and market conditions may adversely affect the market price of our
common stock following this offering. See "Underwriting."
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources.
OUR STOCK PRICE MAY BE AFFECTED BY THE AVAILABILITY OF SHARES AVAILABLE FOR
FUTURE SALE.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering. There
will be shares of common stock outstanding immediately after the
offering (assuming no exercise of the underwriters' over-allotment option). The
shares of common stock sold in this offering will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the Securities Act), unless such shares are held by our
"affiliates," as that term is defined in Rule 144 under the Securities Act.
The remaining 10,606,596 shares of our common stock are subject to
restrictions under Rule 144 of the Securities Act. Holders of 10,459,985 such
restricted shares have registration rights with respect to these shares. Such
shares are subject to lock-up agreements pursuant to which the holders of these
shares have agreed not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this prospectus without the prior written
consent of Bear, Stearns & Co. Inc. However, under Rule 144 and as a result of
registration rights, these shares may become freely tradable and affect the
market for our stock.
A substantial number of shares of common stock issuable upon exercise of
outstanding stock options will also become available for resale in the public
market at prescribed times. In addition, we intend to
19
<PAGE> 23
register under the Securities Act the shares of our common stock reserved for
issuance under our stock option plan. See "Shares Eligible for Future Sale."
YOU WILL EXPERIENCE SIGNIFICANT DILUTION.
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. Therefore, based upon an assumed initial
public offering price of $ per share, if you purchase our common stock in
this offering, you will incur immediate dilution of approximately $ in
the net tangible book value per share of common stock from the price you pay for
such common stock. See "Dilution."
WE HAVE DISCRETIONARY AUTHORITY OVER THE USE OF NET PROCEEDS FROM THE OFFERING.
As of the date of this offering, we have not allocated any portion of the
net proceeds of this offering for a specific purpose. Consequently, management
will retain a significant amount of discretion over the application of these
proceeds. Because of the number and variability of factors that determine our
use of the net proceeds of the offering, there can be no assurance that such
applications will not vary substantially from our current intentions. See "How
We Intend to Use the Proceeds From the Offering."
CERTAIN ANTI-TAKEOVER PROVISIONS MAY MAKE OUR ACQUISITION MORE DIFFICULT.
Our Certificate of Incorporation and Bylaws, as well as Delaware corporate
law, contain certain provisions that could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
attempting to acquire, control of our company. These provisions could limit the
price that certain investors might be willing to pay in the future for our
shares of common stock. Certain of these provisions allow us to issue, without
stockholder approval, preferred stock having voting rights senior to those of
the common stock. Other provisions impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, our Board of Directors is divided into
three classes, each of which serves for a staggered three-year term, which may
make it more difficult for a third party to gain control of the Board of
Directors. As a Delaware corporation, we are subject to Section 203 of the
Delaware General Corporation Law which, in general, prevents an interested
stockholder (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a business combination
(as defined) for three years following the date such person became an interested
stockholder unless certain conditions are satisfied. See "Description of Capital
Stock."
20
<PAGE> 24
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We estimate that we will receive net proceeds from the sale of shares in
this offering of approximately $ million (assuming an initial public
offering price of $ per share and after deduction of underwriting discounts
and commissions and expenses payable by us, estimated at $ million). We
intend to use the net proceeds from this offering to expand our sales and
marketing efforts and for working capital requirements and other general
corporate purposes, including possible acquisitions of complimentary assets,
technologies or businesses. We do not currently have any agreements,
arrangements or understandings with respect to any such acquisitions. Pending
such uses, we intend to invest the proceeds of this offering in short-term,
interest bearing securities of investment grade.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock. We
currently intend to retain any future earnings for our business and, therefore,
do not anticipate paying cash dividends on our common stock in the foreseeable
future. Future dividends, if any, will depend on, among other things, our
results of operations, capital requirements, restrictions in loan agreements and
on such other factors as our Board of Directors may, in its discretion, consider
relevant.
21
<PAGE> 25
CAPITALIZATION
The following table sets forth as of December 31, 1998 (i) our actual cash
and cash equivalents and capitalization and (ii) such amounts, as adjusted to
reflect the issuance and sale of shares of our common stock in
this offering (assuming an initial public offering price of $ per share and
after deducting underwriting discounts and commissions and estimated offering
expenses), and the receipt of the net proceeds thereof as set forth under "How
We Intend to Use the Proceeds From the Offering." You should read this table in
conjunction with our Financial Statements and the Notes thereto and the section
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------
ACTUAL AS ADJUSTED
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 1,786 $
============ ============
LIABILITIES:
Long-term debt and capital lease obligations (including
current portion)....................................... $ 6,531 $ 6,531
Borrowings from NYSERNet.................................. 2,957 2,957
------------ ------------
Total long-term debt, borrowings from NYSERNet and
capital lease obligations......................... 9,488 9,488
Redeemable preferred stock -- 75,000 shares authorized;
15,000 issued and outstanding, cumulative 14% dividend;
$100 liquidation value................................. 1,500
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock -- 1,000,000 shares authorized, as
adjusted...............................................
Common stock, $.01 par value; 25,000,000 shares
authorized; 10,026,325 shares issued and outstanding;
60,000,000 shares authorized; shares issued and
outstanding, as adjusted(1)............................ 100
Common stock -- nonvoting, $.01 par value, 5,000,000
shares authorized; 36,565 shares issued and
outstanding............................................ --* --
Additional paid-in capital................................ 5,516
Accumulated deficit....................................... (14,623) (14,623)
------------ ------------
Total stockholders' equity (deficit)................. (9,007)
------------ ------------
Total capitalization........................................ $ 1,981 $
============ ============
</TABLE>
- ---------------
* Less than $500.
(1) Excludes 2,665,555 shares of common stock issuable as of December 31, 1998
upon exercise of options outstanding under AppliedTheory's 1996 Incentive
Stock Option Plan at a weighted average exercise price of $2.39 per share.
See Note H to the Financial Statements.
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<PAGE> 26
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of common stock in the offering exceeds the net
tangible book value per share of common stock after the offering. The net
tangible book value per share of common stock is determined by subtracting our
total liabilities from the total book value of our tangible assets and dividing
the difference by the pro forma number of shares of common stock deemed to be
outstanding on the date as of which such book value is determined.
The net tangible book value of the common stock as of December 31, 1998 was
a deficit of approximately ($0.90) per share. After giving effect to the sale of
the shares of common stock of this offering and the application
of the estimated net proceeds therefrom of $ million (assuming an initial
public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses), the pro forma as
adjusted net tangible book value of AppliedTheory at December 31, 1998, would
have been $ million, or $ per share. This represents an immediate
increase in the net tangible book value of $ per share to existing holders
of common stock and an immediate dilution of $ per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
--------
Net tangible book value deficiency per share as of
December 31, 1998...................................... $(0.90)
Increase attributable to new investors.................... $
------
As adjusted net tangible book value after the offering...... $
--------
Dilution to new investors................................... $
========
</TABLE>
If the over-allotment option is exercised in full, the pro forma net
tangible book value per share of common stock after giving effect to the
offering would be $ per share (assuming an initial public offering price of
$ per share and after deducting underwriting discounts and commissions and
estimated offering expenses), the increase in the net tangible book value per
share would be $ and the dilution to persons who purchase shares of common
stock in the offering would be $ per share.
The following table summarizes, as of December 31, 1998, the number of
shares of common stock purchased from our company, the total consideration paid
and the average price per share paid by the existing stockholders and new
investors, adjusted to give effect of the sale of the shares of common stock in
the offering (assuming an initial public offering price of $ per share and
after deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CASH CONSIDERATION
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............... 10,062,890 % $5,356,268 % $0.53
New Investors.......................
---------- ----- ---------- ----- -----
Total..................... 100.0% $ 100.0%
========== ===== ========== =====
</TABLE>
23
<PAGE> 27
SELECTED FINANCIAL DATA
The following selected financial data should be read together with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," and the historical financial statements of AppliedTheory and the
Predecessor and notes thereto included elsewhere in this Prospectus.
The selected financial data as of December 31, 1997 and 1998 and for the
nine months ended September 30, 1996, the three months ended December 31, 1996
and the years ended December 31, 1997 and 1998 have been derived from audited
financial statements included elsewhere in this Prospectus. The selected
financial data as of September 30, 1996 and December 31, 1996, and as of and for
the year ended December 31, 1995 are derived from audited financial statements
not included in this prospectus. These audited financial statements of
AppliedTheory and the Predecessor have been audited by Grant Thornton LLP,
independent certified public accountants. The selected financial data as of and
for the year ended December 31, 1994 are derived from unaudited financial
statements, which, in management's opinion, include all adjustments, consisting
of only normal recurring adjustments, necessary for a fair presentation.
<TABLE>
<CAPTION>
PREDECESSOR (A) APPLIEDTHEORY
--------------------------------------- --------------------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED DECEMBER 31,
----------------------- SEPTEMBER 30, DECEMBER 31, -----------------------
1994 1995 1996 1996 1997 1998
------------ -------- ------------- ------------ ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Statement of
operations data:
Total net revenues.... $2,917 $4,942 $6,226 $3,076 $15,172 $22,563
Costs and expenses
Cost of revenues.... 2,815 5,163 5,742 2,331 10,796 13,316
Sales and
marketing........ 5 466 1,298 792 3,706 6,400
General and
administrative... 496 1,185 2,819 1,591 4,283 5,233
Research and
development...... -- -- 129 43 680 243
Depreciation and
amortization..... 106 126 158 81 1,095 1,672
Other expenses...... 2 -- -- -- 112 900
------ ------- ------- ---------- ---------- ----------
Total costs
and
expenses... 3,424 6,940 10,146 4,838 20,672 27,764
Loss from
operations.......... (507) (1,998) (3,920) (1,762) (5,500) (5,201)
Interest income....... -- (26) -- -- -- (42)
Interest expense...... -- -- 5 -- 347 608
------ ------- ------- ---------- ---------- ----------
Net loss.............. (507) (1,972) (3,925) (1,762) (5,847) (5,767)
Preferred stock
dividends........... -- -- -- -- 210 210
------ ------- ------- ---------- ---------- ----------
Net loss attributable
to common
stockholders........ $ (507) $(1,972) $(3,925) $(1,762) $(6,057) $(5,977)
====== ======= ======= ========== ========== ==========
Basic and diluted loss
per common share.... $(.27) $(.93) $(.71)
========== ========== ==========
Shares used in
computing basic and
diluted loss per
share............... 6,500,000 6,504,165 8,443,960
Other data:
EBITDA (b).......... $ (401) $(1,846) $(3,762) $(1,681) $(4,405) $(3,529)
Capital expenditures
(c).............. 191 756 -- 506 1,270 2,480
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
PREDECESSOR (A) APPLIEDTHEORY
--------------------------------------- --------------------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED DECEMBER 31,
----------------------- SEPTEMBER 30, DECEMBER 31, -----------------------
1994 1995 1996 1996 1997 1998
------------ -------- ------------- ------------ ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flow
information:.....
Net cash provided
by (used in)
operating
activities..... 191 578 (2,098) (834) (5,185) (2,704)
Net cash provided
by (used in)
investing
activities..... (191) (756) 56 (506) (1,266) (2,779)
Net cash provided
by financing
activities..... -- 178 2,041 1,513 6,413 7,133
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(A) APPLIEDTHEORY
--------------------------------------- -----------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- -----------------------------
1994 1995 1996 1996 1997 1998
----------- ------- ------------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents.......... -- -- -- $173 $135 $1,786
Working capital
(deficiency)......... $(693) $(2,982) $(6,775) (1,379) (3,579) (3,249)
Total assets............ 1,571 2,690 3,161 3,365 5,444 10,518
Current portion of long-
term debt and capital
lease obligations.... -- -- -- -- 211 551
Long-term debt and
capital lease
obligations, less
current portion...... -- -- -- -- 4,361 5,979
Borrowings from
NYSERNet............. -- -- -- 1,500 2,445 2,957
Redeemable preferred
stock................ -- -- -- -- 1,500 1,500
Total stockholders'
equity (deficit)..... (787) (2,759) (6,684) (2,576) (8,626) (9,007)
</TABLE>
- ---------------
(a) The operating activities prior to October 1, 1996 were conducted as a
nonincorporated "division" of NYSERNet and are considered to constitute a
predecessor business. The financial data presented as of and for the years
ended December 31, 1994 and 1995, and as of and for the nine months ended
September 30, 1996 reflect these activities on a "carved-out" basis from the
historical financial statements of NYSERNet.
(b)EBITDA is loss from operations before interest, taxes, depreciation and
amortization. EBITDA is included herein because management believes that
certain investors find it to be a useful tool for measuring a company's
ability to service its debt; however, EBITDA does not represent cash flow
from operations, as defined by generally accepted accounting principles, and
should not be considered as a substitute for net loss as an indicator of the
Company's operating performance or cash flow as a measure of liquidity, and
should be examined in conjunction with the financial statements and notes
thereto of the Company included elsewhere in this prospectus.
(c) Capital expenditures include assets acquired with debt and exclude assets
acquired through capital lease financing.
25
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Actual events or results could differ materially from
those discussed below. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed in the sections entitled "Risk Factors" and "Business" and in
the other sections of this prospectus. Such forward-looking statements speak
only as of the date of this prospectus, and we caution potential investors not
to place undue reliance on such statements.
OVERVIEW
We are a leading provider of Internet solutions, offering an extensive
array of high performance, reliable and scalable Internet technology products
and services that can be tailored to meet our customers' requirements. We
provide the following solutions, either individually or as part of a one-stop
package:
- Internet integration and enterprise portal development, including custom
software application development, integration of legacy systems and Web
site design and development;
- Web hosting, consisting of custom hosting solutions and outsourcing,
shared server, dedicated server and co-location hosting solutions; and
- Internet connectivity, including VPN solutions, network and security
consulting and dedicated Internet access.
We market our products and services to mid-sized businesses (including
mid-size departments of larger businesses) and public sector institutions, which
we believe are increasingly demanding one-stop solutions for Internet services
due to the difficulty and expense of managing and integrating the products and
services of multiple IP-based vendors. Our comprehensive suite of IP-based
services enables our customers to capitalize on the wide variety of critical
data communication opportunities made possible by the Internet.
Historically, we have generated our revenues using a small sales force and
have expanded our customer base primarily through word of mouth. We are rapidly
building our sales and marketing efforts nationally to more aggressively pursue
customers. We have targeted 29 metropolitan areas throughout the United States
with high concentrations of businesses and intend to grow our direct sales force
by more than 100 over the next two years. These targeted markets coincide with
IXC's POPs, where we plan to have a physical local presence.
We were incorporated in November 1995 and spun-off in October 1996 from
NYSERNet, a not-for-profit consortium that was one of the founding institutions
of the Internet, to pursue commercial IP-based opportunities. In August 1998,
IXC and Grumman Hill invested $12.9 million and $6.5 million to acquire
approximately 2.9 million and 1.5 million shares of our common stock. We issued
1.15 million of these shares for gross proceeds of approximately $5.1 million.
REVENUE. We derive our revenue from three principal services:
- Internet integration and enterprise portal development;
- Web hosting; and
- Internet connectivity.
We generally sell our services under contracts with terms ranging from one
to five years.
Beginning pro forma year ended December 31, 1996 to the year ended December
31, 1998, revenue from Internet integration and enterprise portal development
increased from approximately 6% to approximately 26%. We expect revenue from
these services to continue to increase as a percentage of total revenue in
future periods, as we further emphasize them in our sales mix.
26
<PAGE> 30
Revenue from Internet integration and enterprise portal development
services is typically derived from hourly and per module development fees, with
additional fees being generated through ongoing services, such as the
monitoring, management, hosting and maintenance of these applications and Web
sites. Revenue from Web hosting services is typically derived from flat rates
for co-location based on space, as well as from usage-sensitive storage and
throughput fees, and additional fees from value-added services such as data
mirroring and load balancing re-direction. Revenue from Internet connectivity
services is typically derived from fixed price and usage based fees.
COST OF REVENUE. Cost of revenue consists primarily of: backbone and
Internet access costs; personnel costs to operate our network and data centers;
personnel costs to provide Internet integration and enterprise portal
development services; and access charges from local exchange carriers. We expect
our cost of revenue to continue to increase in dollar amount but decline as a
percentage of revenue as we expand our customer base and our product suite.
SALES AND MARKETING EXPENSE. Sales and marketing expense consists
primarily of advertising and marketing programs and personnel expenses,
including salary and commissions. We expect to make a substantial investment in
our sales and marketing groups to achieve and properly support the intended
expansion in our customer base. We expect sales and marketing expenditures to
continue to increase in dollar amount and as a percentage of revenue in 1999,
and then to decline as a percentage of revenue thereafter.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
consists primarily of personnel (including customer support), occupancy, general
operating costs, professional fee expenses and research and development. We
expect to make the necessary investments in the organization to properly manage
the financial, legal and administrative aspects of the business. We expect
general and administrative expense to increase in dollar amount in the future,
reflecting growth in our operations and the costs associated with being a
publicly held company, but to decline as a percentage of revenue.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
consists primarily of depreciation of computer equipment, office furniture and
leasehold improvements.
NET LOSSES. We have incurred net losses and have experienced negative cash
flow from operations in each quarterly and annual period since our inception,
October 1, 1996. Currently, we anticipate making significant investments in
sales and marketing, new distributed data centers, customer support and
personnel, and therefore believe that we will continue to experience net losses
and incur negative cash flows from operations on a quarterly and annual basis
for the foreseeable future.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE. Revenue for the year ended December 31, 1998 totaled
approximately $22.6 million, an increase of $7.4 million over revenue of
approximately $15.2 million for the year ended December 31, 1997. This increased
revenue reflects growth in revenue from our broadened product offerings to our
customers and through our leveraged marketing arrangements with strategic
partners. The growth in revenue derived from our Internet integration and
enterprise portal development services represented approximately $4.0 million of
the total increase. The increase in Internet connectivity of $2.8 million was
primarily due to the increase in our customer base. Internet connectivity and
Web hosting revenues accounted for approximately 74% of our revenue for the year
ended December 31, 1998 as compared to approximately 87% of our revenue for the
year ended December 31, 1997.
COST OF REVENUE. Cost of revenue for the year ended December 31, 1998
totaled approximately $13.3 million compared with approximately $10.8 million
for the year ended December 31, 1997. This increase is attributable to the
overall growth in the size of our network. As a percentage of revenue, cost of
revenue declined to 59% of revenue in the year ended December 31, 1998 from 71%
of revenue in the year ended December 31, 1997. This decrease was due to
increased network utilization associated with our
27
<PAGE> 31
revenue growth and an increase in revenues, as a percentage of revenue, from
higher margin Web hosting and Internet integration and enterprise portal
development services.
SALES AND MARKETING. For the years ended December 31, 1998 and 1997, sales
and marketing expense was approximately $6.4 million and $3.7 million. The $2.7
million increase in 1998 reflects a substantial investment in the sales and
marketing organizations necessary to support our expanded customer base. This
increase also reflects a growth in subscriber acquisition costs, related to both
increased direct marketing efforts as well as commissions paid to distribution
partners. Additionally, the increase reflects increased marketing efforts. Sales
and marketing expense as a percentage of revenue increased to 28% for the year
ended December 31, 1998 from 24% for the year ended December 31, 1997 as a
result of our increased commitment to building our sales and marketing program.
GENERAL AND ADMINISTRATIVE. For the years ended December 31, 1998 and
1997, general and administrative expenses were approximately $5.5 million and
$5.0 million. An increase in general and administrative expenses of
approximately $1.0 million was primarily attributable to (a) compensation
expense relating to Stock Appreciation Rights, (b) cost related to recruiting
new personnel and (c) increases necessary to manage the financial, legal and
administrative business, offset by a decrease in research and development from
$0.7 million to $0.2 million. For the year ended December 31, 1998, general and
administrative expense, including research and development declined as a percent
of revenue to 24% from 33% for the year ended December 31, 1997 as a result of
our increased revenue.
DEPRECIATION AND AMORTIZATION. For the years ended December 31, 1998 and
1997, depreciation and amortization expense was approximately $1.7 million and
$1.1 million. The increase in depreciation and amortization of approximately
$0.6 million is principally attributable to acquisition of computer equipment
used in support of our Web hosting and internet integration and enterprise
portal development customers.
INTEREST EXPENSE. Interest expense was approximately $0.6 million and $0.3
million for the years ended December 31, 1998 and 1997. The increase in interest
expense of $0.3 million is attributable to the increase in outstanding
borrowings under financing agreements. During the year ended December 31, 1998,
cash payments of approximately $0.2 million in interest expense were deferred
until December 2001.
OTHER EXPENSE. On December 21, 1998, we adopted a plan which was approved
by our Board of Directors to close a leased facility principally used as a Web
hosting data center. The facility has experienced operational difficulties which
limited its usability as a Web hosting site and its ability to generate
sufficient revenues. In connection with the plan of abandonment, we have
recorded a $0.9 million charge to operations for the year ended December 31,
1998 consisting of (i) a $0.5 million write-down of equipment and leasehold
improvements to our management's estimate of their fair value of approximately
$0.1 million in accordance with the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of " and (ii) a $0.4 million accrued liability relating to equipment leases and
facility operating leases, net of anticipated subrental income in accordance
with the provisions of EITF 94-3, "Liability Recognized for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." The plan calls for
the Web hosting customer base served from this facility, located in New York
City, and the related revenues, which are not significant, to be transitioned to
another facility by September 1999.
NET LOSS. For the year ended December 31, 1998, our net loss attributable
to common stockholders totaled $6.0 million as compared to $6.1 million for the
year ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1996
The 1996 pro forma results of operations represent the aggregation of the
nine months ended September 30, 1996 in which we conducted operations as a
non-incorporated division of NYSERNet and the three months ended December 31,
1996 under its present corporate structure. The financial statements for the
nine months ended September 30, 1996 reflect the division's operating activities
on a "carved out" basis from the historical financial statements of NYSERNet.
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<PAGE> 32
REVENUE. Revenue for the year ended December 31, 1997 totaled
approximately $15.2 million, an increase of $5.9 million over revenue of $9.3
million for the year ended December 31, 1996. This increased revenue reflects
growth in revenue from our broadened product offerings to our enterprise
customers and through our leveraged marketing arrangements with our strategic
partners, as well as continued growth in revenue derived from our Internet
integration services and enterprise portal development services customers.
Internet connectivity and Web-hosting revenues accounted for approximately 87%
of our revenue for the year ended December 31, 1997 as compared to approximately
94% of our revenue for the year ended December 31, 1996.
COST OF REVENUES. Cost of revenue for the year ended December 31, 1997
totaled approximately $10.8 million compared with $8.1 million for the year
ended December 31, 1996. This increase is attributable to the overall growth in
the size of our network. As a percentage of revenue, cost of revenue declined to
71% of revenue in the year ended December 31, 1997 from 87% of revenue in the
year ended December 31, 1996. This decrease was due to increased network
utilization associated with our revenue growth and an increase, as a percentage
of revenue, in the higher margin Web hosting and Internet integration services
and enterprise portal development services revenues.
SALES AND MARKETING. For the years ended December 31, 1997 and 1996, sales
and marketing expense was approximately $3.7 million and $2.1 million. The $1.6
million increase in 1997 relates to an increased marketing and advertising
program along with a buildup of the direct sales force due to our focused growth
into the commercial market. Sales and marketing expense as a percentage of
revenue increased to 24% for the year ended December 31, 1997 from 22% in the
year earlier period.
GENERAL AND ADMINISTRATIVE. General and administrative expense consists
primarily of personnel expense, occupancy, customer support and professional
fees. For the years ended December 31, 1997 and 1996, general and administrative
expenses were approximately $5.0 million and $4.6 million. This higher level of
expense is principally related to the increase in research and development of
approximately $0.5 million in the area of enterprise portal development and Web
hosting. For the year ended December 31, 1997, general and administrative
expense declined to 33% from 50% for the year ended December 31, 1996 as a
result of our increased revenue and cost containment program.
DEPRECIATION AND AMORTIZATION. For the years ended December 31, 1997 and
1996, depreciation and amortization expense was approximately $1.1 million and
$0.2 million. The increase in depreciation and amortization is directly
attributed to the high level of property and equipment acquired for use in our
business.
INTEREST EXPENSE. Net interest expense was approximately $0.3 million for
the year ended December 31, 1997. Net interest expense for the year ended
December 31, 1996 was negligible. The increase in interest expense is attributed
to increased borrowings under financing agreements.
OTHER EXPENSE. During the year ended December 31, 1997, we recorded
approximately $0.1 million of expense relating to a loss from the disposal of
equipment.
NET LOSS. For the year ended December 31, 1997 the net loss attributable
to common stockholders totaled $6.1 million as compared to $5.7 million for the
year ended December 31, 1996.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data for the eight quarters ended December 31, 1998, as well as the percentage
of our revenues represented by each item. This data has been derived from
unaudited interim financial statements prepared on the same basis as the audited
financial statements contained herein and, in the opinion of management, include
all adjustments consisting only of normal recurring adjustments, that we
consider necessary for a fair presentation of such information when read in
conjunction with the financial statements and notes hereto appearing elsewhere
29
<PAGE> 33
in this prospectus. The operating results for any quarter should not be
considered indicative of results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
1997 1998
------------------------------------------------ ------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30(A) DECEMBER 31(B)
-------- -------- ------------ ----------- -------- -------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
Total net revenues.... $3,617 $ 3,908 $ 3,755 $ 3,892 $5,334 $ 4,782 $ 6,188 $ 6,259
Costs and expenses:
Cost of revenues.... 2,366 2,807 2,746 2,877 2,940 2,864 3,433 4,079
Sales and
marketing......... 505 833 992 1,376 1,438 1,536 1,771 1,655
General and
administrative.... 1,229 1,228 1,286 1,220 1,089 1,133 1,826 1,428
Depreciation and
amortization...... 201 230 233 431 360 399 422 491
Other expenses...... -- 1 38 73 2 -- (2) 900
------ -------- -------- -------- ------ -------- -------- --------
Total........ 4,301 5,099 5,295 5,977 5,829 5,932 7,450 8,553
------ -------- -------- -------- ------ -------- -------- --------
Loss from
operations.......... (684) (1,191) (1,540) (2,085) (495) (1,150) (1,262) (2,294)
Net interest
expense............. 26 71 118 132 142 141 141 142
------ -------- -------- -------- ------ -------- -------- --------
Net loss.............. $ (710) $ (1,262) $ (1,658) $ (2,217) $ (637) $ (1,291) $ (1,403) $ (2,436)
====== ======== ======== ======== ====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1998
------------------------------------------------ ------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30(A) DECEMBER 31(B)
-------- -------- ------------ ----------- -------- -------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUE:
Total net revenues.... 100% 100% 100% 100% 100% 100% 100% 100%
Costs and expenses:
Cost of revenues.... 65 72 73 74 55 60 55 65
Sales and
marketing......... 14 21 26 35 27 32 29 26
General and
administrative.... 34 31 34 31 20 24 30 23
Depreciation and
amortization...... 6 6 7 12 7 8 6 9
Other expenses...... 0 0 1 2 0 0 (0) 14
------ -------- -------- -------- ------ -------- -------- --------
Loss from
operations.......... (19) (30) (41) (54) (9) (24) (20) (37)
------ -------- -------- -------- ------ -------- -------- --------
Net interest
expense............. 1 2 3 3 3 3 2 2
------ -------- -------- -------- ------ -------- -------- --------
Net loss.............. (20)% (32)% (44)% (57)% (12)% (27)% (22)% (39)%
====== ======== ======== ======== ====== ======== ======== ========
</TABLE>
- ---------------
(a) Includes compensation expense included in general and administrative of
approximately $0.3 million relating to stock appreciation rights. Reference
is made to Note H of the audited financial statements.
(b) Other expenses represent a charge for the writedown of equipment and
leasehold improvements and an accrued liability for costs relating to the
closing of a leased facility aggregating $900,000. Reference is made to Note
C of the audited financial statements.
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<PAGE> 34
FACTORS AFFECTING OPERATING RESULTS
We have experienced significant fluctuations in our results of operations
on a quarterly and annual basis. We expect to continue to experience significant
fluctuations in our future quarterly and annual results of operations due to a
variety of factors, many of which are outside our control, including:
- demand for and market acceptance of our services;
- fluctuations in data communications and telecommunications costs;
- reliable continuity of service and network availability;
- customer retention;
- the timing and success of our marketing efforts;
- the timing and magnitude of capital expenditures, including costs
relating to the expansion of operations;
- the timely expansion of existing facilities and completion of new
facilities;
- the ability to increase bandwidth as necessary;
- fluctuations in bandwidth used by customers;
- the timing and magnitude of expenditures for sales and marketing;
- introductions of new services or enhancements by us and our competitors;
- the timing of customer installations and related payments;
- the ability to maintain or increase peering;
- periodic customer discounts;
- the introduction by third parties of new Internet services;
- increased competition in our markets;
- growth of Internet use and establishment of Internet operations by
mainstream enterprises;
- changes in our and our competitors' pricing policies;
- changes in regulatory laws and policies;
- economic conditions specific to the Internet industry; and
- general economic factors.
In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to data communications and
telecommunications costs, depreciation, real estate, interest expenses and
personnel, and therefore our future results of operations will be particularly
sensitive to fluctuations in revenues. Due to all of the foregoing factors, we
believe that period-to-period comparisons of our results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Risk Factors -- Our annual and quarterly operating results are
subject to significant fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
We had an accumulated deficit of $14.6 million at December 31, 1998, and
have used cash of $8.7 in the aggregate to fund operations since our inception
on October 1, 1996, through December 31, 1998. To date, we have satisfied our
cash requirements primarily through the sale of common and preferred stock and
borrowings under credit agreements and equipment financing arrangements. Our
principal uses of cash are to fund operations, working capital requirements and
capital expenditures. At December 31, 1998, we had $1.8 million in cash and cash
equivalents and a $3.2 million working capital deficit. Net cash used in
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<PAGE> 35
operating activities for the years ended December 31, 1998 and 1997 was
approximately $2.7 million and $5.2 million. Net cash used in investing
activities for the years ended December 31, 1998 and 1997, was approximately
$2.8 million and $1.3 million. For the years ended December 31, 1998 and 1997,
cash of approximately $7.1 million and $6.4 million was provided by financing
activities. Cash provided by financing activities in the year ended December 31,
1998, included approximately $5.0 million in net proceeds from the sale of
1,150,000 shares of common stock to IXC and Grumman Hill.
Net cash used in operating activities for the pro forma year ended December
31, 1996 was $2.9 million. Net cash used in investing activities was
approximately $0.5 million, and net cash provided by financing activities was
$3.6 million.
As of December 31, 1998, our operating lease obligations will be $0.9
million, $0.9 million, and $0.8 million for 1999, 2000, and 2001.
On January 20, 1998, we obtained a secured line of credit with Fleet
National Bank for $7.5 million which expires on January 19, 2001. Borrowings
under this line are secured by substantially all our assets and by a maximum of
$5.5 million of cash and cash equivalents, government securities, corporate
securities or corporate equities pledged by NYSERNet. At December 31, 1998,
borrowings under this line amounted to $5.4 million. As of December 31, 1997,
pursuant to the credit agreement referred to above, we refinanced our short-term
lines of credit on a long-term basis. Accordingly, the $4.1 million line of
credit balance as of December 31, 1997 was classified on the terms of the
refinancing agreement. The credit agreement provides for the payment of the
unpaid principal balance of all amounts advanced on January 19, 2001. Interest
is charged and payable on a monthly basis as determined by us either at LIBOR
plus 50 basis points or at the prime rate less 200 basis points. As of December
31, 1998, as a result of certain restrictions, only $70,000 of additional credit
was available under this agreement. We also have an unsecured borrowing facility
with NYSERNet, which provides for borrowings up to a maximum amount of
approximately $6.2 million, less any preferred stock issued to NYSERNet.
Interest on the loans accrues at the prime rate (8.5% and 8.0% at December 31,
1997 and 1998) and payments are deferred for five years from the date of cash
advance, or January 1, 2002, whichever is earlier. As of December 31, 1998, $2.0
million was available under this borrowing facility.
We have made capital investments in our network operations center, data
center and other capital assets totaling $0.5 million, $1.3 million and $2.5
million in the pro forma years ended December 31, 1996 and 1997 and 1998,
respectively.
Since we expect to continue to incur additional operating losses, we intend
to utilize the net proceeds from this offering to meet our short-term capital
requirements. We believe that proceeds from the offering will be sufficient to
meet our anticipated cash needs for working capital and for the acquisition of
capital equipment through at least the end of 1999. However, there can be no
assurance as to the period of time through which our financial resources will be
adequate to support our operations. We may be required to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurance that such additional financing, if
needed, will be available on terms acceptable to us, or at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants. Strategic arrangements, if
necessary to raise additional funds, may require us to relinquish its rights to
certain of its technologies. See "Risk Factors -- There is uncertainty as to our
ability to obtain future financing to meet our capital needs."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to distinguish 21st century dates from 20th century dates. This could
result in system failures or miscalculations causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such Year 2000 requirements.
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<PAGE> 36
We are currently conducting our Year 2000 readiness review. The review will
include assessment, implementation, testing and contingency planning. To date,
we have evaluated our internally developed software and believe that such
software is Year 2000 compliant. However, we utilize software and hardware
developed by third parties both for our network and internal information
systems. We have sought assurances from certain of our vendors and intend to
continue to seek assurances from others, that such vendors' products are or will
be Year 2000 compliant.
We expect to continue assessing and testing our internal IT and non-IT
systems into 1999. We are not currently aware of any material operations issues
or costs associated with preparing our internal IT and non-IT systems for the
Year 2000. However, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal IT
and non-IT systems.
Based upon the public filings and press releases of our primary equipment,
telecommunications and data communications providers, we are aware that all such
providers are in the process of reviewing and implementing their own Year 2000
compliance programs. Since we do not believe that we will be afforded the
opportunity to test the systems of these providers, we will seek assurances from
them that they are Year 2000 compliant. If our primary vendors experience
business interruption as a result of the failure to achieve Year 2000
compliance, our ability to provide Internet connectivity could be impaired,
which could have a material adverse effect on our business, results of
operations and financial condition.
We do not currently have any information regarding the Year 2000 status of
our customers, most of whom are private companies. As is the case with similarly
situated companies, if our customers experience Year 2000 problems, which result
in business interruptions or otherwise impact their operations, we could
experience a decrease in the demand for our services, which could have a
material adverse impact on our business, results of operations and financial
condition.
We have not incurred any significant expenses to date associated with our
Year 2000 plan and are not aware of any material costs associated with our
anticipated Year 2000 efforts. We believe that a material loss of revenues that
could materially adversely affect our business, results of operations and
financial condition would arise only if our major customers or providers fail to
achieve Year 2000 readiness. We have not yet developed a comprehensive
contingency plan to address the issues which could result from such failure.
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<PAGE> 37
BUSINESS
OUR COMPANY
We are a leading provider of Internet solutions, offering an extensive
array of high performance, reliable and scalable Internet technology products
and services that can be tailored to meet our customers' requirements. We
provide the following solutions, either individually or as part of a one-stop
package:
- Internet integration and enterprise portal development, including custom
software application development, integration of legacy systems and Web
site design and development;
- Web hosting, consisting of custom hosting solutions and outsourcing,
shared server, dedicated server and co-location hosting solutions; and
- Internet connectivity, including VPN solutions, network and security
consulting and dedicated Internet access.
We market our products and services to mid-sized businesses (including
mid-size departments of larger businesses) and public sector institutions, which
we believe are increasingly demanding one-stop solutions for Internet services
due to the difficulty and expense of managing and integrating the products and
services of multiple IP-based vendors. Our comprehensive suite of IP-based
services enables our customers to capitalize on the wide variety of critical
data communication opportunities made possible by the Internet.
Superior customer service is a cornerstone of our operational strategy. Our
97% customer satisfaction in the second half of 1998, based on completed
surveys, demonstrates our exceptional performance. As a result, our revenue
churn has averaged less than 0.15% over the last two years, a rate which is well
below industry averages. As of December 31, 1998, we had over 650 direct and
indirect enterprise customers in a wide range of industries, which customers
include:
- Bank of New York, General Electric Corporation, theglobe.com, Inc., NEC
Corporation, Road Runner Computer Systems, Inc., Eastman Kodak Company,
KPMG Peat Marwick LLP, Northrop Grumman Corporation and Bell Atlantic
Corp.;
- through NYSERNet, Cornell University, Columbia University, New York
University, the New York Public Library and the New York City Board of
Education; and
- through the New York State Department of Labor, the U.S. Department of
Labor and a consortium of 46 states and territories.
Our existing network consists primarily of a robust, regional backbone.
Together with IXC, a significant equity holder in our company, we are in the
process of deploying the Gemini2000 Network, the first coast-to-coast, next
generation Internet backbone network to carry both research and commercial
traffic. The Gemini2000 Network is a fully redundant, high performance national
network that will enable us to offer Internet access and backbone transport
services at speeds that are 100 to 1,000 times greater than those generally
available to end users today. We also intend to build three new distributed data
centers, co-located at Gemini2000 Network super-core sites, linked together to
form a "virtual gigacenter." Our network and distributed data centers will
enable us to offer our customers:
- greater network reliability;
- lower downtime;
- simpler configurations for connecting multiple site locations;
- specialized VPN solutions;
- faster downloading of data;
- reduced Web server load; and
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<PAGE> 38
- better disaster recovery.
Historically, we have generated our revenues using a small sales force and
have expanded our customer base primarily through word of mouth. We are rapidly
building our sales and marketing efforts nationally to more aggressively pursue
customers. We have targeted 29 metropolitan areas throughout the United States
with high concentrations of businesses and intend to grow our direct sales force
by more than 100 over the next two years. These targeted markets coincide with
IXC's POPs, where we plan to have a physical local presence.
We were incorporated in November 1995 and spun-off in October 1996 from
NYSERNet, a not-for-profit consortium that was one of the founding institutions
of the Internet, to pursue commercial IP-based opportunities. In August 1998,
IXC and Grumman Hill invested $12.9 million and $6.5 million to acquire
approximately 2.9 million and 1.5 million shares of our common stock. We issued
1.15 million of these shares for net proceeds of approximately $5.0 million.
OUR INDUSTRY
The Internet has grown rapidly in the 1990s and has emerged as a global
medium for communications and commerce. The Internet's growth is driven by a
number of factors, including the large and increasing number of cheaper, faster
and more powerful multimedia home and office computers, advances in network
designs, greater availability of Internet-based software and applications, the
emergence of useful content and e-commerce technologies and convenient, fast and
inexpensive Internet access. According to IDC, the total number of Internet
users worldwide reached 69 million in 1997 and will increase to approximately
320 million by 2002.
The Internet presents a compelling profit opportunity for businesses, as it
enables them to reduce operating costs, access valuable information and reach
new markets. Likewise, the Internet presents a compelling opportunity for public
sector institutions, as it helps them serve their constituencies more cost-
effectively and conveniently, and comply with certain federal and state
mandates. To take advantage of these opportunities, organizations must have:
- an open universal interface (a doorway or "enterprise portal" to the
Internet);
- Web site presence; and/or
- Internet access.
An enterprise portal links an organization's internal systems and databases
to the Internet, facilitating internal information sharing and external
interaction. Creation of an enterprise portal requires customized software
development and integration to coordinate legacy systems with newer
Internet-based client/server architecture. According to The Yankee Group, the
market for network integration and consulting services is expected to grow from
approximately $29.6 billion in 1997 to approximately $52 billion in 2001.
A Web site on the Internet provides a tangible identity and interactive
presence on the Internet. Businesses initially established Web sites as a means
of improving internal and external corporate communications. Today, they are
increasingly utilizing the Internet for mission-critical applications, such as
sales and marketing, customer communication and service and project
coordination, as well as in many cases expanding their businesses through newly
developed e-commerce applications. According to Forrester Research, Inc.
(Forrester), Web hosting revenues will grow from $362 million in 1997 to $10.5
billion in 2002.
Internet access provides a basic gateway to the Internet, allowing it to
transfer e-mail, access information and connect with employees, customers and
suppliers. Today, Internet access is the primary component of the Internet
services market. Access services include high-speed dedicated access primarily
for larger organizations and dial-up access for individuals and small
enterprises. Forrester projects that revenues from Internet access services in
the United States will grow from $5.8 billion in 1997 to $38.1 billion in 2002.
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OUR MARKET OPPORTUNITY
OVERVIEW
Expanded uses of the Internet and greater demands for existing
Internet-based applications are driving an evolution and expansion in Internet
services, as well as the networks over which they are delivered. Examples of
existing and next generation uses of the Internet include the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
EXISTING USES NEXT GENERATION ENHANCEMENTS NEXT GENERATION NEW SERVICES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E-mail
Distance learning Telemedicine
Basic e-commerce
Graphics-intensive e-commerce Full-motion video downloading
Web site presence
High-capacity interactive Web sites Multi-media interactive
virtual reality sites
Low-quality video
conferencing
High-quality, real-time video
conferencing
Order entry
Inventory control
- --------------------------------------------------------------------------------------------------------
</TABLE>
This growth and evolution in Internet applications is driving the need for:
- integration of internal systems and databases with Internet applications
(enterprise portal development);
- more complex, data intensive and interactive Web sites (Web hosting
services); and
- more network bandwidth with faster, more reliable Internet access
(Internet connectivity).
THE INTERNET ENTERPRISE PORTAL -- INTEGRATING LEGACY SYSTEMS WITH THE INTERNET
To facilitate e-commerce and extend communications reach and information
sharing, databases and systems must be accessible to the Internet and Web sites
need to be integrated with underlying resident enterprise data and systems in an
open universal interface (a doorway or "enterprise portal" to the Internet).
Systems and databases which were designed before the advent of the Internet
(legacy systems) must often be modified and augmented in order to inter-operate
with newer Internet-based client/server architectures.
WEB SITE MANAGEMENT AND E-COMMERCE
E-commerce and other next generation applications (essential to realizing
the rapid growth in Internet services) are complex and require guaranteed
bandwidth availability and minimal latency, thus necessitating a network which
incorporates performance and quality of service guarantees and committed access
rates. State-of-the-art network infrastructure is required, as are the most
advanced distributed data centers and collaborative outsourcing arrangements.
Next generation data centers will require a secure environment, geographic
diversity, enhanced content caching, leading edge network caching, mirroring and
load-balancing re-direction to enable virtual linking of data centers for
greater effectiveness. These features allow for faster downloading, reduced Web
server load, greater network reliability and performance and better disaster
recovery.
INTERNET ACCESS
Demand for higher speed and more reliable access will continue to escalate
as new users access the Internet, existing users increase their usage and demand
increases for new and higher performance. We believe that as more companies
begin to implement mission-critical business applications on the Internet, the
reliability and security of their Internet communications will be a key concern.
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NEED FOR ONE-STOP INTERNET SOLUTION
To take full advantage of the communication and commerce opportunities made
available by the Internet, enterprises will require more than a basic
connection. They will need:
- fast and reliable connections to the Internet;
- sophisticated Web sites to attract and retain users and customers;
- access to enterprise information for internal communication and for their
Web sites; and
- to procure and manage the services and operations to integrate all these
needs.
While all organizations face challenges in meeting these needs, we believe
mid-sized businesses (including mid-size departments of larger businesses) and
government agencies, in particular, have an acute problem. Generally, they
maintain small IT departments and do not have the resources to internally
develop and manage all the components of their Internet strategies.
Traditionally, enterprises have sought solutions from a variety of service
providers (including system integrators, ISPs, hardware and software vendors and
telecommunication companies), each of which satisfies one or two elements of the
total Internet problem. We believe these enterprises will demand a single
provider that offers all elements of Internet solutions -- design, integration,
implementation, Internet connection and operational management.
OUR SOLUTION
We believe that mid-sized businesses (including mid-size departments of
larger businesses) and public sector institutions are increasingly demanding
one-stop solutions for Internet services due to the difficulty and expense of
managing and integrating the products and services of multiple IP-based vendors.
Our comprehensive suite of IP-based products and services enables our customers
to capitalize on the wide variety of data communication opportunities made
possible by the Internet.
We offer an extensive array of high performance, reliable and scalable
Internet products and services, including Internet integration and enterprise
portal development, Web hosting services and Internet connectivity. We integrate
these services to offer customized, IP-based applications and services that
enable our commercial customers to extend their enterprises, leverage existing
legacy databases and systems and take advantage of Internet-based marketing
opportunities. Public sector customers similarly benefit by making greater use
of the Internet to serve their constituencies more cost-effectively and
conveniently and comply with federal and state mandates.
Key advantages we offer our customers include:
- FLEXIBLE AND SCALABLE INTERNET SOLUTIONS. Our Internet integration and
enterprise portal development solutions are customized to meet our
customers' needs. These solutions make use of our customers' existing
legacy databases and systems and provide them with highly integrated
IP-based capabilities that deliver high performance. Our solutions are
designed to easily accommodate a large and rapidly growing number of
users, as well as to facilitate distribution of the application over
geographically dispersed servers.
Our custom billing software for burstable service and our ability to
access incremental bandwidth through our strategic relationship with IXC
allow us to quickly scale solutions to meet a customer's needs. For
example, upon completion of the Gemini2000 Network, we will offer dynamic
bandwidth management, empowering our customers to monitor, regulate and
allocate bandwidth usage within their organizations, all from their
desktops.
- ROBUST AND RELIABLE INFRASTRUCTURE. Our existing network consists
principally of a robust, regional backbone, which has had customer uptime
performance of over 99.9% over the last three years. Together with IXC,
we are in the process of deploying the Gemini2000 Network, the first
coast-to-coast, next generation Internet backbone network to carry both
research and commercial traffic.
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<PAGE> 41
The Gemini2000 Network is a fully redundant, high performance national
network that will enable us to offer Internet access and backbone
transport services at speeds which are 100 to 1,000 times greater than
those generally available to end users today. It will also enable us to
offer our customers greater network reliability, lower downtime, simpler
configurations for connecting multiple site locations and remote access
VPNs.
- ADVANCED DATA MANAGEMENT. Our distributed data centers will enable our
customers to provide their customers and end-users with the fastest,
clearest and most reliable Web access available today, allowing for data
mirroring, load balancing re-direction, redundancy and content caching.
These features will benefit our customers through faster downloading of
data, reduced Web server load, greater network reliability and
performance and better disaster recovery. Distributed data centers
typically present a challenge to IT administrators because they result in
less efficient use of resources, require synchronization of data in
almost real time and are more complex in their operation. However, the
advanced architecture of the Gemini2000 Network will enable us to tie our
distributed data centers together to form a single "virtual gigacenter,"
thereby allowing us to deliver to our customers all the advantages of
distributed data centers without the corresponding difficulties.
- SUPERIOR CUSTOMER SUPPORT. Our mission is to provide the best customer
support in the Internet business. We invest heavily in systems and
training, understand the technical requirements of our customers and work
with them to optimize business objectives through the Internet. Our 97%
customer satisfaction in the second half of 1998, based on completed
surveys, demonstrates our exceptional performance. As a result, our
revenue churn over the last two years has averaged less than 0.15%, a
rate which is well below industry averages.
OUR STRATEGY
Our objective is to become the leading national provider of advanced
Internet technology solutions to mid-sized businesses (including mid-size
departments of larger businesses) and selected public sector organizations. To
achieve this objective, our strategy is to:
- OFFER ONE-STOP SOLUTIONS TO THE BUSINESS MID-MARKET AND PUBLIC
SECTORS. We will market our one-stop solutions to mid-sized businesses
(including mid-size departments of larger businesses) and public sector
organizations, initially focusing on sophisticated users of the Internet
within these markets. We believe these markets are seeking single vendors
who can provide a full set of Internet technology solutions. We believe
the Gemini2000 Network, our new data centers and our expertise in
providing Internet enterprise portal development, Web hosting and
Internet connectivity position us well to serve this market.
- RAPIDLY EXPAND SALES AND MARKETING EFFORTS. Historically, we have
generated our revenues using a small sales force and have expanded our
customer base primarily through word of mouth. We are rapidly building
our sales and marketing efforts nationally to more aggressively pursue
customers. We have targeted 29 metropolitan areas throughout the United
States with high concentrations of businesses and intend to grow our
direct sales force by more than 100 over the next two years. These
targeted markets coincide with IXC's POPs, where we plan to have a
physical local presence.
- LEVERAGE PUBLIC SECTOR EXPERIENCE AND RELATIONSHIPS. We have extensive
experience working with clients in the academic and government sectors,
which we believe are underserved markets. We designed, continually
develop and maintain America's Job Bank, an enterprise-wide Web site and
Intranet developed for the United States Employment Service. AJB is one
of the largest and most visited employment sites in the United States,
averaging over 2.3 million hits per day. We have leveraged the experience
gained from this project to become a leader in providing custom
applications development and outsourcing to federal and state
governments. Working with NYSERNet and other non-profit institutions
allows us to benefit from the research and development activities of
those early adopters of leading edge technologies and applications. We
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have been chosen to operate the NYSERNet2000 Network, one of the first
examples of "next generation" gigabit networks in the United States. We
intend to further leverage our relationships in targeting new university,
government and business customers.
- COMPLETE NATIONAL NETWORK BUILDOUT. Currently, we offer Internet
enterprise portal development services and limited Web hosting services
on a national scale, while our Internet access and VPN offerings are
limited primarily to New York State. Much of the physical infrastructure
required for the Gemini2000 Network is already in place, and it is
intended that the network will be fully operational by the end of
September 1999. When complete, the Gemini2000 Network will total over
70,000 miles of OC48 capacity, eight super-core sites and over 100 POPs.
We intend to build three new data centers, which will be co-located at
Gemini2000 Network super-core sites. These data centers will be linked
together to form a "virtual gigacenter," benefiting customers through
faster downloading, reduced Web server load, greater network reliability
and performance and better disaster recovery.
- MINIMIZE CAPITAL EXPENDITURES. We intend to focus on the delivery of
value-added Internet technology solutions, rather than the direct
ownership and management of physical infrastructure. IXC has publicly
announced its intention to complete construction of, and maintain, the
Gemini2000 Network physical infrastructure, including all connectivity
electronics. We will be responsible for designing and implementing
integration systems to connect customers to the Gemini2000 Network, as
well as all the first line customer service functions, which are much
less capital intensive.
- JOINTLY MARKET AND SELL WITH IXC. We intend to work closely with IXC to
jointly market and sell Gemini2000 Network products and services through
Web and print media advertising, trade shows and other lead generation
activities and by making presentations to clients of both companies.
Because the Gemini2000 Network is a joint offering, sales generated by
either IXC or us will yield a revenue stream for both companies.
- ACQUIRE COMPLEMENTARY ASSETS OR BUSINESSES. We intend to
opportunistically consider acquisitions of complementary assets,
technologies and businesses that offer the potential to expand the speed
of our sales and marketing efforts, increase our customer base or enhance
the breadth, depth and variety of our product offerings.
MANAGEMENT
Our management has extensive expertise in IP-based applications and
services. AppliedTheory was formed by NYSERNet, a not-for-profit consortium that
was one of the founding institutions of the Internet, to pursue commercial
IP-based opportunities. Dr. Richard Mandelbaum, our Chairman of the Board and
Chief Executive Officer, is a recognized architect of the Internet and one of
the four founders of NYSERNet. Our senior managers have on average over 10 years
of experience in IP-based applications and services.
PRODUCTS AND SERVICES
We currently offer our customers a full array of high performance, reliable
and scalable Internet products and services. These include:
- Internet integration and enterprise portal development, including custom
software application development, integration of legacy systems and Web
site design and development;
- Web hosting, consisting of custom hosting solutions and outsourcing,
shared server, dedicated server and co-location hosting solutions; and
- Internet connectivity, including VPN solutions, network and security
consulting and dedicated Internet access.
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We integrate these services to offer customers highly tailored, IP-based
applications that enable them to capitalize on the wide variety of data
communication opportunities made possible by the Internet. These services can be
layered to allow customers to outsource an increasing portion of the management
of their Internet operations. All of our products and services are fully
supported by our Customer Support Center 24 hours a day, 7 days a week, 365 days
a year (24x7).
INTERNET INTEGRATION AND ENTERPRISE PORTAL DEVELOPMENT
Most software applications have been designed for mainframes or
client/server environments. Few applications have been designed to optimize IP
use. Those that have been are referred to as "network-centric,"
"Internet-centric" or "IP-centric" applications. While most applications
developers are unskilled in this area, one of our key strengths is our ability
to develop Internet-centric applications and a unique methodology for the
adaptation of existing legacy and client/server systems for the Web environment.
This adaptation tends to save customers money since the alternative approach is
to re-write an entire information system for the Web. Our Internet-centric
approach for new applications maximizes the efficiency of the applications and
minimizes network and other resources used, thus potentially offering
significant cost savings to customers.
Our Internet integration and enterprise portal development services include
custom software application development, Web enabling and integration of legacy
systems and Web site design and development. In this regard, we have developed
technology for creating new applications that operate by accessing multiple,
concurrent databases residing on multiple platforms. This results in a new
application which has all the advantages of the older legacy systems plus the
tremendous reach of the Web.
A key adjunct to our custom software application development is Web site
design and development. In addition to our in-house Web site design and graphics
experts, we also collaborate with experienced Web design firms. Since Web site
design and development is a critical part of the completed project, this process
is managed as an integral part of the application development process. Web
developers are a significant source of new business for us, as they are often
approached to develop e-commerce Web sites for which we provide custom
application development, custom hosting and network services.
An example of an Internet enterprise portal application is the replacement
of a multiple step, fax-based workflow system with an Internet-based data
collection system. For instance, any geographically dispersed organization that
needs to process product applications could use an Internet-based data
collection system. Remote personnel could use their PCs to transmit these forms
to interface with a central mainframe system. This Web-enabled process saves
time and expense and avoids inaccuracies associated with faxing and manually
inputting those forms.
We work closely with our customers throughout the design, development and
deployment process to ensure effective identification and fulfillment of
critical success factors, rapidly delivering the highest possible quality
applications while containing costs. We employ a combination of our own
technologies and "best-of-breed" third party tools.
WEB HOSTING SOLUTIONS
Our Web hosting services are designed to provide customers with the high
performance, scalability and flexibility they need to create, maintain and/or
expand the functionality of a Web presence. We maintain a primary Internet data
center in Syracuse, New York and a secondary one in New York City and plan to
add three Internet data centers in 1999. Each new center will be fiber
co-located with a Gemini2000 Network super-core site. Our advanced load
balancing re-direction, data mirroring, redundancy and content caching
capabilities will enable us to link these multiple data centers together to form
a single "virtual gigacenter." This will provide our customers with the
advantages of geographically dispersed facilities and the simplicity and
economies of a single center.
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To meet the differing demands of our customers, we offer Web hosting
solutions with varying degrees of customization and value-added content,
including:
- Custom Web hosting;
- Shared Server hosting;
- Dedicated Server hosting; and
- Co-location.
CUSTOM WEB HOSTING. We provide highly customized Web hosting solutions
which accommodate our custom software applications. We customize applications on
our hosting platforms, which allows for testing of the applications. The fully
tested applications are then moved into operation in our production hosting
environment. We provide the appropriate hardware environment and database
technology to best serve the needs of the application; and the custom hosting
environment is specifically designed for scalability.
SHARED SERVER WEB HOSTING. Our shared server Web hosting services enable
customers to efficiently, reliably and cost-effectively establish a
sophisticated Web presence and distribute information over the Internet without
purchasing, configuring, maintaining or administering the necessary Internet
hardware and software. Customers can choose between UNIX and Windows NT
platforms, with three levels of performance and service available within each
platform line. Each offering within the UNIX and Windows NT platform lines is
scalable upwards to the next level of performance. At the request of a customer,
we may incorporate software applications that are not part of our standard
product offerings.
DEDICATED SERVER WEB HOSTING. We also offer dedicated server Web hosting
solutions for larger customers that require substantially more server and
network capacity than that provided under the shared hosting plans. The
dedicated Web hosting service offerings provide customers with a UNIX or Windows
NT-based dedicated server that is procured, owned and managed by us but reserved
strictly for a particular customer's individual use. Unlike some companies
providing dedicated Web hosting services, we also support the operating system
and Web server and select applications. Dedicated server Web hosting enables a
customer to host complex Web sites and applications without the need to incur
significant infrastructure and overhead costs.
CO-LOCATION. Co-location services are offered for customers who prefer to
own and have physical access to their servers, but require the high performance,
reliability and security of an Internet data center. We offer co-location
services on two levels: standard and managed. Under standard co-location, we
provide secure space for a customer-owned server in our Internet data center,
redundant power, network connections and 24x7 management, monitoring and support
by our Customer Support Center. The customer performs management and maintenance
of the server and all applications loaded onto the server. Under managed
co-location, we offer the customer additional options if the customer does not
want to perform all of the tasks associated with the operation and maintenance
of the server(s).
INTERNET CONNECTIVITY SOLUTIONS
We provide a variety of Internet connectivity solutions, including:
- VPN technologies;
- Network and security consulting;
- Dedicated access to the Internet;
- Dial-up Internet access; and
- Hardware and software implementation.
VPN TECHNOLOGIES. Our specialized VPN solutions allow businesses to take
advantage of the Internet for mission-critical applications. Our customers can
achieve high levels of security previously available solely through the use of
WANs affordable only by the largest enterprises. Customers can tailor the type
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of access, services and information that users of the VPN are afforded. Our VPN
solution is the functional equivalent of a WAN, run over the public Internet,
generally at a lower total cost and made possible by the availability of
security, reliability and high performance. We target our VPN solution mainly to
customers seeking to create a secure, outsourced WAN for Intranet and Extranet
applications.
NETWORK AND SECURITY CONSULTING. The nature of commercial Internet traffic
demands protection from unauthorized access. To minimize this risk, while
maximizing the benefit of implementing distributed business applications on the
Internet, we help organizations to develop and implement a comprehensive network
security plan. Firewalls are key components of such a plan. We support
"best-of-breed" firewall technology, including software and hardware
procurement, installation, configuration and testing, product training and
technical support. Additionally, we provide the installation, configuration and
support of firewall-to-firewall VPN solutions, including encryption. These
services are being expanded to include additional VPN configurations and
additional services including virus protection and URL filtering software,
external network vulnerability scans, penetration testing, internal network
audits and customized security training and consulting. Together, these services
add a significant measure of security to our custom application development
projects.
CURRENT AND NEXT GENERATION INTERNET ACCESS. The Gemini2000 Network,
scheduled to be completed in the third quarter of 1999, will be a national Tier
1 backbone network supporting dedicated access at speeds between 128 kbps and
OC12. In addition, burstable T-3, OC3 and OC12 services will be available. With
burstable service, customers can use up to T-3, OC3 or OC12 of access when they
require it but do not need to constantly pay for full pipe usage. Instead, these
customers are billed based upon their average bursted bandwidth usage during the
month. The Gemini2000 Network will also support a variety of shared access
aggregation options such as Frame Relay, ATM and SMDS. The Gemini2000 Network
will supplement our current backbone network on which we offer dedicated
Internet access at speeds between 56 kbps and T-3 as well as dial-up Internet
access. We will also continue to offer a selection of mail and news services to
complement and complete a customer's Internet access requirements. All of our
dedicated Internet access customers will continue to receive:
- direct connectivity to the Internet via a high-speed backbone network;
- 24x7 access to our Customer Support Center;
- implementation management services;
- domain name services;
- name registration services;
- training services;
- network utilization statistics;
- E-mail network status updates, if requested by the customer; and
- a choice of customer premise equipment services.
To complement these expanded services, we will enhance our dial-up Internet
access services, deliver customer premise equipment management services via
internal resources and expand our offering of firewall security services.
CUSTOMER SOLUTIONS
Superior customer service is a cornerstone of our operational strategy. Our
97% customer satisfaction in the second half of 1998, based on completed
surveys, demonstrates our exceptional performance. As a result, our revenue
churn has averaged less than 0.15% over the last two years, a rate which is well
below industry averages. As of December 31, 1998, we had over 650 direct and
indirect enterprise customers in a wide range of industries, which customers
include:
- Bank of New York, General Electric Corporation, theglobe.com, Inc., NEC
Corporation, Road Runner Computer Systems, Inc., Eastman Kodak Company,
KPMG Peat Marwick LLP, Northrop Grumman Corporation and Bell Atlantic
Corp.;
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- through NYSERNet, Cornell University, Columbia University, New York
University, the City University of New York (CUNY) system, the State
University of New York (SUNY) system, the New York Public Library and the
New York City Board of Education; and
- through the New York State Department of Labor, the U.S. Department of
Labor and a consortium of 46 states and territories.
In the years ended December 31, 1997 and 1998, approximately 47% and 37% of
our total revenue was derived from NYSERNet pursuant to a resale agreement under
which we provide NYSERNet with Internet access products and services for resale
by NYSERNet to governmental, education, scientific and other not-for-profit
organizations within the State of New York. Additionally, approximately 16% and
28% of our total revenue in the years ended December 31, 1997 and 1998 was
derived from our contract with the New York State Department of Labor for the
development and maintenance of America's Job Bank for the U.S. Department of
Labor and a consortium of 46 states and territories. See "Risk Factors -- We
derive significant revenue from certain customers" and "Certain
Transactions -- Resale Agreement with NYSERNet."
The following examples illustrate the challenges faced by our market and
the solutions we have offered to certain of our current customers.
FEDERAL EMPLOYMENT AGENCY
Since 1979, a Federal employment agency has made job listings available for
job seekers and employers at 1,800 State employment services across the country.
When we began this project, the various States used mainframes and client/server
systems that were not effectively compatible.
Challenge: Managing the job listing database information was cumbersome,
fragmented, time-consuming and expensive. Both employers and prospective
employees experienced difficulty using it. The database job bank listing was
hampered by:
- The difficulty, costs and delay involved in posting jobs on individual
mainframes;
- The cost and limited availability of mainframe terminals to access job
postings;
- The complexities of a user-interface that discouraged many users;
- Connections between state and national systems that were problematic; and
- Systems that were complex and varied making data conversion and
processing costly and difficult.
Solution: We implemented a workflow transformation in staged increments.
First, we developed a public Web site to make the database available to anyone
with a Web browser. We then added enhanced features for job classification and
geography searches. We subsequently expanded the job listing database to enable
states and employers to easily list jobs electronically.
FINANCIAL SERVICES COMPANY
Challenge: A multinational financial services firm processed international
applications for its products through a multiple step, labor intensive fax-based
system. The company needed a streamlined, simplified Internet solution.
Solution: We transformed the existing business processes by exploiting
Internet technologies and building on those systems already in place. We
developed a custom application to enable direct transmission of applications
over the Internet, complete with images of signatures, from field agent PCs to a
system in the United States. The new system eliminated faxing and saved
thousands of dollars per month in long-distance charges. It also allowed new
product purchases to be entered onto the customer's existing legacy systems
without the risk of re-keying errors which are unavoidable with manual data
entry.
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DIVERSIFIED MULTINATIONAL COMPANY
Challenge: A diversified multinational company that manages university
student telephone accounts sought to replace its manual processes for
registering, validating, and administering these accounts in order to enhance
the cost and service efficiencies of the system.
Solution: We developed an Internet solution that built on the customer's
existing systems. Features include:
- a Web-based student self-registration system customized for each school;
- the elimination of significant data-collection and entry costs;
- the reduction of delays in providing revenue-generating services; and
- the introduction of a simple Web interface for students to register and
for administrators to verify these registrations.
FINANCIAL INFORMATION PROVIDER
Challenge: An organization providing the financial community with
information collection, analysis and distribution services wished to create a
premier, data-driven Web site. The group's management stipulated that the
successful vendor would be required to provide reliable Internet connectivity
and round-the-clock, expert support for:
- the custom Web site application;
- the underlying hardware;
- the operating system software; and
- any third-party database software support and administration.
Solution: In order to provide the capabilities the customer required, we
are working with a company providing strategy, design and consulting services
for electronic commerce and transactional Web sites. We provide all of the
system architecture and software development for the client's site, while our
collaborator develops the user interface, graphics and the on-going promotion of
the site. In addition, we host the service in our secure Web hosting facility.
The customer selected us because of the comprehensiveness of our technical
solution, the scalability of our software framework and technology and our
ability to flexibly integrate the future systems needed to support their
evolving product offering.
UNIVERSITY CONSORTIUM
Challenge: A university consortium sought to create an advanced network to
pioneer the development of a gigabit network and the next generation Internet,
which will cover a large geographic area and serve as a parallel Internet
connecting various entities wishing to enhance the flow of information between
them. The consortium sought assistance with the design, implementation,
operation and support of the project.
Solution: In cooperation with a traditional telecommunications network
operator, an operator of an advanced communications network and a leading
communications equipment manufacturer, we are leading the development of this
project. We are providing:
- engineering support;
- network architecture and design;
- project implementation; and
- on-going network management, including application and customer support.
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With our support, this network will initially operate at OC12 speeds. The
network is intended to serve as a premiere platform for advanced research
applications.
STATE EMPLOYMENT AGENCY
Challenge: One of the members of a national consortium that contracts with
us for the development of a national job listing database required a solution
for replacing a series of outmoded mainframe-based systems that did not offer
the same level of performance and ease-of-use as the system employed by the job
listing database.
Solution: We recommended and implemented a distributed hardware/software
architecture, as well as certain enhancements to the network, including linking
the system via a VPN to a system hosted in our Syracuse facility. The agency was
able to eliminate difficult-to-learn, command based mainframe interfaces,
enhance the overall performance characteristics of the data sharing system to
near real time and eliminate system duplication through a seamless connection to
the national job listing database system.
SALES AND MARKETING
Our sales and marketing strategy is to achieve broad market penetration by
targeting enterprises such as mid-sized businesses (including mid-size
departments of larger businesses) and public sector institutions that depend
upon the Internet for mission-critical operations. We feel that these markets
are particularly attractive to our Company because they will demand a complete
one-stop Internet solution, which is not offered by traditional Internet service
providers.
- DIRECT SALES FORCE. The focus on multiple, leading edge product
offerings necessitates a sophisticated, consultative sales organization,
capable of understanding client requirements. As a result, we principally
utilize a direct sales approach to offer products and services to our
customers. We are in the process of expanding our direct sales
organization that will have six to eight person teams of regional sales
representatives, located across 29 metropolitan areas throughout the
United States. We intend to grow our direct sales force by more than 100
nationally over the next two years. Each sales representative will be
supported in the pre-sales process by specialists in each product line,
as well as a multi-layer sales management infrastructure. To further
leverage our strengths in particular industry segments, we expect to have
a series of one to three person national market management teams service
the entire country. At present, in addition to our general focus on
mid-sized businesses, we have chosen higher education and government as
two national market segments. We expect to add national market segments
over the next two years as our business evolves.
- VALUE-ADDED RESELLER AND STRATEGIC AFFILIATION PROGRAM. We have begun to
expand our sales channels through a national value-added reseller (VAR)
program. These relationships enable VARs to provide more comprehensive
solutions to their customers while affording us the benefit of the VARs'
sales forces without incurring the costs of maintaining a larger sales
force of our own. We expect to build up a large network of VARs that are
capable of providing commodity type access services on their own but who
individually require a partner like us to offer next generation products
and services in all Internet and IP areas for their clients.
In addition, we expect to set up a series of affiliations with network
and systems integrators and business process re-engineering consulting
firms. These affiliations will enable us to combine our specialized
Internet application development skills with their expertise in areas
like e-commerce. In addition, we have developed, and will continue to
develop, relationships with several Web developers who need technical and
operational skills to complete their design expertise.
- IXC JOINT MARKETING AND SALES. IXC has a large national sales force that
focuses primarily on wholesale network services. We intend to jointly
market and sell with IXC Gemini2000 Network products and services,
combining their national sales presence and our expertise in value-added
applications.
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- MARKETING. Our marketing program is intended to build national and local
strength and awareness of the AppliedTheory brand name. We intend to
employ a variety of classical marketing techniques for brand awareness
and lead generation. Branding efforts are expected to focus on
establishing an image for AppliedTheory as a full service provider of
next generation Internet technical services. We will use a combination of
Web and print media advertising, public relations and presentations by
senior officers, clients and partners at industry conferences to enhance
awareness and acquire leads for our sales team. We also intend to promote
the Gemini2000 Network joint AppliedTheory/ IXC product set for access,
VPN and Web hosting products.
CUSTOMER SUPPORT
High quality customer service and support is critical to our objective of
retaining and developing our customers. We offer superior customer service by
understanding the technical requirements and business objectives of our
customers and fulfilling their needs proactively on an individual basis. Over
the last two years, we have averaged less than 0.15% monthly revenue churn, a
rate which is well below industry averages.
Located at our Network Operations Center in Syracuse, New York, the
Customer Support Center is comprised of a Customer Support Team, which is
responsible for all customer technical support, and a Customer Implementation
Team, which is responsible for managing implementation of all customer projects.
The customer support process begins when a customer calls us and is assigned an
account manager and a sales engineer; that team remains responsible for the
customer throughout the life of the account. For those customers requiring
custom applications, the account team is supplemented by a project manager, who
guides the design and installation of the project and works with the customer to
continuously adjust or scale the application as required. Support options for
applications customers are extensive, ranging from maintenance, upgrades, remote
monitoring and remote management to full outsourcing of the application and
hosting at our data center.
Upon installation of a customer's system, we offer continuous technical
support through the Customer Support Center. Customer Support Staff are trained
internally on our products and after six months of service are trained
internally on Internetworking, Unix, Monitoring and Testing Tools and
Techniques, Technology Transfer and new technologies. In addition, specialized
training is provided by Cisco, Microsoft, Network Associates and Oracle.
The Network Operations and Customer Support Center teams use specialized
software, Intermapper and Cisco Works, to identify and diagnose potential and
incipient hot spots. The Network Operations team remotely services customer's
connections to our network and field service personnel are dispatched when
problems cannot be solved remotely. In 1998, our Customer Support Center
succeeded in proactively alerting customers of potential and actual problems in
85% of cases, correcting minor difficulties before they became aggravated
problems. At the same time, the Customer Support Center and Network Operations
teams had a mean time to repair below the industry average of four hours. We use
an advanced network monitoring package, Network Health, to monitor and measure
customer and company network usage. Customers can review their usage patterns
online and plan upgrades and services changes based on actual data with the
Customer Support Center and their account manager.
The Customer Support Center maintains industry leading standards, with its
time-to-pick-up a trouble call being significantly below the cross-industry
national average and five times faster than the ISP industry average. In
addition, the Customer Support Center requests feedback on every problem through
a weekly survey of customers served by the Center. In the third and fourth
quarters of 1998, customer satisfaction based on completed surveys was above
97%.
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OUR NETWORK
THE GEMINI2000 NETWORK
Together with IXC, we are in the process of deploying the Gemini2000
Network, the first coast-to-coast, next generation Internet backbone to carry
both research and commercial traffic. The Gemini2000 Network is a fully
redundant, high performance national network that will enable us to offer
Internet access and backbone transport services to speeds that are 100 to 1,000
times greater than those generally available to end users today. IXC provides
the telecommunications physical infrastructure and we provide customer
installation and provisioning systems, including installation of the connection
between the customer and a POP ("last mile" access procurement), network
monitoring, customer premise equipment monitoring and management and "first
line" trouble shooting. The Gemini2000 Network is expected to be completed by
the end of the third quarter of 1999.
The Gemini2000 Network is hierarchically architected to establish distinct
geographical regions around the country and to contain data traffic within such
regions whenever possible so as to not make customer traffic travel
unnecessarily. There are three levels in the network -- access, edge and
super-core. There is one super-core site per region and the super-core consists
of a set of Cisco GigaSwitch Routers (GSRs) that are interconnected at up to
OC48 by a full meshed network. Every super-core site will be connected to every
other super-core site, allowing traffic between these sites to flow in a single
"hop." The architectural structure of the Gemini2000 Network will allow traffic
to be more quickly and efficiently directed to its destination.
The Gemini2000 Network is engineered to provide the following
characteristics:
- SCALABILITY. The Gemini2000 Network incorporates the newest fiber and
electronics, providing significant capacity to allow customers to
provision incremental bandwidth as their needs grow. The hierarchical
infrastructure allows customers to quickly and easily increase bandwidth
by a factor of 100 or 1,000 without necessitating any architectural
changes to the network.
- FLEXIBILITY. The Gemini2000 Network employs high speed packet over SONET
(POS) routing at the super-core level and a combination of switching and
routing in the edge fabric, allowing for access at speeds from DS0
through OC12. This results in reliable, high-speed connections and will
provide our customers with the ability to manage bandwidth by type of
application and to accommodate applications that are delay sensitive. The
use of tag switching combines the benefits of routing and virtual circuit
switching and supports inter-operability of the network with a full range
of user aggregation technologies, including SMDS, Frame Relay and ATM
connections. The Gemini2000 Network architecture also allows it to
support real-time voice and video applications.
- HIGH AVAILABILITY. The Gemini2000 Network incorporates full mesh
topology eliminating performance bottlenecks and circuit failures that
might otherwise interrupt the flow of customer traffic. Key switching and
router elements have been redundantly configured to further reduce the
impact of individual component failures. All backbone locations are
housed in carrier-grade facilities providing an uninterruptible power
supply at each POP. The immediate availability of additional fiber
capacity from IXC will give our customers the ability to quickly add
network capacity as their businesses grow.
- HIGH PERFORMANCE. The Gemini2000 Network employs full OC48 transmission
speeds in the super-core level and OC12 at the edge level. The use of POS
technology and tag switching leads to higher throughput, more efficient
resource utilization and greater simplicity, with less points of failure.
The network employs the best commercially available fiber, which can
support speeds in excess of OC192. As a result, the Gemini2000 Network
can provide connectivity that is 100 to 1,000 times faster than typical
Internet business connections available today, and can be migrated to
higher speeds as newer technology is developed.
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- ACCESSIBILITY. High speed connectivity to the Internet will be provided
through both public and private peering relationships with other
providers. Four public peering points are either installed or on order
and ten regional private peering centers are under development.
- MANAGEABILITY. All network management traffic runs over a separate
network (out of band). As a result, management activities do not
interfere with increased network usage. Support staff are on site or on
call for all POP locations 24x7.
Until completion of the roll-out of the Gemini2000 Network, we will
continue to provide services for our customers on our existing network, which is
scheduled to be phased out over the next twelve months with all of our customers
expected to transition to the Gemini2000 Network infrastructure by June 30,
2000.
OUR EXISTING NETWORK
We currently operate a DS3 (45 Mbps) network, architected in a ring
topology, throughout New York State. There are sixteen POPs, all located in Bell
Atlantic Central Offices, except for one located in a Frontier Communications
central office. The POP locations are Albany, Syracuse, Potsdam, Utica, Ithaca,
Buffalo, Olean, Binghamton, Oneonta, New York City (2), Poughkeepsie, Garden
City, White Plains, Rochester and Deer Park. Major nodes are interconnected by
DS3's; minor nodes are all connected by a single DS3 except Olean and Oneonta
which are connected by multiple DS1's (1.544 Mbps). Connectivity to the Internet
is provided by eight DS3's connected to Sprint transit and peering locations.
The entire network uses Cisco routing equipment. Multiple routers at major nodes
are interconnected by either FDDI or POS technology. Co-location facilities and
field service for the equipment are provided under contract by Bell Atlantic.
Network management and engineering support are provided by Sprint under
contract. Sprint monitors the network 24x7, as does our Customer Support Center.
We gather performance statistics and share them with each customer.
OUR DATA CENTERS
We intend to build three new geographically distributed data centers in
addition to our existing primary data center in Syracuse, New York and our
secondary data center in New York City. At this time plans are to construct
5,000 to 10,000 square foot facilities incorporating the following:
- Raised floor;
- Fully uninterruptible power (equipment will include a 22S KVA UPS,
appropriate power distribution wiring and a 400KW Generator);
- Multiple high speed, above and below ground connections from the data
center to our Internet backbone at OC3 or above;
- Constant temperature and humidity with HVAC using 3 industry standard
Liebert 25 ton units;
- A mix of open shelving and 19" racks to give flexibility to address
varying server sizes, shapes and weights;
- Intelligent fire detection and suppression system with dry fire
suppression using CO(2) or FM200;
- Secure card key access systems;
- 24 hour on-site operations staff; and
- Automated server and network monitoring tools.
The new data centers will incorporate the following features:
Full geographic load balancing between multiple data centers. Server
content will be mirrored between data centers, and at the same time traffic load
balancing will be managed both locally (within the data center) and
geographically (between the data centers).
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Back channel for monitoring. All data centers will be monitored remotely
from a central location via dedicated high speed connections.
Back channel for disk replication. Each data center will have multiple NFS
servers, and content within one data center will be mirrored instantaneously.
The servers will synchronize with each other. Replication between data centers
will take place across a dedicated high speed connection. Content being mirrored
will be checked extensively for data integrity.
Customers will benefit from these features through faster downloading,
reduced Web server load, greater network reliability and performance and better
disaster recovery. Distributed data centers frequently present a challenge to IT
administrators because they result in less efficient use of resources, require
synchronization of data in almost real time and are more complex in their
operation. By linking the data centers to the advanced architecture Gemini2000
Network, we will be able to offer our customers a "virtual gigacenter" providing
the advantages of distributed data centers without the corresponding
difficulties.
COMPETITION
The markets in which we compete are highly competitive and this competition
is increasing. There are few substantial barriers to entry, and we expect that
we will face additional competition from existing competitors and new market
entrants in the future. We believe that the primary competitive factors in our
markets are:
- technical expertise in developing applications focused on Web integration
and IP-centric solutions;
- a reliable and robust network infrastructure;
- network security;
- price;
- flexibility and willingness to consult and work with customers about how
to deploy their Internet solutions in meaningful ways;
- quality customer care;
- experienced and knowledgeable salesforce and engineers;
- customization;
- breadth of service offerings;
- brand recognition;
- broad geographic presence; and
- financial resources.
Our competitors include:
- Internet Service Providers (ISPs);
- global, regional, and local telecommunications companies; and
- IT integrators and outsourcing firms.
INTERNET SERVICE PROVIDERS
Our competitors include:
- Specialized ISPs such as Concentric Network Corporation, Exodus
Communications, Inc., Globix Corporation, as well as emerging ISPs such
as QWEST/ICON CMT and AboveNet;
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- ISPs that cluster in major markets and regional ISPs which have
facilities in key metropolitan areas, including Frontier GlobalCenter,
GTE/BBN, DIGEX and Verio Inc.; and
- ISPs with a national or global presence which focus on business
customers, such as PSINet and UUNET.
While we believe that our next generation coast-to-coast network and
distributed data center infrastructure, quality customer service and proactive
support teams and target market distinguish us from ISPs, many of these
competitors have greater financial, technical, and marketing resources, larger
customer bases, greater name recognition and more established relationships in
the industry.
TELECOMMUNICATIONS CARRIERS
Many long distance companies including AT&T Corp., Cable & Wireless P.L.C.,
Sprint Corporation and MCI WorldCom, Inc. offer Internet access services and Web
hosting services. Recent reforms in federal regulation of the telecommunications
industry have created greater opportunities for incumbent local exchange
carriers (ILECs) and competitive local exchange carriers (CLECs) to enter the
Internet connectivity market. We believe that there is a move toward horizontal
integration by ILECs and CLECs through acquisitions of, joint ventures with, or
the wholesale purchase of connectivity from ISPs, in order to meet the Internet
connectivity requirements of their business customers. Accordingly, we expect
that we will experience increased competition from the traditional
telecommunications carriers. In addition to their greater network coverage,
market presence and financial, technical and personnel resources, many of these
telecommunications carriers also have large existing commercial customer bases.
We believe that our strong regional sales team and technical support,
experienced in IP solutions and available for pre- and post- sales consultation,
distinguish us from the centralized, generalist sales approaches that typify the
connectivity and hosting services currently offered by the telecommunications
carriers.
NETWORK AND SYSTEM INTEGRATORS
We compete with large IT outsourcing firms such as the Big 5 accounting
firms, EDS Corp. and similar firms. These firms tend to focus on large customers
who outsource entire IT functions, or re-engineer their IT infrastructure. We
believe that our ability to offer specialized IP-based integration for the
mid-size business market and government agencies, distinguishes us from this
segment of the competition. In addition, our ability to offer somewhat lower
pricing than the large integrators is another distinguishing factor. We also
compete with smaller network and systems integrators. However, we believe that
our expertise with large and complex systems and our ability to offer one-stop
solutions for integration, data center services and purchasing network access,
set us apart from this segment of the competition.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. Only a
small body of laws and regulations currently applies specifically to access to,
or commerce on, the Internet. Due to the increasing popularity and use of the
Internet, however, it is possible that laws and regulations with respect to the
Internet may be adopted at federal, state and local levels, covering issues such
as user privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. Although sections of the Communication
Decency Act of 1996 (CDA) that, among other things, proposed to impose criminal
penalties on anyone distributing indecent material to minors over the Internet
were held to be unconstitutional by the U.S. Supreme Court, similar laws may be
proposed, adopted and upheld. The nature of future legislation and the manner in
which it may be interpreted and enforced cannot be fully determined and,
therefore, legislation similar to the CDA could subject us and/or our customers
to potential liability, which in turn could have a material adverse effect on
our business, results of operations and financial condition. The adoption of any
such laws or regulations might decrease the growth of the Internet, which in
turn could decrease the demand for our services or increase our cost
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of doing business or in some other manner have a material adverse effect on our
business, results of operations and financial condition.
In addition, applicability to the Internet of existing laws governing
issues such as property ownership, copyright and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the advent of the Internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the Internet and related technologies. Changes to such laws intended
to address these issues could create uncertainty in the marketplace that could
reduce demand for services or increase our cost of doing business as a result of
costs of litigation or increased service delivery costs, or could in some other
manner have a material adverse effect on our business, results of operations and
financial condition.
Finally, because our services are available over the Internet virtually
worldwide, and because we facilitate sales by our customers to end users located
in multiple states and foreign countries, such jurisdictions may claim that we
are required to qualify to do business as a foreign corporation in each such
state or that we have a permanent establishment in each such foreign country. We
are qualified to do business in only New York and Pennsylvania and failure by us
to qualify as a foreign corporation in a jurisdiction where we are required to
do so could subject us to taxes and penalties for failure to qualify and could
result in our inability to enforce contracts in such jurisdictions. Any new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to our business, could have a
material adverse effect on our business, results of operations and financial
condition.
EMPLOYEES
As of December 31, 1998, we had 151 employees, of which 38 were employed in
sales, distribution and marketing, 69 were assigned to engineering and service
development, 22 were employed in customer service and technical support and 22
were in finance and administration. We believe that our future success will
depend in part upon our continued ability to attract, hire and retain qualified
personnel. The competition for such personnel is intense and we may not be able
to identify, attract and retain such personnel in the future. None of our
employees is represented by a labor union and management believes that our
employee relations are good.
INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in our products and services. We have no patented technology
that would preclude or inhibit competitors from entering our market, although
the foregoing laws provide protection in certain important respects. We have
entered into confidentiality and invention assignment agreements with our
employees, and nondisclosure agreements with our suppliers, distributors and
appropriate customers in order to limit access to and disclosure of our
proprietary information. There can be no assurance that these contractual
arrangements or the other steps we have taken to protect our intellectual
property will prove sufficient to prevent misappropriation of our technology or
to deter independent third-party development of similar technologies. The laws
of certain foreign countries may not protect our products, services or
intellectual property rights to the same extent as do the laws of the United
States. There can be no assurance that these third-party technology licenses
will continue to be available to the Company on commercially reasonable terms.
The loss of such technology could require us to obtain substitute technology of
lower quality or performance standards or at greater cost, which could
materially adversely affect our business, results of operations and financial
condition.
To date, the we have not been notified that our services or products
infringe the proprietary rights of third parties, but there can be no assurance
that third parties will not claim infringement with respect to our current or
future products. We expect that participants in our markets will be increasingly
subject to infringement claims as the number of products and competitors in our
industry segment grows and as certain technologies are patented giving rise to
possible infringement claims without any copying on the part of the alleged
infringer. Any such claim, whether meritorious or not, could be time consuming,
divert
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the attention of management and employees from their regular duties, result in
costly litigation, cause product installation delays or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to us, if at all. As a result, any such claim
could have a material adverse effect upon our business, results of operations
and financial condition.
FACILITIES
Our executive offices are located in Great Neck, NY and consist of
approximately 5,633 square feet that are leased pursuant to an agreement that
expires in July 2006. Our main operational center is in Syracuse, NY, with
approximately 21,246 square feet under a lease agreement that expires in
November 2008. In addition, we lease approximately 5,789 square feet in
Syracuse, NY under an agreement that expires in November 2008. We also lease
approximately 5,250 square feet in New York, New York for a Web hosting facility
and office space under a lease that expires in September 2006. We intend to
relocate our Web hosting facility in New York, New York to another facility by
September 1999. In addition, we are considering relocating our corporate
headquarters from Great Neck, New York to New York, New York.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to
executive officers and directors of AppliedTheory:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Richard Mandelbaum........................ 52 Chairman of the Board and Chief Executive Officer
Lawrence B. Helft......................... 53 President and Chief Operating Officer
James D. Luckett.......................... 45 Senior Vice President
Denis J. Martin........................... 40 Vice President and Chief Software Engineer
Mark A. Oros.............................. 41 Vice President and Chief Technology Officer
David A. Buckel........................... 37 Vice President and Chief Financial Officer
James Guthrie............................. 54 Director
Shelley A. Harrison....................... 56 Director
James T. Kelsey........................... 47 Director
John J. Pendray........................... 59 Director
George Sadowsky........................... 62 Director
</TABLE>
RICHARD MANDELBAUM, Chairman of the Board and Chief Executive Officer, has
been with AppliedTheory since its start of operations in 1996. He is a
non-voting member of both the Compensation Committee and the Audit and Finance
Committee. Dr. Mandelbaum is one of the four computing and communications
experts who founded NYSERNet in 1985 and is presently a member of its Board of
Directors. He served as Director of the Center for Advanced Technology in
Telecommunications (CATT) and Professor of Computer Science at Polytechnic
University from 1992 to 1996. Prior to that, he served at the University of
Rochester as Vice Provost for Computing and Telecommunications and as a
Professor of Mathematics and a Professor of Electrical Engineering. Dr.
Mandelbaum helped to oversee the development of, among other things, network
management, network security, broadband networking and wireless communications,
and he initiated many CATT partnerships with industry, especially with the
banking community. He was also a member of the 1987 advisory committee to the
Federal Coordinating Council on Science and Engineering Technology (FCCSET)
panel of the President's Office of Science and Technology Policy, which
generated the Federal National Information Infrastructure initiative as well as
the National Science Foundation's Network Program Advisory Committee which was
responsible for the creation and oversight of NSFNet, the immediate precursor of
today's Internet. Dr. Mandelbaum was also a co-founder and first president of
FARNet and was an active member of the National Telecommunications Task Force
(NTTF). Dr. Mandelbaum holds both a Ph.D. and an M.A. in Mathematics from
Princeton University, and a B.S. in Mathematics from the Rensselaer Polytechnic
Institute and was a Member of the Princeton Institute of Advanced Studies in
1976-77.
LAWRENCE B. HELFT, President and Chief Operating Officer, joined
AppliedTheory in December of 1998. He is responsible for AppliedTheory's
Internet operations and support services and sales and marketing activities.
From November 1994 to November 1998, Mr. Helft was Chief Executive Officer and
President of Systems Union Inc., an enterprise resource planning vendor, and
from September of 1993 to November of 1994, he held executive positions at EDS.
Prior to that, he launched and ran his own consulting firm, managed several
technology subsidiaries of the Chase Manhattan Bank, N.A., was the Department
Head of the National Banking Group at Citicorp, N.A. and served as Project
Leader and Consultant for Unisys, Inc. Mr. Helft holds both M.S. and M.B.A.
(Management Science) degrees from New York University and a BS degree in
Electrical Engineering from City University of New York.
JAMES D. LUCKETT, Senior Vice President, is one of the co-founders of
AppliedTheory and has been with us since 1996. Mr. Luckett oversees our business
development efforts, including product management, product development and
research and development and the direction of our corporate strategic alliances.
Mr. Luckett joined NYSERNet in 1989, was its President from 1996 to 1997 and is
currently a member
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of its Board of Directors. He was a founder of the Teaching and Learning Working
Group of the Coalition for Networked Information (CNI), a founding board member
of the Consortium for School Networking (CoSN) and a past board member and
treasurer of FARNet, which recently merged with the National Telecommunications
Task Force (NTTF). Mr. Luckett also serves as an expert advisor and panelist of
the National Science Foundation. Mr. Luckett holds an M.S. in Education from
S.U.N.Y. College at Brockport and a B.A. in History from S.U.N.Y. College at
Plattsburgh.
DENIS J. MARTIN, Vice President and Chief Software Engineer, has been with
AppliedTheory since its start of operations in 1996. Mr. Martin joined NYSERNet
in 1993 in which he served as director of Government Services and Director of
Info-Services. At AppliedTheory he currently directs a team of developers in
building on-line applications, making innovative use of the Web for standard
business functions, information systems and legacy database integration. He has
extensive experience in the software development and systems integration field.
From 1986 to 1993, Mr. Martin worked in the technology division of the New York
State Department of Education. He also served as a consultant to state and
federal agencies to develop network and application programs. Mr. Martin
received an M.S. in Information Systems Engineering from Polytechnic University
and a B.A. from Clark University.
MARK A. OROS, Vice President and Chief Technology Officer, has been with
AppliedTheory since its start of operations in 1996. Mr. Oros joined NYSERNet in
1993 and, in conjunction with Richard Mandelbaum, he engineered the
AppliedTheory network. Mr. Oros is currently responsible for technology
development at AppliedTheory. Prior to joining AppliedTheory, Mr. Oros was
Network Manager at Brookhaven National Labs which he joined in 1993. He was also
part of the operational team that built the initial NSFNet (National Science
Foundation Network), the predecessor of today's commercial computer networks. He
played important roles in the construction of the computer network that
supported the Cornell Theory Center -- one of the nation's major supercomputer
facilities, in the development of Sprintlink (now Sprint IP Global Network) and
in the design of and implementation of Sprint's International Connection
Management Network (ICMNet) and Sprint's Network Operations Center for a Cornell
University technology transfer. Mr. Oros holds an Associate of Arts in Data
Processing degree from Catonsville Community College.
DAVID A. BUCKEL, Vice President and Chief Financial Officer, has been with
AppliedTheory since its start of operations in 1996. Mr. Buckel joined NYSERNet
in 1995. Mr. Buckel presently manages all treasury, finance and accounting
aspects for AppliedTheory. His background includes accounting, financing and
operations management. From 1987 to 1995 he was a Corporate Controller at
Suit-Kote Corp. A Certified Management Accountant, Mr. Buckel received an M.B.A.
with concentration in Operations Management and Finance from Syracuse
University, and a B.S. in Accounting from Canisius College.
JAMES GUTHRIE has been a director of AppliedTheory since September 1998. He
chairs the Audit and Finance Committee and is a member of the Compensation
Committee. Mr. Guthrie has served as Chief Financial Officer of IXC since July
1997 and as its Executive Vice President since March 1996. He joined IXC in
January 1995. Prior to joining IXC, Mr. Guthrie served as Vice President and
Chief Financial Officer of The Times Mirror Company from 1993 to 1995 and as the
Chief Financial Officer of Times Mirror Cable Television from 1982 to 1993. Mr.
Guthrie holds a B.A. from the University of Redlands and an M.B.A. from the
University of Southern California. Mr. Guthrie is a Certified Public Accountant.
SHELLEY A. HARRISON has been a director of AppliedTheory since August 1998
and is a member of the Compensation Committee. Dr. Harrison has served as Chief
Executive Officer of Spacehab Incorporated since April 1996 and as Chairman of
its Board since August 1993. He co-founded and served as Chairman and Chief
Executive Officer of Symbol Technologies, Inc. from 1973 to 1982. Symbol
Technologies Inc. is a world leader in laser code. In addition, Dr. Harrison is
a founder and Managing General Partner of PolyVentures I and II, both of which
are high tech venture capital funds. He is also a technology advisor to
governments, an author of books and technical publications and a holder of
numerous patents and he runs his own consulting firm. He is a member of the
boards of directors of Globecomm Systems, Inc., Asymetrix Learning Systems, Inc.
and NetManage, Inc. Dr. Harrison holds a Ph.D. and an M.S. in Electrophysics
from Polytechnic University and a Bachelor's Degree in Electrical Engineering
from NYU.
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JAMES T. KELSEY has been a director of AppliedTheory since August 1998. He
chairs the Compensation Committee and is a member of the Audit and Finance
Committee. Mr. Kelsey is a managing partner of Grumman Hill Group LLC, general
partner to Grumman Hill Investments III, L.P., which is one of our largest
stockholders. Mr. Kelsey is also a managing partner of Grumman Hill Associates,
Inc., an affiliate of Grumman Hill Group LLC. Grumman Hill Associates, Inc. is
the general partner of Grumman Hill Investments LP, a shareholder of IXC
Communications, Inc., the parent company of IXC. Mr. Kelsey has been with
Grumman Hill Group since its inception in 1985, dealing with private equity
investments and merger and acquisitions. From 1993 to 1996, Mr. Kelsey served as
Managing Director of the Corporate Finance practice at PricewaterhouseCoopers
LLP (f/k/a/ Price Waterhouse), where he provided sales, acquisition, financing
and other corporate finance advice to many large multinationals and middle
market U.S. companies. Mr. Kelsey holds an M.S. in Accounting from the Stern
School of Business at NYU and a B.A. in Economics from Princeton University.
JOHN J. PENDRAY has been a director of AppliedTheory since October of 1996
and is a member of the Audit and Finance Committee. Mr. Pendray is currently a
Visiting Fellow at The Graduate School of Management of The University of
Western Australia, Perth, Australia. From 1996 to 1998, he was Executive in
Residence and Visiting Professor of Management at the Graduate Business School
of the George Mason University, Fairfax, Virginia, which he joined in 1996. From
May 1993, to August 1996, he was President and Chief Executive Officer of the
International Group of Cincinnati Bell Information Systems, Inc. He was a
founding partner of Vanguard Atlantic Ltd., a merchant banking firm investing in
software and telecommunications companies, and worked with Vanguard Atlantic for
eight years ending in 1997. From 1986 until November, 1998, he was a Director of
TSI Software International Inc. He received his B.S. in Engineering Sciences
from the University of Florida and his M.S. in Computer Science from Stanford
University.
GEORGE SADOWSKY has been a director of AppliedTheory since September of
1996 and is a member of the Audit and Finance Committee. Dr. Sadowsky is the
Director of the Academic Computing Facility at New York University, which he
joined in 1990. Dr. Sadowsky is currently an officer and director of NYSERNet.
Since 1998 he has been the Vice President for Education of the Internet Society,
from 1995 to 1998 he was its Vice President for Conferences and since 1996 he
has been a member of its Board of Trustees. From 1996 to the present, Dr.
Sadowsky has been a member of the Technical Advisory Panel, InfoDev Program of
the World Bank and served as consultant to various institutions, including the
Inter-American Development Bank and the International Science Foundation. He
spent 12 years at the United Nations as a technical adviser engaged in, among
other things, the transfer of information technology to developing countries.
Dr. Sadowsky holds a Ph.D. in Economics from Yale University and a bachelor
degree in Mathematics from Harvard University.
James Guthrie and James Kelsey serve on the Board of Directors as
representatives of IXC and Grumman Hill, pursuant to the Stockholders' Agreement
we entered into in August 1998. See "-- Certain Transactions." The Stockholders'
Agreement will terminate upon completion of this offering and IXC and Grumman
Hill will no longer be entitled to guaranteed representation on the Board of
Directors.
Our Certificate of Incorporation provides for our Board of Directors to be
divided into three classes, with only one class standing for election each year.
At each annual meeting, directors are chosen to succeed those in the class whose
term expires at that meeting and to serve a term of three years. Under this
provision, Mr. Pendray and Dr. Sadowsky serve as Class I directors, Mr. Guthrie
and Dr. Harrison serve as Class II directors and Mr. Kelsey and Dr. Mandelbaum
serve as Class III directors, with terms of office scheduled to expire at
AppliedTheory's 2000, 2001 and 2002 Annual Meetings of Stockholders.
Officers are elected by the Board of Directors and may be removed at any
time by the Board. Our officers are elected annually at the Board of Directors
meeting held immediately after the annual meeting of the stockholders, and hold
their respective offices until their successors are duly elected and qualified.
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COMPENSATION OF DIRECTORS
Non-employee directors currently receive annual compensation in the form of
15,000 options to acquire our common stock for their service on the Board of
Directors and any committee thereof. Directors are eligible to receive options
under our stock option plan.
LIMITATIONS ON DIRECTORS' LIABILITY
LIABILITY LIMITATION. Our Certificate of Incorporation provides that, to
the fullest extent permitted by the Delaware General Corporation Law, none of
our directors shall be personally liable to us or our stockholders for monetary
damages. Section 102(b)(7) of the Delaware General Corporation Law currently
provides that a director's liability for breach of fiduciary duty to a
corporation may be eliminated, except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, for unlawful
dividends or unlawful stock repurchases or redemptions; and
- for any transaction from which the director derives an improper personal
benefit.
Any amendment to these provisions of the Delaware General Corporation Law
will automatically be incorporated by reference into our Certificate of
Incorporation without any vote on the part of its stockholders unless otherwise
required.
INDEMNIFICATION AGREEMENTS. Prior to completion of this offering, we
intend to enter into indemnification agreements with each of our directors. The
indemnification agreements will provide that we will indemnify the directors
against certain liabilities (including settlements) and expenses actually and
reasonably incurred by them in connection with any threatened, pending or
completed legal action, proceeding or investigation (other than actions brought
by or in right of us) to which any of them was, is or is threatened to be made a
party by reason of his or her status as our director, officer or agent or his or
her serving at our request in any other capacity for or on our behalf, provided
that:
- such director acted in good faith and in a manner at least not opposed to
our best interests;
- with respect to any criminal proceedings, such director had no reasonable
cause to believe his or her conduct was unlawful;
- such director is not finally adjudged to be liable for negligence or
misconduct in the performance of his or her duty towards us, unless the
court views in light of the circumstances that the director is
nevertheless entitled to indemnification; and
- the indemnification does not relate to any liability arising under
Section 16(b) of the Securities Exchange Act of 1934, as amended, or the
rules or regulations promulgated thereunder.
With respect to any action brought by or in right of us, directors may also
be indemnified, to the extent not prohibited by applicable laws or as determined
by a court of competent jurisdiction, against reasonable costs and expenses
incurred by them in connection with such action if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to our best
interests.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit & Finance and Compensation
Committees. The Audit & Finance Committee consists of Messrs. Guthrie, Pendray
and Kelsey and Drs. Mandelbaum (ex officio) and Sadowsky. Among other functions,
the Audit & Finance Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, reviews
our financial statements and reviews
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and evaluates our internal control functions. The Compensation Committee
consists of Messrs. Guthrie and Kelsey and Drs. Mandelbaum (ex officio) and
Harrison. The Compensation Committee administers our stock option and stock
purchase plans, determines executive compensation and makes recommendations to
the Board of Directors concerning salaries and incentive compensation for our
employees and consultants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Guthrie and Kelsey and Drs. Mandelbaum and Harrison served as
members of our Compensation Committee during fiscal year 1998. Other than Dr.
Mandelbaum, who served as our Chairman and Chief Executive Officer during 1998,
no committee member is or has been one of our officers or employees. Dr.
Mandelbaum serves only as a non-voting member of the Compensation Committee. For
certain transactions involving us and each of Dr. Harrison, IXC (of which Mr.
Guthrie is an officer) and Grumman Hill (of which Mr. Kelsey is a general
partner). See "Certain Transactions."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the total
compensation for fiscal 1998 of our Chief Executive Officer and each of our
other four most highly compensated executive officers whose total salary and
bonus for fiscal 1998 exceeded $100,000 (each a Named Executive Officer, and
collectively, the Named Executive Officers):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES ALL
------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION(1) SALARY BONUS OPTIONS/SARS COMPENSATION
- ------------------------------ -------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Richard Mandelbaum...................... $247,823 $80,000 263,890 $12,163(2)
Chairman of the Board of Directors &
Chief Executive Officer
James D. Luckett........................ 126,538 23,000(3) 82,625 4,876(4)
Sr. Vice President, Business
Development & Strategic Alliances
Mark A. Oros............................ 136,769 28,000(5) 152,875 8,765(6)
Vice President & Chief Technology
Officer
Denis J. Martin......................... 123,077 81,100(7) 155,125 7,242(8)
Vice President & Chief Software
Engineer
David A. Buckel......................... 114,486 38,000(9) 100,000 7,000(10)
Vice President & Chief Financial
Officer
Michael D. Greenbaum(11)................ 25,516 0 0 40,000(12)
Vice President, Sales and Marketing
</TABLE>
- ---------------
(1) Each of the Named Executive Officers other than Mr. Greenbaum is party to
an employment agreement with AppliedTheory. See "-- Employment Agreements."
(2) Represents matching contributions under the AppliedTheory 401(k) Matched
Savings Plan of $9,600 and $2,563 imputed income for group term life
insurance.
(3) Includes a bonus of $5,000 earned in 1998 that was paid in January 1999.
(4) Represents matching contributions under the AppliedTheory 401(k) Matched
Savings Plan of $4,000 and $876 in imputed income for group term life
insurance.
(5) Includes a bonus of $4,000 earned in 1998 that was paid in January 1999.
(6) Represents matching contributions under the AppliedTheory 401(k) Matched
Savings Plan of $8,206 and $559 in imputed income for group term life
insurance.
(7) Includes a bonus of $47,100 earned in 1998 that was paid in January 1999.
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(8) Represents matching contributions under the AppliedTheory 401(k) Matched
Savings Plan of $6,740 and $502 in imputed income for group term life
insurance.
(9) Includes a bonus of $4,000 earned in 1998 that was paid in January 1999.
(10) Represents matching contributions under the AppliedTheory 401(k) Matched
Savings Plan of $6,699 and $301 in imputed income for group term life
insurance.
(11) Mr. Greenbaum's employment was terminated effective March 13, 1998. He
received total severance pay in the amount of $91,039.
(12) Represents the portion of a moving expense allowance ($100,000 in the
aggregate) in connection with the commencement of Mr. Greenbaum's
employment in 1997 that was paid in 1998.
OPTION GRANTS IN LAST FISCAL YEAR. The following table summarizes certain
information with respect to options to purchase our stock granted to the Named
Executives during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS(1) OPTION TERM(2)
----------------------------------------------------------- --------------------
NUMBER PERCENT OF
OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME OPTIONS FISCAL YEAR PRICE ($/SHARE) DATE 5% 10%
- ---- ---------- ------------- ---------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard Mandelbaum....... 127,780 8.8% $4.40 08/03/08 353,585 896,053
8,335 0.6 4.40 09/01/08 23,064 58,449
76,665 5.3 4.40 11/09/08 212,143 537,611
37,775 2.6 4.40 12/20/08 104,529 264,896
4,375 0.3 0.60 11/30/07* 10,613 26,140
8,960 6.2 4.40 12/30/07 21,736 53,536
James D. Luckett......... 60,000 4.1 4.40 11/09/08 166,028 420,748
15,000 1.0 0.20 12/31/06* 94,512 138,477
2,625 0.2 0.60 11/30/07* 16,343 25,659
5,000 0.3 0.60 12/30/07* 31,129 48,875
Mark A. Oros............. 125,000 8.6 4.40 11/09/08 345,892 876,558
15,000 1.0 0.20 12/31/06* 94,512 138,477
10,000 0.7 0.60 12/30/07* 62,258 97,750
2,875 0.2 0.60 11/30/07* 17,899 28,103
Denis J. Martin.......... 125,000 8.6 4.40 11/09/08 345,892 876,558
2,625 0.2 0.60 11/30/07* 16,343 25,659
15,000 1.0 0.20 12/31/06* 94,512 138,477
12,500 0.9 0.60 12/30/07* 77,823 122,187
David A. Buckel.......... 100,000 6.9 4.40 11/09/08 276,714 701,247
Michael D. Greenbaum..... 0 0 0 -- 0 0
</TABLE>
- ---------------
(1) All stock options reported in this table were granted pursuant to the 1996
Employee Stock Option Plan at exercise prices equal to at least the fair
market value of the common stock at the time of grant. The options vest
ratably over a period not to exceed 5 years and have a ten-year term.
(2) This column shows the hypothetical gains on the options granted based on
assumed annual compound stock appreciation rates of 5% and 10% over the full
ten-year term of the options. The assumed rates of appreciation are mandated
by the rules of the Securities and Exchange Commission and do not represent
an estimate or projection of future common stock prices by AppliedTheory.
* These figures represent SARs which were granted in 1997 and were converted
by the Board of Directors in 1998 to nonqualified options to purchase common
stock.
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<PAGE> 62
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES.
The following table shows the aggregate number of shares acquired upon
exercise of stock options during the last fiscal year and the aggregate value
realized from those exercises, and the number of shares covered by both
exercisable and unexercisable stock options as of fiscal year-end and the value
of unexercised options as of fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
SHARES 1998(1) AT DECEMBER 31, 1998(1)(3)
ACQUIRED VALUE ------------------------------ ------------------------------
NAME ON EXERCISE REALIZED(1)(2) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(3) UNEXERCISABLE
- ---- ----------- -------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard Mandelbaum............ 1,086,955 $4,682,602 604,160 122,775 $1,986,023 $0
James D. Luckett.............. 400,000 1,726,400 22,625 60,000 91,975 0
Mark A. Oros.................. 250,000 1,079,000 27,875 125,000 111,925 0
Denis J. Martin............... 250,000 1,079,000 30,125 125,000 120,475 0
David A. Buckel............... 120,000 507,600 1,875 100,000 7,125 0
Michael Greenbaum............. 0 0 0 0 0 0
</TABLE>
- ---------------
(1) Subsequent to December 31, 1998, Messrs. Mandelbaum, Martin and Oros
exercised options with respect to 467,420, 30,125 and 27,875 shares of
common stock. This table does not reflect these exercises.
(2) The value realized has been calculated as the difference between $4.40, the
fair market value of the common stock on December 31, 1998, and the exercise
price of each option.
(3) Based on the difference between $4.40, the fair market value of the common
stock on December 31, 1998, and the option exercise price for each
above-stated options. The above valuation may not reflect the actual value
of unexercised options as the value of unexercised options will fluctuate
with market activity.
EMPLOYMENT AGREEMENTS
On August 4, 1998, we entered into employment agreements with Dr. Richard
Mandelbaum and Messrs. James D. Luckett, Denis J. Martin, Mark A. Oros and David
A. Buckel. The employment agreements provide for base salaries of $250,000,
$130,000, $125,000, $143,000 and $125,000, respectively, which salaries may be
increased as determined by our Board of Directors. Each of the employment
agreements provides for payment of an annual bonus in accordance with our annual
bonus program for senior executives, contingent upon the achievement of certain
performance goals established by the Board of Directors in its discretion.
Dr. Mandelbaum's employment agreement is for an initial five-year term. It
automatically renews for consecutive one-year periods unless either we or Dr.
Mandelbaum deliver a notice of non-renewal at least one year before termination
of the initial five-year period. The employment agreements with Messrs. Luckett,
Martin, Oros and Buckel are for three-year terms.
For all of these employment agreements, if the executive's employment is
terminated by us other than for "cause," by the executive for "good reason" or
due to "death or disability" (each as defined in the employment agreements), the
executive will generally be entitled to: (a) his then-current salary payable for
the non-compete period (as described below), (b) the annual bonus amounts that
would be paid during the non-compete period, (c) any earned but unpaid salary
and bonus amounts and (d) continued coverage under all health, life, disability
and similar employee benefit plans for the non-compete period and on the same
basis as the executive was entitled to participate immediately prior to
termination.
In connection with these employment agreements, the various executives are
also eligible to receive additional awards under our stock option plan and all
other employee benefit plans and programs. In
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<PAGE> 63
addition, the employment agreements provide for an automobile allowance for each
of the named executives.
Each of these employment agreements includes a covenant restricting each of
the named executives' ability to compete with us during a pre-determined period
of time, a non-compete period. Dr. Mandelbaum has agreed not to compete with us
following termination of his employment until the later of 30 months after the
date his employment terminates (or 24 months if the employment agreement has
been in effect for at least 6 months) and August 4, 2003. Messrs. Luckett,
Martin, Oros and Buckel have each agreed not to compete with us following
termination of their respective employments until the later of 12 months
following termination or August 4, 2001. In addition, each executive has agreed
not to disclose any of our confidential information during the period of time
for which his respective non-compete restriction operates.
On December 7, 1998, we entered into an employment agreement with Lawrence
B. Helft. The employment agreement provides Mr. Helft with a base salary of
$220,000, which salary may be increased as determined by our Board of Directors,
provided that Mr. Helft is entitled to a minimum salary increase of 10% on
January 1, 2000. The employment agreement provides for payment of an annual
bonus in accordance with our annual bonus program for senior executives,
contingent upon the achievement of performance goals established by the Board of
Directors in its discretion. During the first year of his contract, if Mr. Helft
meets pre-determined performance goals he will receive a bonus of 50% of his
salary and will have an opportunity to receive an additional bonus of up to 50%
of his annual salary if those goals are exceeded. For the second and third years
of his contract, Mr. Helft will receive a bonus of 50% of his salary upon
achieving pre-determined performance goals, with the ability to earn up to an
additional 50% bonus based on achievement exceeding those performance goals.
Upon accepting employment, Mr. Helft was granted options to acquire 340,000
shares of our common stock. After one year of employment, if Mr. Helft satisfies
certain pre-determined performance goals, he will receive an additional grant of
options to acquire 120,000 shares of our common stock. Mr. Helft is also
eligible to receive additional awards under our stock option plan and under any
other employee benefit plans and programs. His employment agreement also
provides him with an automobile allowance.
Mr. Helft's employment agreement has a 3-year term, expiring December 7,
2001. If Mr. Helft's employment is terminated by us other than for "cause," by
Mr. Helft for "good reason," or due to "death or disability" (each as defined in
the employment agreement), he will generally be entitled to: (a) his
then-current salary payable for the non-compete period (as described below), (b)
a pro rata portion of any guaranteed bonus or a pro rata portion of any
goal-based bonus if, in the opinion of our Chief Executive Officer, Mr. Helft
would have been likely to meet the goals, (c) any previously earned but unpaid
salary and bonus amounts and (d) continued coverage under all health, life,
disability and similar employee benefit plans for the non-compete period and on
the same basis upon which he was entitled to participate immediately prior to
such termination.
This employment agreement includes a covenant restricting Mr. Helft's
ability to compete with us. Mr. Helft agreed that he will not compete with us
for 6 months after termination of his employment, or 12 months if his employment
agreement has been in effect for at least 6 months. Mr. Helft has agreed not to
disclose any of our confidential information during the non-compete period.
1996 INCENTIVE STOCK OPTION PLAN
Our Board of Directors has adopted and our stockholders have approved our
1996 Incentive Stock Option Plan (the 1996 Option Plan), under which stock
options may be granted to our employees and the employees of our subsidiaries.
The 1996 Option Plan permits the grant of stock options that qualify as
incentive stock options (ISOs) under Section 422 of the Internal Revenue Code,
and nonqualified stock options (NSOs), which do not so qualify. We have
authorized and reserved up to 8,000,000 shares of our common stock for issuance
under the 1996 Option Plan. We have outstanding options for the purchase of
approximately 2,665,555 shares of our common stock under the 1996 Option Plan.
The shares may be unissued shares or treasury shares. If an option expires or
terminates for any reason without having been
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exercised in full, the unpurchased shares subject to this option will again be
available for grant under the 1996 Option Plan. In the event of certain
corporate reorganizations, recapitalizations or other specified corporate
transactions affecting us or our common stock, proportionate adjustments may be
made to the number of shares available for grant and to the number of shares and
prices under outstanding option grants made before the event.
The 1996 Option Plan is administered by our Board of Directors. The Board
of Directors may appoint a committee of not less than three members, and may
delegate to such committee the responsibilities and authority of the Board of
Directors granted under the 1996 Option Plan. In the event of such appointment
and delegation, any reference in this disclosure to the Board of Directors will
be deemed a reference to such committee. Subject to the limitations set forth in
the 1996 Option Plan, our Board has the authority to determine the persons to
whom options will be granted, the time at which options will be granted, the
number of shares subject to each option, the exercise price of each option, the
time or times at which the options will become exercisable and the duration of
the exercise period. The Board may provide for the acceleration of the exercise
period of an option at any time prior to its termination or upon the occurrence
of specified events, subject to limitations set forth in the 1996 Option Plan.
The Board may authorize the President and Chief Executive Officer to grant up to
5,000 stock options per quarter to any employee who is not a director, provided
the President and Chief Executive Officer will not be authorized to grant more
than 500 options per quarter to any one employee. In the case of the merger,
consolidation, dissolution, liquidation, or change in ownership of us, our Board
of Directors may, in its sole discretion, accelerate the expiration date and the
dates on which any part of any option will be exercisable, provided that such
acceleration will be effective only upon the consummation of any such
transaction.
All of our employees and those of our subsidiaries and, in the case of
option grants other than ISOs, any officer, director, consultant or advisor
providing services to us or a subsidiary are eligible to be granted options
under the 1996 Option Plan, as selected from time to time by the Board of
Directors in its sole discretion. The exercise price of shares of common stock
subject to ISOs granted under the 1996 Option Plan may not be less than the fair
market value of the common stock on the date of grant. The maximum term of
options granted under the 1996 Option Plan is 10 years from the date of grant.
ISOs granted to any employee who is an owner of 10 percent or more of our shares
are subject to special limitations relating to the exercise price and term of
the options. The value of common stock (determined at the time of grant) that
may be subject to ISOs that become exercisable by any one employee in any one
year is limited by the Internal Revenue Code to $100,000.
All options granted under the 1996 Option Plan are nontransferable by the
optionee, except for transfers upon the optionee's death in accordance with his
or her will or applicable law. In the event of an optionee's death, outstanding
options that have become exercisable will remain exercisable for a period of one
year, or the balance of the term of the option, whichever is shorter. In the
case of any other termination of employment, outstanding ISOs that have
previously become vested will remain exercisable for a period of 3 months
(provided that an optionee who is disabled may exercise an ISO for one year
after the cessation of employment). NSOs granted under the plan will terminate
(i) immediately upon the resignation of the optionee from any position held by
him as an officer, director, employee, advisor or consultant, (ii) immediately
upon termination of the optionee from any such position for cause or (iii)
thirty (30) days after our termination of the optionee from any such position
without cause. Under the 1996 Option Plan, the exercise price of an option is
payable in cash or certified or bank check. An optionee must satisfy all
applicable tax withholding requirements at the time of exercise.
The 1996 Option Plan has a term of 10 years, subject to earlier termination
or amendment by the Board of Directors, and all options granted under the 1996
Option Plan prior to its termination remain outstanding until they have been
exercised or are terminated in accordance with their terms. The Board may amend
the 1996 Option Plan at any time.
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CERTAIN TRANSACTIONS
STOCK PURCHASE AGREEMENT
On August 4, 1998, we entered into a stock purchase agreement with IXC,
Grumman Hill, NYSERNet, Richard Mandelbaum, James D. Luckett, Denis J. Martin,
Mark A. Oros and David A. Buckel (the Stock Purchase Agreement). The Stock
Purchase Agreement provided for IXC to purchase 2,933,333 shares of our common
stock for a purchase price of $12.9 million and Grumman Hill to purchase
1,466,667 shares of our common stock for a purchase price of $6.5 million. We
received $5.0 million for 1,150,000 newly issued shares of common stock. The
Stock Purchase Agreement granted IXC and Grumman Hill a right of first offer
with respect to any proposed sale or other transfer of our common stock by us,
subject to certain exceptions. These rights do not apply to this offering and
will terminate upon consummation of the offering. Pursuant to the Stock Purchase
Agreement, IXC has a right of first refusal to provide us with broadband or
private-line Internet services if the price charged by IXC is competitive with
the prices of similar services from third parties. The Stock Purchase Agreement
also provided for us to work with IXC in good faith to negotiate a joint
marketing agreement to cover the resale by each company of the other's products
and services. Pursuant to this requirement, we entered into a joint marketing
and services agreement with IXC in January 1999. See "-- Joint Marketing and
Services Agreement." Pursuant to the terms of the Stock Purchase Agreement,
NYSERNet has granted to IXC and Grumman Hill an irrevocable proxy with respect
to 1,260,000 shares of common stock, subject to reduction by that number of
shares of common stock acquired by IXC and Grumman Hill from us or any of our
stockholders subsequent to September 4, 1999 and prior to October 4, 2000.
REGISTRATION RIGHTS AGREEMENT
In connection with the Stock Purchase Agreement, we entered into a
registration rights agreement dated August 4, 1998 with IXC, Grumman Hill,
NYSERNet, Richard Mandelbaum, James D. Luckett, Denis J. Martin, Mark A. Oros,
David A. Buckel and Shelley A. Harrison (the Registration Rights Agreement). The
Registration Rights Agreement provides certain demand registration rights to
each party other than AppliedTheory and certain "piggyback" registration rights
to NYSERNet, IXC, Grumman Hill and Dr. Mandelbaum. See "Description of Capital
Stock -- Registration Rights."
STOCKHOLDERS' AGREEMENT
The parties to the Stock Purchase Agreement and Dr. Harrison have entered
into a stockholders' agreement dated August 4, 1998 (the Stockholders'
Agreement). The Stockholders' Agreement provides NYSERNet and Messrs.
Mandelbaum, Buckel, Luckett, Martin, Oros and Dr. Harrison with the right to
sell common stock to IXC in the event that IXC purchases some or all of Grumman
Hill's holdings of our common stock. It also requires IXC to offer to buy the
holdings of our capital stock of any of the other parties in the event that IXC
obtains ownership of over 50% of our outstanding capital stock. The
Stockholders' Agreement also provides for the election of certain persons to our
Board of Directors. The Stockholders' Agreement will terminate upon completion
of this offering.
OPTION AGREEMENTS
Certain of our stockholders (including Messrs. Luckett, Martin, Oros,
Buckel and Pendray and Drs. Sadowsky, Mandelbaum and Harrison) have, in
connection with the Stock Purchase Agreement, entered into option agreements
dated August 4, 1998 and August 28, 1998 with NYSERNet, IXC, Grumman Hill and us
(the Option Agreements). The Option Agreements provide the option stockholders
with a put option to sell their stock (1,520,625 shares in the aggregate) to IXC
and Grumman Hill at a purchase price of $4.40 per share. The number of shares of
common stock held by Messrs. Luckett, Martin, Oros, Buckel and Pendray and Drs.
Sadowsky, Mandelbaum and Harrison that are subject to the Option Agreements is
1,418,000. The put rights begin September 4, 1999 (with respect to 1,510,185
shares) and September 28, 1999 (with respect to 10,440 shares) and end October
4, 2000 and October 28, 2000, respectively. The Option Agreements also provide
IXC and Grumman Hill with a call option to buy
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the stock held by the option stockholders from them at the same purchase price
as in the put option. The call option rights begin October 5, 2000 (with respect
to 1,510,185 shares) and October 29, 2000 (with respect to 10,440 shares) and
end August 4, 2001 and August 28, 2001, respectively. The options may be
exercised in whole or part on one or more occasions at any time during the
relevant option period.
RESALE AGREEMENT WITH NYSERNet.org
In October 1996, we entered into a resale agreement (the Resale Agreement)
with NYSERNet.org to provide it with Internet access products and services which
it resells to governmental, educational, scientific and other not-for-profit
organizations within the State of New York. We agreed to sell the products and
services to NYSERNet at its average sales price and on similar terms to its
transactions with third parties. The Resale Agreement also calls for the parties
to cooperate in forming a joint marketing plan for the products and services
covered by the agreement and for us to provide NYSERNet with sales support and
assistance and training for its sales force. Products and services sold to
NYSERNet for the period from October 1, 1996 (inception) to December 31, 1996
and the years ended December 31, 1997 and 1998 amounted to $1,587,009,
$7,148,334 and $8,327,118, representing 52%, 47% and 37% of our revenue for
these periods. The Resale Agreement has an initial term that runs from October
1, 1996 through September 30, 2001, and will automatically renew for successive
one year terms unless either party notifies the other of its intent not to renew
at least 60 days before the end of the term then in effect. The agreement is
terminable upon the insolvency of a party, an attempted unauthorized assignment
by a party, a failure to make any payment due under the agreement not remedied
within 30 days or a failure to remedy any breach of the terms of the agreement
within 30 days of receiving notice of the breach.
RESOURCE SHARING AGREEMENT WITH NYSERNet.org
In October 1996, we entered into a resource sharing agreement with
NYSERNet.org (the Resource Sharing Agreement). Pursuant to the agreement, we
provide NYSERNet with office space, use of equipment and use of certain
employees to the extent they are available. We share our premises for the
conduct of NYSERNet's business and NYSERNet is required to pay a pro rata share
of the rent for the space it occupies. The agreement also provides for
NYSERNet's use of computer equipment, furniture and supplies in the operation of
its business and payment to us of a pro rata share of the fair rental value of
the equipment plus the cost of maintaining the equipment. Certain of our
employees are also subject to the agreement, with some employees on the shared
premises at various times providing services to NYSERNet. NYSERNet pays a pro
rata share of the employees' salary and benefits. Resources we provided to
NYSERNet under the Resource Sharing Agreement for the period from October 1,
1996 (inception) to December 31, 1996 and the years ended December 31, 1997 and
1998 amounted to $63,000, $210,000 and $300,000, respectively. The agreement has
a term that runs from October 1, 1996 through December 31, 1999. The agreement
is terminable by us only upon the failure of NYSERNet to make the payments
required of it under the agreement.
ASSIGNMENT, SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT WITH NYSERNet.org
On October 1, 1996, we entered into an assignment, software development and
license agreement with NYSERNet.org (the Development and License Agreement).
This agreement assigns to us an agreement to develop for commercial use software
authored and developed by NYSERNet. The software was originally designed by
NYSERNet to create a Web-based version of the America's Job Bank system for the
New York State Department of Labor. Under this agreement, we are to pay NYSERNet
two percent of all revenues derived from the software and any software developed
from it for two years. We are also to develop and provide software to NYSERNet
for NYSERNet's contract with the New York State Department of Labor. The
Development and License Agreement provides a perpetual, royalty-free license to
NYSERNet for any new software developed from the original software assigned to
us. NYSERNet may use and further develop the new software in its non-profit
operations or sublicense it to any U.S. federal, state or local government
agency. Payments to NYSERNet under the agreement for the year ended December 31,
1998 were $4,975. No payments were made by and under this agreement in 1996 or
1997.
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The software development agreement and the license are perpetual, unless
terminated by either party. The agreement is terminable if either party becomes
insolvent or if either party fails to cure a default in a material provision to
the agreement within 10 days after notice of the default is given.
BORROWINGS WITH NYSERNet.net AND REDEEMABLE PREFERRED STOCK
Pursuant to an unsecured borrowing facility with NYSERNet.net, we can
borrow up to $6.2 million, less any preferred stock outstanding, at the prime
rate (8.0% as of December 31, 1998). Interest payments on borrowings under the
facility are deferred for five years from the date of each advance or January 1,
2002, whichever is earlier. All principal borrowings under the facility are due
and payable on January 1, 2002. As of December 31, 1998, we had an outstanding
amount of $3.0 million, including accrued interest, borrowed under the facility.
In addition, in January 1997, NYSERNet acquired 15,000 shares of our preferred
stock having a liquidation value of $100 per share and providing for dividends
to accrue at an annual rate of 14.0% of the liquidation value.
JOINT MARKETING AND SERVICES AGREEMENT WITH IXC
In January 1999, we entered into a Joint Marketing and Services Agreement
with IXC (the Joint Marketing and Services Agreement), one of our major
stockholders. Pursuant to the Joint Marketing and Services Agreement, each of us
agreed to provide the other with any of the services or products that we offer
or will offer to our customers, so long as the relevant service is not covered
by an exclusive marketing relationship with another party. The Joint Marketing
and Services Agreement specifically provides that each of us will offer the
other services such as connectivity services for the provision of dial-up and
dedicated access to the Internet, Internet security services, Web-enabled
solutions services, software development, voice and data communication services
and any services and technical support for the foregoing services. According to
the Joint Marketing and Services Agreement, each of us may use these services
for our own account or for the account of our own customers or for distribution
to and eventual resale by others. As part of the Joint Marketing and Services
Agreement, we granted IXC a right of first refusal on any purchases from third
parties we make of equipment, facilities and services necessary for the
transmission of data. Correspondingly, IXC granted us a right of first refusal
with respect to purchases from third parties by IXC of the support and product
components necessary for the delivery of the various services covered by the
agreement, including Internet access services. We agreed to provide access to
each other's network for the purpose of facilitating the provision of the
various services covered by the agreement. In consideration for delivering the
services covered by the Joint Marketing and Services Agreement, we have agreed
to pay each other prices which will enable each of us to maintain normal margins
as compared to those of our competitors, provided that in no event will the
price charged by either party drop below the cost of the relevant service or
product. Under the Joint Marketing and Services Agreement, we have also agreed
to protect each other's confidential information. The Joint Marketing and
Services Agreement automatically terminates upon IXC's disposition of all of its
equity holdings in us or when terminated by one of the parties. Either of us may
terminate the Joint Marketing and Services Agreement if the other fails to cure
a breach of a material provision of the Joint Marketing and Services Agreement
within 30 days after being provided with notice of the breach.
HARRISON CONSULTING AGREEMENT
In October 1996, we entered into a consulting agreement with Shelley A.
Harrison. Pursuant to the agreement, Dr. Harrison is to render advisory and
consulting services with respect to our operations, financing and business
planning, particularly in relation to any sales of securities, mergers or
similar transactions. Dr. Harrison is to receive $5,000 per month under the
agreement in addition to the grant by us upon the commencement of the agreement
of an option to purchase 500,000 shares of our common stock at $0.20 per share.
The option vested with respect to 125,000 shares on October 1, 1997 and, with
respect to the remaining 375,000 shares, on August 4, 1998 in connection with
the consummation of our sale of common stock to IXC and Grumman Hill under the
Stock Purchase Agreement. The consulting agreement has an initial term that runs
from October 5, 1996 through October 5, 2000, and will
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automatically renew for successive one year terms unless either party notifies
the other of its intent not to renew at least 90 days before the end of the term
then in effect.
GRUMMAN HILL CONSULTING ARRANGEMENT
We currently have an arrangement through which Grumman Hill serves in a
consulting and advisory capacity to our management. In accordance with this
arrangement, Grumman Hill, including James Kelsey, renders consulting services
and management advice to us particularly as regards raising corporate financing,
which includes advice pertaining to this offering. We pay a consulting fee of
$60,000 per year to Grumman Hill pursuant to this arrangement.
MANDELBAUM LINE OF CREDIT AGREEMENT
Effective January 1, 1999, we have made available to Dr. Mandelbaum a
credit line of $2,500,000 to be used exclusively by Dr. Mandelbaum for the
purchase of our stock in any future private equity placement in which IXC and
Grumman Hill participate. As of December 31, 1998, no borrowings were
outstanding pursuant to the line of credit. The line of credit agreement will
terminate upon consummation of this offering.
JAMES LUCKETT NOTE
On July 30, 1998, we made a loan to Mr. Luckett in the amount of $30,000.
This loan is evidenced by a note, payable to us upon the earlier of: (a) July
30, 2001 or (b) the date described in any security agreement we entered into
with Mr. Luckett with regard to the loan. The note accrues interest at an annual
rate of 5.56%. Upon demand by us, Mr. Luckett will be required to pledge as
security for the loan 7,000 shares of our common stock subject to Mr. Luckett's
option agreement with IXC and Grumman Hill. See " -- Option Agreements."
DAVID BUCKEL NOTE
On July 30, 1998, we made a loan to Mr. Buckel in the amount of $264,000.
This loan is evidenced by a note, payable to us upon the earlier of: (a) July
30, 2001 or (b) the date described in any security agreement we entered into
with Mr. Buckel with regard to the loan. The note accrues interest at 5.56%.
Upon demand by us, Mr. Buckel will be required to pledge as security for the
loan 60,000 shares of our common stock subject to Mr. Buckel's option agreement
with IXC and Grumman Hill. See "-- Option Agreements."
EMPLOYMENT AGREEMENTS
See "Management -- Employment Agreements" for a description of the
employment agreements that we have entered into with certain of our executive
officers.
RELATED PARTY TRANSACTIONS
NYSERNet and IXC are holders of approximately 30% and 28% of our common
shares. We also maintain a significant commercial relationship with IXC, and
approximately 37% of our revenues in 1998 were generated from sales to NYSERNet.
In addition to the agreements mentioned above, we may from time to time enter
into other transactions with NYSERNet or IXC, including transactions on a
vendor/vendee basis. We also provide accounting and financial services to
NYSERNet. Furthermore, three of our executive officers or directors, Richard
Mandelbaum, James D. Luckett and George Sadowsky are directors of NYSERNet. One
of our directors, James Guthrie, is an executive officer of IXC. As a result of
these relationships, conflicts of interest may arise among certain of our
directors, executive officers and stockholders. We have independent directors,
auditors and counsel separate from IXC and NYSERNet and believe that we maintain
adequate procedures to protect ourself in related party transactions.
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PRINCIPAL STOCKHOLDERS
The following table describes certain information regarding the beneficial
ownership of our common stock as of January 31, 1999 by (i) each person or
entity which according to our knowledge owns beneficially more than 5% of the
outstanding shares of our common stock, (ii) each of our directors and officers
and (iii) all of our directors and executive officers as a group. Unless
otherwise indicated, to our knowledge all persons listed below have sole voting
and investment power with respect to their shares of common stock, except to the
extent the applicable law gives spouses shared authority.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(1)
SHARES ---------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
- ---------------- --------------------- --------------- --------------
<S> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
IXC Internet Services, Inc.(2)
1122 Capital of Texas Highway, South
Austin, TX 78746-6426....................... 3,773,330 35.6%
NYSERNet.net, Inc.(3)
125 Elwood Davis Road
Syracuse, NY 13212.......................... 3,250,000 30.6
Grumman Hill Investments III, LP(4)
60 East 42nd Street, Suite 2915
New York, NY 10165.......................... 1,886,670 17.8
EXECUTIVE OFFICERS AND DIRECTORS:
Richard Mandelbaum(5)......................... 4,941,115 46.0
Lawrence B. Helft............................. -- *
James D. Luckett, Sr.(6)...................... 422,625 4.0
Denis J. Martin(7)............................ 280,125 2.6
Mark A. Oros(8)............................... 277,875 2.6
David A. Buckel(9)............................ 121,875 1.1
Shelley A. Harrison(10)....................... 500,000 4.6
George Sadowsky(11)........................... 3,284,060 30.9
James Guthrie(12)............................. 3,773,330 35.6
John J. Pendray(13)........................... 32,185 *
James T. Kelsey(14)........................... 1,886,670 17.8
All Directors and Officers as a Group (11
persons)(15)................................ 11,009,860 96.7
</TABLE>
- ---------------
* indicates less than 1%
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by any other person listed. As of January 31, 1999,
AppliedTheory had 10,606,596 shares of common stock outstanding.
(2) Includes 840,000 shares as to which IXC has voting power pursuant to an
irrevocable proxy granted by NYSERNet. See "Certain Transactions -- Stock
Purchase Agreement." Does not include shares subject to the option
agreements described under "Certain Transactions -- Option Agreements."
(3) Includes an aggregate of 1,260,000 shares as to which NYSERNet has granted
irrevocable proxies to IXC and Grumman Hill. See "Certain
Transactions -- Stock Purchase Agreement." Includes shares subject to the
option agreements described under "Certain Transactions -- Option
Agreements."
(4) Includes 420,000 shares as to which Grumman Hill has voting power pursuant
to an irrevocable proxy granted by NYSERNet. See "Certain
Transactions -- Stock Purchase Agreement." Does not
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include shares subject to the option agreements described under "Certain
Transactions -- Option Agreements."
(5) Includes 3,250,000 shares of common stock owned by NYSERNet. Dr. Mandelbaum
is a member of the board of directors of NYSERNet. Dr. Mandelbaum disclaims
beneficial ownership of all shares owned by NYSERNet. Also includes 500,000
shares of common stock held by Ms. Paulette Mandelbaum as trustee for the
"Mandelbaum Descendants' Trust" and as to which Dr. Mandelbaum disclaims
beneficial ownership. Includes exercisable options to purchase 136,740
shares of common stock. Includes shares subject to the option agreements
described under "Certain Transactions -- Option Agreements."
(6) Includes exercisable options to purchase 22,625 shares of common stock.
Includes shares subject to the option agreements described under "Certain
Transactions -- Option Agreements."
(7) Includes shares subject to the option agreements described under "Certain
Transactions -- Option Agreements."
(8) Includes shares subject to the option agreements described under "Certain
Transactions -- Option Agreements."
(9) Includes exercisable options to purchase 1,875 shares of common stock.
Includes shares subject to the option agreements described under "Certain
Transactions -- Option Agreements."
(10) Includes exercisable options to purchase 375,000 shares of common stock.
Includes shares subject to the option agreements described under "Certain
Transactions -- Option Agreements."
(11) Includes 3,250,000 shares of common stock owned by NYSERNet. Dr. Sadowsky
is a director of NYSERNet. Dr. Sadowsky disclaims beneficial ownership of
all shares owned by NYSERNet. Includes exercisable options to purchase
14,060 shares of common stock. Includes shares subject to the option
agreements described under "Certain Transactions -- Option Agreements."
(12) Includes 2,933,330 shares of common stock owned by IXC and 840,000 shares
of common stock owned by NYSERNet whose voting power NYSERNet has
irrevocably granted to IXC pursuant to an irrevocable proxy. See "Certain
Transactions -- Stock Purchase Agreement." Mr. Guthrie is an officer of
IXC. Mr. Guthrie disclaims beneficial ownership of all shares owned by IXC.
(13) Includes shares subject to the option agreements described under "Certain
Transactions -- Option Agreements."
(14) Includes 1,466,670 shares of common stock owned by Grumman Hill and 420,000
shares of common stock owned by NYSERNet whose voting power NYSERNet has
granted to Grumman Hill pursuant to an irrevocable proxy. See "Certain
Transactions -- Stock Purchase Agreement." Mr. Kelsey is a general partner
of Grumman Hill. Mr. Kelsey disclaims beneficial ownership of all shares
owned by Grumman Hill.
(15) Includes shares of our common stock owned by IXC, NYSERNet and Grumman Hill
that are deemed to be beneficially owned by certain of our officers and
directors by virtue of their relationships with these entities.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED STOCK; ISSUED AND OUTSTANDING SHARES
Effective upon the closing of this offering, our authorized capital stock
will be comprised of 60,000,000 shares of common stock and 1,000,000 shares of
preferred stock.
COMMON STOCK
Following this offering shares of common stock will be
outstanding, based on the number of shares of common stock outstanding on
, 1999. All of the issued and outstanding shares of common stock are
and, upon the completion of this offering, the shares of common stock offered
hereby will be fully paid, validly issued and non-assessable. Each holder of
shares of common stock is entitled to one vote per share on all matters to be
voted on by stockholders generally, including the election of directors. There
are no cumulative voting rights. The holders of our common stock are entitled to
dividends and other distributions as may be declared from time to time by the
board of directors out of funds legally available therefor, if any. See
"Dividend Policy." Upon our liquidation, dissolution or winding up, the holders
of shares of common stock would be entitled to share ratably in the distribution
of all of our assets remaining available for distribution after satisfaction of
all our liabilities and the payment of the liquidation preference of any
outstanding preferred stock. Upon completion of this offering, the holders of
common stock have no preemptive or other subscription rights to purchase shares
of our stock, nor will such holders entitled to the benefits of any redemption
or sinking fund provisions. As of January 31, 1999, there were approximately 34
beneficial owners of common stock.
PREFERRED STOCK
The Certificate of Incorporation authorizes our Board of Directors to
create and issue one or more series of preferred stock and determine the rights
and preferences of each series within the limits set forth in the Certificate of
Incorporation and applicable law. Among other rights, the Board of Directors may
determine, without the further vote or action by our stockholders:
- the number of shares constituting the series and the distinctive
designation of the series;
- the dividend rate on the shares of the series, whether dividends will be
cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
- whether the series shall have voting rights in addition to the voting
rights provided by law and, if so, the terms of such voting rights;
- whether the series shall have conversion privileges and, if so, the terms
and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall
determine;
- whether or not the shares of that series shall be redeemable or
exchangeable, and, if so, the dates, terms and conditions of such
redemption or exchange, as the case may be;
- whether the series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
such sinking fund; and
- the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
Unless otherwise provided by our Board of Directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although we have
no present plans to issue any shares of preferred stock, any future issuance of
shares of preferred stock, or the issuance of rights to purchase such shares,
may have the effect of delaying,
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deferring or preventing a change of control in our company or an unsolicited
acquisition proposal. The issuance of preferred stock also could decrease the
amount of earnings and assets available for distribution to the holders of
common stock or could adversely affect the rights and powers, including voting
rights, of the holders of the common stock. See "Risk Factors -- Certain
anti-takeover provisions may make our acquisition more difficult."
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, IXC, Grumman Hill, NYSERNet
and Messrs. Luckett, Martin, Oros and Buckel and Drs. Mandelbaum and Harrison
have the right (a demand registration right) at any time after this offering to
cause us to register their holdings of common stock under the Securities Act of
1933, as amended (the Securities Act). The demand registration rights will be
exercisable by any party with registration rights only once in any six month
period, and we will not be required to register shares under the demand
registration rights more than once on registration forms other than Form S-3.
In addition, pursuant to the Registration Rights Agreement, each of IXC,
Grumman Hill, NYSERNet and Dr. Mandelbaum have certain "piggyback" registration
rights if we determine to file a registration statement covering any of our
securities under the Securities Act (with the exception of an offering pursuant
to a registration statement on Form S-8 or S-4) and the Board of Directors
approves the piggyback registration. Therefore, if we file a registration
statement in relation to our equity securities (except for the registration
statements described in the preceding sentence) and the Board of Directors
approves the piggyback registration, we will be required to use our best efforts
to include the shares of common stock as to which piggyback rights have been
requested in our registered offering, subject to reduction if the managing
underwriter for the offering determines that the inclusion of such shares would
interfere with the successful marketing of our offering.
We are required to bear all registration expenses (other than underwriting
discounts and commissions and fees) related to any exercise of either demand or
piggyback registration rights. In addition, we have agreed to indemnify the
registration rights holders against, and provide contribution with respect to,
certain liabilities under the Securities Act in connection with demand and
piggyback registrations.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (Section 203). Under Section 203, certain business combinations
between a Delaware corporation whose stock generally is publicly traded or held
of record by more than 2,000 stockholders and an interested stockholder are
prohibited for a three-year period following the date that such a stockholder
became an interested stockholder, unless (i) the corporation has elected in its
original Certificate of Incorporation not to be governed by Section 203 (we did
not make such an election); (ii) the business combination was approved by the
board of directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender or vote stock held by the plan); or (iv)
the business combination was approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock not owned by the
interested stockholder. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of the majority of the corporation's directors. The term business
combination is defined generally to include mergers or consolidations between a
Delaware corporation and an interested stockholder, transactions with an
interested stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term interested stockholder is
defined generally
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as a stockholder who, together with affiliates and associates, owns (or, within
three years prior, did own) 15% or more of a Delaware corporation's voting
stock. Section 203 could prohibit or delay a merger, takeover or other change in
control of AppliedTheory and therefore could discourage attempts to acquire us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately following this offering, there will be shares of
our common stock issued and outstanding, based on the number of shares of our
common stock outstanding as of , 1999. Of such shares, the
shares of common stock to be sold in this offering will be
immediately eligible for sale in the public market, except for any of such
shares owned at any time by our affiliates within the meaning of Rule 144 under
the Securities Act. The remaining 10,606,596 issued and outstanding shares are
restricted securities within the meaning of Rule 144 and may not be publicly
resold, except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities for at least one
year, including a person who may be deemed an affiliate, is entitled to sell
within any three month period a number of our shares of common stock that does
not exceed: (1) the greater of 1% of the then-outstanding shares of our common
stock, or (2) the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are subject to certain restrictions relating to manner of
sale, notice and the availability of current public information about the
company. A person who is not our affiliate at any time during the 90 days
preceding a sale and who has beneficially owned shares for at least two years
would be entitled to sell such shares immediately following this offering under
Rule 144(k) without regard to the volume limitations, manner of sale provisions
or notice requirements of Rule 144, but in accordance with certain other
applicable provisions of Rule 144. In addition, our employees, directors,
officers or consultants who purchased our shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701 which permits non-affiliates to sell their Rule 701 shares without
having to comply with the public information, holding period, volume limitation
or notice provisions of Rule 144, and permits affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this prospectus.
Our directors and executive officers, IXC, Grumman Hill and NYSERNet, who
collectively hold 10,459,560 of the outstanding shares of common stock, have
agreed, subject to certain exceptions, not to offer to sell, sell, contract to
sell, grant any option to sell, encumber, pledge or otherwise dispose of or
exercise any demand rights with respect to any common stock or securities
convertible into or exercisable or exchangeable for common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Bear, Stearns & Co. Inc. Certain stockholders of AppliedTheory are entitled to
demand and/or piggyback registration rights with respect to 10,459,560 shares of
common stock currently outstanding, plus any additional shares they may acquire
in the future. See "Description of Capital Stock -- Registration Rights." After
the expiration of the 180-day period, such holders may choose to exercise their
demand registration rights, which could result in a large number of shares being
sold in the public market.
We intend to file, immediately following this offering, a registration
statement on Form S-8 under the Securities Act to register the shares of common
stock reserved for issuance pursuant to our stock option plan. The stock
registered under such registration statement will thereafter be available for
sale in the public market, subject to the resale limitations of Rule 144
applicable to affiliates of AppliedTheory.
Prior to the date of this prospectus, no public market has existed for our
common stock. We expect that trading of our common stock on the Nasdaq National
Market will commence on the date of this prospectus. We do not make any
prediction regarding the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price of our
common stock. The market price of our common stock can be adversely affected by
sales of substantial amounts of common stock, or by the perception that such
sales could occur. See "Risk Factors -- Our stock price may be affected by the
availability of shares available for future sale."
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to a beneficial owner thereof that is a "Non-U.S. Holder." A
"Non-U.S. Holder" is a person or entity other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in or
under the laws of the United States or of any state, (iii) an estate the income
of which is subject to U.S. federal income tax, regardless of its source, or
(iv) a trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more United
States persons have the authority to control all substantial decisions of the
trust.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period that includes the current
calendar year (counting for such purposes all of the days present in the current
year, two-thirds of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens and thus are not
Non-U.S. Holders for purposes of this discussion.
THIS DISCUSSION IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), EXISTING AND PROPOSED REGULATIONS PROMULGATED THEREUNDER AND
ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF AS OF THE DATE HEREOF, ALL
OF WHICH ARE SUBJECT TO CHANGE, INCLUDING CHANGES WITH RETROACTIVE EFFECT. THIS
DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF U.S. FEDERAL INCOME AND ESTATE
TAXATION THAT MAY BE IMPORTANT TO NON-U.S. HOLDERS IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES (INCLUDING TAX CONSEQUENCES APPLICABLE TO NON-U.S. HOLDERS THAT
ARE, OR HOLD INTERESTS IN COMMON STOCK THROUGH, PARTNERSHIPS OR OTHER FISCALLY
TRANSPARENT ENTITIES) AND DOES NOT ADDRESS UNITED STATES STATE AND LOCAL OR
NON-UNITED STATES TAX CONSEQUENCES. PROSPECTIVE NON-U.S. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO THEM OF OWNING AND DISPOSING OF COMMON STOCK, AS WELL
AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
DIVIDENDS
Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to United States withholding
tax at a rate of 30% of the gross amount of the dividend or such lower rate as
may be specified by an applicable income tax treaty. Non-U.S. Holders (and in
the case of Non-U.S. Holders that are treated as partnerships or other fiscally
transparent entities, partners, shareholders or other beneficiaries of such
Non-U.S. Holders) may be required to satisfy certain certification requirements
and provide certain information in order to claim treaty benefits. Special rules
regarding the availability of treaty benefits apply with respect to entities
that are treated as partnerships or other fiscally transparent entities for U.S.
federal income tax purposes but treated as corporations for purposes of the tax
laws of an applicable treaty country (or, conversely, treated as corporations
for U.S. federal income tax purposes but treated as partnerships or other
fiscally transparent entities for purposes of the tax laws of an applicable
treaty country). Any such entities that hold Common Stock, and partners,
beneficiaries and shareholders of such entities, should consult their tax
advisors as to the applicability of such rules to their particular
circumstances.
Dividends paid to a Non-U.S. Holder that are either (i) effectively
connected with the Non-U.S. Holder's conduct of a trade or business within the
United States or (ii) if a tax treaty applies, attributable to a permanent
establishment maintained by the Non-U.S. Holder, will not be subject to the
withholding tax (provided in either case the Non-U.S. Holder files the
appropriate documentation with the Company or its Paying Agent), but, instead,
will be subject to regular U.S. federal income tax at the graduated rates in the
same manner as if the Non-U.S. Holder were a U.S. resident. In addition to such
graduated tax in the case of a Non-U.S. Holder that is a corporation,
effectively connected dividends or, if a tax treaty applies, dividends
attributable to a U.S. permanent establishment of the corporate Non-U.S. Holder,
may be subject to a "branch profits tax" which is imposed under certain
circumstances, at a rate of 30% (or such lower rate as may be specified by an
applicable tax treaty) of the non-U.S. corporation's effectively connected
earnings and profits, subject to certain adjustments.
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GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such Non-U.S. Holder in the United States,
or, if a tax treaty applies, attributable to a United States permanent
establishment of the Non-U.S. Holder, (ii) in the case of certain Non-U.S.
Holders who are nonresident alien individuals and hold the Common Stock as a
capital asset, such individuals are present in the United States for 183 or more
days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the Code regarding the taxation of U.S. expatriates, or (iv) the
Company is or has been a "U.S. real property holding corporation" within the
meaning of the Code and the Non-U.S. Holder owned directly or pursuant to
certain attribution rules more than 5% of the Company's Common Stock (assuming
the Common Stock is regularly traded on an established securities market within
the meaning of the Code) at any time within the shorter of the five-year period
preceding such disposition or such Non-U.S. Holder's holding period. The Company
is not, and does not anticipate becoming, a U.S. real property holding
corporation.
If a Non-U.S. Holder who is an individual falls under clause (i) of the
preceding paragraph, he or she will, unless an applicable treaty provides
otherwise, be taxed on the net gain derived from the sale at regular graduated
U.S. federal income tax rates. If an individual Non-U.S. Holder falls under
clause (ii) of the preceding paragraph, he or she will be subject to a flat 30%
tax on the gain derived from the sale, which may be offset by certain United
States-source capital losses. If a Non-U.S. Holder that is a corporation falls
under clause (i) in the preceding paragraph, it will be taxed on the net gain
from the sale at regular graduated U.S. federal income tax rates and may be
subject to an additional branch profits tax at a rate of 30% (or such lower rate
as may be specified by an applicable tax treaty) on the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Generally, the Company must report annually to the Internal Revenue Service
the amount of dividends paid to a Non-U.S. Holder and the amount, if any, of tax
withheld with respect to, such Non-U.S. Holder. A similar report is sent to the
Non-U.S. Holder. Pursuant to tax treaties or certain other agreements, the
Internal Revenue Service may make its report available to tax authorities in the
recipient's country of residence.
Currently, United States backup withholding tax (which generally is a
withholding tax imposed at a rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) will generally not apply to dividends paid on Common
Stock to a Non-U.S. Holder at an address outside the United States, unless the
payor has actual knowledge that the payee is a U.S. Holder. Backup withholding
tax generally will apply to dividends paid on Common Stock at addresses inside
the United States to Non-U.S. Holders who fail to provide certain identifying
information in the manner required.
In addition, information reporting and backup withholding imposed at a rate
of 31% will apply to the proceeds of a disposition of Common Stock paid to or
through a U.S. office of a broker unless the disposing holder, under penalties
of perjury, certifies as to its non-U.S. status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will not
apply to a payment of disposition proceeds if the payment is made outside the
United States through a non-U.S. office of a non-U.S. broker. However, U.S.
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States if the payment is made
through an office outside the United States of a broker that is (i) a U.S.
person, (ii) a foreign person which derives 50% or more its gross income for
certain periods from the conduct of a trade or business in the United States or
(iii) a "controlled foreign corporation" for U.S. federal income tax purposes,
unless the broker maintains documentary evidence that the holder is a Non-U.S.
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption.
73
<PAGE> 77
Recently adopted United States Treasury regulations, which generally are
effective for payments made after December 31, 1999, subject to certain
transition rules, alter the foregoing rules in certain respects. Among other
things, such regulations provide certain presumptions under which a Non-U.S.
Holder is subject to backup withholding at the rate of 31% and information
reporting unless the Company receives certification from the holder of non-U.S.
status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity, by
the partners, shareholders or other beneficiaries of such entity, or (iii) by
certain qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
FEDERAL ESTATE TAX
An individual holder who is not a citizen or resident (as defined for U.S.
federal estate tax purposes) of the United States and at the time of death is
treated as the owner of, or has made certain lifetime transfers of, an interest
in the Common Stock will be required to include the value thereof in his gross
estate for U.S. federal estate tax purposes, and may be subject to U.S. federal
estate tax unless an applicable estate tax treaty provides otherwise.
74
<PAGE> 78
UNDERWRITING
Subject to the terms and conditions set forth in an agreement between the
underwriters and us, each of the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., CIBC Oppenheimer Corp. and Lehman
Brothers, Inc., have severally agreed to purchase from us aggregate number of
shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
CIBC Oppenheimer Corp. .....................................
Lehman Brothers Inc. .......................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. Under the underwriting agreement,
the indemnitees are obliged to purchase and pay for all of the above shares of
common stock if any are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the offering price set forth on the cover page of this prospectus
and at such price less a concession not in excess of $ per share of common
stock to certain other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and such dealers may
reallow, concessions not in excess of $ per share of common stock to certain
other dealers. After the offering, the offering price, concessions and other
selling terms may be changed by the underwriters. Our common stock is offered
subject to receipt and acceptance by the underwriters and subject to certain
other conditions, including the right to reject orders in whole or in part. The
underwriters have informed us that the underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.
We have granted a 30 day over-allotment option to the underwriters to
purchase an amount, up to an aggregate of fifteen percent (15%) of the aggregate
number of shares appearing above, of additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise such option in whole or in part then each of the
underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as is approximately
the percentage of shares of common stock that it is obligated to purchase of the
total number of shares under the underwriting agreement as shown in the table
set forth above.
The underwriting agreement provides that we indemnify the underwriters
against certain liabilities under the Securities Act or will contribute to
payments that the underwriters may be required to make in respect thereof.
Our directors and executive officers and IXC, Grumman Hill and NYSERNet,
who collectively hold in the aggregate 10,459,560 shares of common stock, have
agreed pursuant to lock-up agreements not to sell or offer to sell or otherwise
dispose of any shares of common stock, subject to certain exceptions, for a
75
<PAGE> 79
period of 180 days after the date of this prospectus without the prior written
consent of Bear, Stearns & Co. Inc.
Prior to the offering, there has been no public market for our common
stock. Consequently, the initial offering price for the common stock will be
determined by negotiations between us the representatives of the underwriters.
Among the factors to be considered in such negotiations will be our results of
operations in recent periods, estimates of our prospects and the industry in
which we compete, an assessment of our management, the general state of the
securities markets at the time of the offering and the prices of similar
securities of generally comparable companies. Application will be made for
approval of the listing of our common stock on the Nasdaq National Market under
the symbol ATHY. We cannot assure you, however, that an active or orderly
trading market will develop for the common stock or that our common stock will
trade in the public markets subsequent to the offering at or above the initial
offering price.
In order to facilitate the offering, certain persons participating in the
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after the offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
actually sold to them by us. The underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market or by
exercising the over-allotment option granted to the underwriters. In addition,
the underwriters may stabilize or maintain the price of the common stock by
bidding for or purchasing shares of common stock in the open market and may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the offering are reclaimed if
shares of common stock previously distributed in the offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such activities.
The Underwriters have represented and agreed that (i) they have not offered
or sold and, prior to the expiry of the period of six months from the date
hereof, will not offer or sell any shares of common stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation 1995; (ii) they
have only issued or passed on, and will only issue or pass on, in the United
Kingdom any document received by them in connection with the issue of the shares
of the common stock to a person who is of a kind described in Article 11(3) of
the Financial Services Act of 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom the document may otherwise lawfully be issued
or passed on; and (iii) they have complied and will comply with all applicable
provisions of the Financial Services Act of 1986 with respect to anything done
by them in relation to any shares of common stock in, from or otherwise
involving the United Kingdom.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees, directors and
certain other persons associated with us who express an interest in purchasing
such shares of common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares offered in this offering.
76
<PAGE> 80
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be
passed upon for us by Dewey Ballantine LLP, New York, New York and for the
underwriters by Paul, Hastings, Janofsky & Walker LLP, New York, New York.
EXPERTS
Our financial statements as of December 31, 1997 and 1998 and for the nine
months ended September 30, 1996, the three months ended December 31, 1996 and
the years ended December 31, 1997 and 1998 included in this prospectus have been
so included in reliance on the report of Grant Thornton LLP, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (including exhibits, schedules and amendments thereto)
under the Securities Act with respect to the shares of common stock to be sold
in this offering. This prospectus does not contain all the information included
in our Registration Statement. For further information with respect to us and
the shares of common stock to be sold in this offering, we refer you to the
Registration Statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and in each instance we refer you to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement, each such statement is deemed qualified in all respects by such
reference.
You may read and copy all or any portion of the Registration Statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the Registration Statement, are also available to you on the
Securities and Exchange Commission's Web site (http://www.sec.gov). As a result
of this offering, we will become subject to the information and reporting
requirements of the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, we will file period reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for the quotation on the Nasdaq National Market, such reports,
proxy and information statements and other information may also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stock holders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim financial information.
77
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
APPLIEDTHEORY CORPORATION AND PREDECESSOR
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Financial Statements
Balance Sheets -- December 31, 1997 and 1998.............. F-3
Statements of Operations for the Nine Months Ended
September 30, 1996, the Three Months Ended December 31,
1996 and the Years Ended December 31, 1997 and 1998.... F-4
Statement of Stockholders' Equity (Deficit) for the Nine
Months Ended September 30, 1996, the Three Months Ended
December 31, 1996 and the Years Ended December 31, 1997
and 1998............................................... F-5
Statements of Cash Flows for the Nine Months Ended
September 30, 1996, the Three Months Ended December 31,
1996 and the Years Ended December 31, 1997 and 1998.... F-6
Notes to Financial Statements for the Nine Months Ended
September 30, 1996, the Three Months Ended December 31,
1996 and the Years Ended December 31, 1997 and 1998.... F-7 - F-20
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
APPLIEDTHEORY CORPORATION
We have audited the balance sheets of AppliedTheory Corporation as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended and for
the three months ended December 31, 1996. We have also audited the statements of
operations, stockholders' equity (deficit) and cash flows of the Predecessor
(Note A) for the nine months ended September 30, 1996 . These financial
statements are the responsibility of AppliedTheory Corporation's management and
the Predecessor's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AppliedTheory Corporation as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended and for the three months ended December 31, 1996,
and the results of operations and cash flows of the Predecessor for the nine
months ended September 30, 1996 in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
January 29, 1999
F-2
<PAGE> 83
APPLIEDTHEORY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 135,179 $ 1,785,682
Accounts receivable, net of allowance of $122,000 and
$157,000 in 1997 and 1998, respectively................ 1,211,323 3,584,391
Prepaid expenses and other assets......................... 187,182 255,058
---------- -----------
Total current assets.............................. 1,533,684 5,625,131
Property and equipment, net............................... 3,910,406 4,203,171
Other assets.............................................. 689,333
---------- -----------
Total assets...................................... $5,444,090 $10,517,635
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable.......................................... $2,006,834 $ 2,148,603
Accrued payroll........................................... 368,113 582,038
Accrued expenses.......................................... 1,010,029 2,472,967
Deferred revenue.......................................... 907,446 1,848,629
Current portion of long-term debt and capital lease
obligations............................................ 210,548 551,359
Preferred stock dividends payable......................... 210,000 420,000
Due to related parties.................................... 400,277 850,101
---------- -----------
Total current liabilities......................... 5,113,247 8,873,697
Long-term debt and capital lease obligations................ 4,360,529 5,979,238
Borrowings from NYSERNet.net, Inc........................... 2,444,636 2,957,238
Other liabilities........................................... 651,461 214,499
Redeemable preferred stock -- 75,000 shares authorized;
15,000 issued and outstanding; cumulative 14% dividend;
$100 per share liquidation value.......................... 1,500,000 1,500,000
Stockholders' equity (deficit):
Common stock, $.01 par value; 25,000,000 shares
authorized; issued and outstanding 6,540,000 shares in
1997 and 10,026,325 shares in 1998..................... 13,080 100,263
Common stock -- nonvoting, $.01 par value, 5,000,000
shares authorized; 36,565 shares issued and outstanding
in 1998................................................ 366
Additional paid-in capital................................ 7,920 5,515,688
Accumulated deficit....................................... (8,646,783) (14,623,354)
---------- -----------
Total stockholders' equity (deficit).............. (8,625,783) (9,007,037)
---------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $5,444,090 $10,517,635
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 84
APPLIEDTHEORY CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------ ---------------------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED ENDED -------------------------
SEPTEMBER 30, 1996 DECEMBER 31, 1996 1997 1998
------------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Third-party customers.............. $ 6,226,306 $ 1,489,302 $ 8,023,380 $14,235,872
NYSERNet.org, Inc. customers and
services........................ 1,587,009 7,148,334 8,327,118
----------- ----------- ----------- -----------
Total net revenues......... 6,226,306 3,076,311 15,171,714 22,562,990
----------- ----------- ----------- -----------
Costs and expenses
Cost of revenues................... 5,741,604 2,331,050 10,796,095 13,315,568
Sales and marketing................ 1,298,369 791,743 3,706,205 6,400,025
General and administrative......... 2,818,835 1,590,754 4,283,339 5,233,512
Research and development........... 129,550 43,745 679,895 242,905
Depreciation and amortization...... 157,670 81,456 1,094,681 1,671,951
Other expenses..................... 112,153 900,000
----------- ----------- ----------- -----------
Total costs and expenses... 10,146,028 4,838,748 20,672,368 27,763,961
----------- ----------- ----------- -----------
Loss from operations....... (3,919,722) (1,762,437) (5,500,654) (5,200,971)
Interest income...................... (42,468)
Interest expense..................... 4,870 346,713 608,068
----------- ----------- ----------- -----------
NET LOSS................... (3,924,592) (1,762,437) (5,847,367) (5,766,571)
Preferred stock dividends............ 210,000 210,000
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders....................... $(3,924,592) $(1,762,437) $(6,057,367) $(5,976,571)
=========== =========== =========== ===========
Basic and diluted loss per common
share.............................. $ (.27) $ (.93) $ (.71)
=========== =========== ===========
Shares used in computing basic and
diluted loss per share............. 6,500,000 6,504,165 8,443,960
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 85
APPLIEDTHEORY CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NONVOTING COMMON
COMMON STOCK STOCK ADDITIONAL
--------------------- ------------------ PAID-IN ACCUMULATED DIVISIONAL
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
---------- -------- ------ -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Divisional deficit, January 1, 1996.... $(2,759,201)
Net loss for the nine months ended
September 30, 1996................... (3,924,592)
-----------
Balance, September 30, 1996............ $(6,683,793)
===========
Acquisition of net assets from
NYSERNet.org, Inc. as of
October 1, 1996...................... $ (826,979)
Issuance of common stock............... 6,500,000 $ 13,000
Net loss for the three months.......... (1,762,437)
---------- -------- ------------
Balance, December 31, 1996............. 6,500,000 13,000 (2,589,416)
Issuance of common stock pursuant to
exercise of stock options............ 40,000 80 $ 7,920
Preferred stock dividends.............. (210,000)
Net loss for the year.................. (5,847,367)
---------- -------- ---------- ------------
Balance, December 31, 1997............. 6,540,000 13,080 7,920 (8,646,783)
Issuance of common stock, net of
issuance costs of $80,951............ 1,150,000 2,300 4,983,419
Issuance of common stock pursuant to
exercise of stock options............ 2,336,325 4,673 36,565 $ 73 263,852
Conversion of stock appreciation rights
to nonstatutory stock options........ 341,000
Effect of five-for-one stock split..... 80,210 293 (80,503)
Preferred stock dividends.............. (210,000)
Net loss for the year.................. (5,766,571)
---------- -------- ------ -------- ---------- ------------
Balance, December 31, 1998............. 10,026,325 $100,263 36,565 $ 366 $5,515,688 $(14,623,354)
========== ======== ====== ======== ========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 86
APPLIEDTHEORY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------ ---------------------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED ENDED -------------------------
SEPTEMBER 30, 1996 DECEMBER 31, 1996 1997 1998
------------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss....................................... $(3,924,592) $(1,762,437) $(5,847,367) $(5,766,571)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization................ 157,670 81,456 1,094,681 1,671,951
Deferred payment of interest expense to
NYSERNet.net, Inc. ........................ 58,915 211,323
(Gain) loss on sale of property and
equipment.................................. (7,828) 111,389 20,988
Loss from assets not usable in operations.... 900,000
Conversion of stock appreciation rights to
nonstatutory stock options................. 341,000
Changes in assets and liabilities
Accounts receivable, net................... (812,765) (1,396,501) 185,178 (2,373,068)
Other receivables.......................... 85,527
Due to (from) related parties.............. (529,728) (1,229,384) 449,824
Prepaid expenses and other assets.......... (70,916) (9,300) (60,905) (67,876)
Accounts payable........................... 1,761,465 1,430,312 576,522 141,769
Accrued payroll............................ 116,177 8,071 229,373 213,925
Accrued expenses and other liabilities..... (135,851) 1,107,572 (373,037) 611,976
Deferred revenue........................... 733,476 236,620 69,309 941,183
----------- ----------- ----------- -----------
Net cash used in operating activities...... (2,097,637) (833,935) (5,185,326) (2,703,576)
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment............ (506,483) (1,270,383) (2,479,880)
Issuance of notes receivable................... (309,000)
Payments received on notes receivable.......... 1,667
Proceeds from sale of property and equipment... 56,344 4,842 8,176
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. 56,344 (506,483) (1,265,541) (2,779,037)
----------- ----------- ----------- -----------
Cash flows from financing activities
Issuance of common stock, net of issuance
costs........................................ 13,000 8,000 5,254,317
Borrowings from NYSERNet.net, Inc.............. 2,041,293 2,385,721 301,279
Proceeds from line of credit borrowings, net... 4,144,005 1,285,995
Principal payments on capital leases........... (124,262) (350,199)
Proceeds from long-term debt................... 1,023,724
Security deposit on equipment financing........ (382,000)
Advances from NYSERNet.net, Inc................ 1,500,000
----------- ----------- ----------- -----------
Net cash provided by financing
activities.............................. 2,041,293 1,513,000 6,413,464 7,133,116
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 172,582 (37,403) 1,650,503
Cash and cash equivalents, beginning of period... 172,582 135,179
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period......... $ -- $ 172,582 $ 135,179 $ 1,785,682
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 87
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE A -- NATURE OF OPERATIONS AND BASIS OF PRESENTATION
AppliedTheory Corporation (formerly AppliedTheory Communications, Inc.) was
incorporated in the State of New York in November 1995 as a wholly-owned
subsidiary of NYSERNet.net, Inc. (NET), a not-for profit corporation. NET is
also the sole member of NYSERNet.org, Inc. (ORG), a not-for-profit corporation
(in effect ORG is a wholly-owned subsidiary of NET). As a result of certain
transactions completed during 1998 (the exercise of stock options and the
private placement described in Note H), AppliedTheory Corporation is no longer a
subsidiary of NET.
The operating activities prior to October 1, 1996 were conducted as a
nonincorporated "division" of ORG and are considered to constitute a predecessor
business (the "Predecessor"). The financial statements presented for the nine
months ended September 30, 1996 reflect these activities on a "carved-out" basis
from the historical financial statements of ORG as if the Predecessor had been
organized as of January 1, 1996.
In conjunction with the proposed initial public offering, AppliedTheory
Communications, Inc. intends to reorganize as a Delaware corporation. On January
28, 1999, the Company established its wholly-owned subsidiary, AppliedTheory
Corporation. The Company intends to merge into AppliedTheory Corporation, which
would be the surviving entity. For purposes of these financial statements and
notes thereto, AppliedTheory Corporation and AppliedTheory Communications, Inc.
are used interchangeably and referred to as "the Company."
The Company is a provider of Internet solutions for businesses with
critical Internet operations. The Company's solutions include: (i) Internet
connectivity, (ii) Internet integration and enterprise portal development and
(iii) Web hosting.
The Company's operations are subject to certain risks and uncertainties,
including actual and potential competition by entities with greater financial
resources, experience and market presence, risks associated with the development
of the Internet market, risks associated with consolidation in the industry, the
need to manage growth and expansion, certain technology and regulatory risks and
dependence upon sole and limited source suppliers. In addition, the Company has
to date relied upon NET for a significant portion of the funding of its
operations.
The Company has a history of losses, negative cash flow from operations and
at December 31, 1998 has a working capital deficiency and stockholders' deficit
of $3,248,566 and $9,007,037, respectively. On January 29, 1999, the Company's
Board of Directors authorized the filing of a registration statement relating to
an initial public offering (IPO) of shares of common stock should market
conditions permit and an increase in the number of common stock and preferred
stock authorized to 60,000,000 and 1,000,000, respectively. Management has
formulated plans that it believes will provide the Company with sufficient
liquidity for the next twelve months in the event the IPO is delayed or
unsuccessful. Management's plans include the deferral of discretionary expenses,
utilization of existing cash, available credit from existing borrowing
agreements and from additional financings, strategic relationships or other
arrangements. There can be no assurance that these plans will be successful.
F-7
<PAGE> 88
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies.
1. Revenue Recognition
Revenue from Internet connectivity and Web hosting services is recognized
ratably over the period of the agreement as the services are provided.
Revenue from Internet integration and enterprise portal development is
recognized as the services are rendered or on a percentage of completion basis
for contracts requiring milestone achievements prior to invoicing.
2. Deferred Revenue
Deferred revenue consists principally of billings in advance of services
not yet provided.
3. Research and Development
The Company charges all costs incurred to establish the technological
feasibility of a product or product enhancement to research and development
expense.
4. Advertising
Advertising costs, charged to operations when incurred, were approximately
$12,000, $400, $435,000 and $1,363,000 for the nine months ended September 30,
1996, the three months ended December 31, 1996 and the years ended December 31,
1997 and 1998, respectively.
5. Income Taxes
The Company records income taxes using the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities. A valuation allowance
is recognized to the extent a portion or all of a deferred tax asset may not be
realizable.
6. Loss Per Share
Basic loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted loss per share is
computed using the weighted average number of shares of common stock, adjusted
for the dilutive effect of potential common shares issued or issuable pursuant
to stock options and stock appreciation rights. Potential common shares issued
are calculated using the treasury stock method. All potential common shares have
been excluded from the computation of diluted loss per share as their effect
would be antidilutive and accordingly, there is no reconciliation of basic and
diluted loss per share for each of the periods presented (Note H). Loss per
share has not been presented for the Predecessor because the Predecessor was not
an incorporated entity.
7. Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
F-8
<PAGE> 89
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
8. Property and Equipment
Property and equipment are recorded at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the assets, which range
from three to ten years.
Leased property meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability. Depreciation of
capitalized leased assets is recorded on the straight-line method over the
shorter of the term of the lease or the estimated useful life.
9. Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of
The Company evaluates its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
10. Lease and Contractual Commitments
The Company recognizes expense under operating leases and contractual
agreements on a straight-line basis over the terms of the lease or agreement.
The difference between the amounts computed on a straight-line basis and the
amounts paid or payable is included in accrued expenses and other liabilities.
11. Stock Split
On October 14, 1998, the Board of Directors approved a five-for-one stock
split. All share and per share amounts in the accompanying financial statements
have been retroactively restated to give effect to the stock split. The par
value was maintained at $.01 per share.
12. Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash, cash equivalents and accounts
receivable. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's customer
base. However, these customers are concentrated in New York State. The Company's
revenues from ORG customers and services to ORG accounted for approximately 52%,
47% and 37% of total net revenues for the three months ended December 31, 1996
and the years ended December 31, 1997 and 1998, respectively (Note I). One
third-party customer accounted for 14%, 16% and 28% of total net revenues for
the three months ended December 31, 1996 and for the years ended December 31,
1997 and 1998, respectively.
13. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, long-term debt and capital lease obligations
approximate fair value because of the short maturity of these items.
F-9
<PAGE> 90
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
The Company believes that it is not practical to estimate a fair value for
its redeemable preferred stock which has a carrying value of $1,500,000.
The carrying amount of the debt issued pursuant to the Company's bank
credit agreement, as of December 31, 1998, approximates fair value because the
interest rates change with market interest rates.
14. Supplemental Noncash Investing and Financing Activities
During the years ended December 31, 1997 and 1998, the following noncash
transactions occurred: (1) in 1997, the Company (i) purchased approximately
$551,000 of fixed assets under capital lease obligations (Note D), (ii) incurred
approximately $2,129,000 in advances to purchase fixed assets from ORG (Notes F
and I) and (iii) issued 15,000 shares of $100 per share liquidation value
preferred stock in settlement of the advances due to NET as of December 31, 1996
(Notes G and I), (2) the Company recorded $210,000 in dividends payable on the
preferred stock in 1997 and 1998 and (3) in 1998, the Company recorded $341,000
to additional paid-in-capital from the conversion of 85,000 stock appreciation
rights to nonstatutory stock options (Note H).
15. Segment and Related Information
The Company operates as one business segment, as a provider of Internet
solutions, and follows the requirements of SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information."
The Company had revenues from its major service offerings as follows:
<TABLE>
<CAPTION>
NINE THREE YEAR ENDED
MONTHS ENDED MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, --------------------------
1996 1996 1997 1998
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Internet connectivity...... $5,690,811 $2,508,180 $12,249,040 $15,076,914
Internet integration and
enterprise portal
development............. 244,439 268,325 1,914,726 5,940,366
Web hosting................ 291,056 299,806 1,007,948 1,545,710
---------- ---------- ----------- -----------
Total net revenues........... $6,226,306 $3,076,311 $15,171,714 $22,562,990
========== ========== =========== ===========
</TABLE>
16. Use of Estimates
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
17. Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
F-10
<PAGE> 91
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Computer equipment.......................................... $3,098,084 $5,467,772
Office furniture and equipment.............................. 409,809 440,019
Equipment under capital leases.............................. 551,334 551,334
Leasehold improvements...................................... 983,821 353,210
---------- ----------
5,043,048 6,812,335
Less accumulated depreciation and amortization.............. (1,132,642) (2,609,164)
---------- ----------
$3,910,406 $4,203,171
========== ==========
</TABLE>
On December 21, 1998, the Company adopted a plan which was approved by the
Board of Directors to close a leased facility which principally is used as a Web
hosting data center. The facility has experienced operational difficulties which
limited its usability as a Web hosting site and the ability to generate
sufficient revenues. In connection with the plan of abandonment, the Company has
recorded a $900,000 charge to operations for the year ended December 31, 1998
consisting of (i) a $486,000 write-down of equipment and leasehold improvements
to management's estimate of their fair value of approximately $70,000 in
accordance with the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" and (ii) a
$414,000 accrued liability relating to equipment leases and facility operating
leases, net of anticipated subrental income in accordance with the provisions of
EITF 94-3, "Liability Recognized for Certain Employee Termination Benefits and
Other Costs to Exit an Activity." The plan calls for the Web hosting customer
base served from this facility and the related revenues, which are not
significant, to be transitioned to another facility by September 1999.
NOTE D -- LONG-TERM DEBT, BORROWINGS FROM NET AND CAPITAL LEASE OBLIGATIONS
Long-term debt, borrowings from NET and capital lease obligations consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Line of credit.............................................. $4,144,005 $5,430,000
Borrowings from NYSERNet.net, Inc........................... 2,444,636 2,957,238
Equipment financing......................................... 897,764
Capital lease obligations................................... 427,072 202,833
---------- ----------
7,015,713 9,487,835
Less current portion........................................ (210,548) (551,359)
---------- ----------
$6,805,165 $8,936,476
========== ==========
</TABLE>
Line of Credit
On January 20, 1998, the Company entered into a credit agreement with Fleet
Bank for the aggregate amount of $7,500,000 which expires on January 19, 2001.
The agreement provides for the payment of the unpaid principal balance of all
amounts advanced on January 19, 2001. Interest is charged and payable on
F-11
<PAGE> 92
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
a monthly basis as determined by the Company, either on a LIBOR plus 50 basis
points or a prime rate basis less 200 basis points. The credit facility is
collateralized by substantially all assets of the Company and by a maximum of
$5,500,000 of cash and cash equivalents, government securities, corporate
securities or corporate equities pledged by NET.
Pursuant to the credit agreement, the Company refinanced its existing
short-term lines of credit on a long-term basis. Accordingly, the $4,144,000
outstanding under this line of credit balance as of December 31, 1997 was
classified based on the terms of the refinancing.
At December 31, 1998, the Company had $5,430,000 outstanding under the line
of credit and, as a result of certain restrictions, had $70,000 in additional
availability. The average interest rate on outstanding borrowings was 10.0% and
6.1% at December 31, 1997 and 1998, respectively.
Borrowings from NYSERNet.net, Inc.
The Company has an unsecured borrowing facility with NET which provides for
borrowings to a maximum amount of $6,187,000, less any preferred stock issued to
NET (Note G), for working capital requirements. Interest on the loans accrues at
the prime rate (8.5% and 8.0% at December 31, 1997 and 1998, respectively) and
payments are deferred for five years from the date of each advance or January 1,
2002, whichever is earlier. All principal borrowings under this agreement are
due and payable on January 1, 2002. The Company had principal borrowings under
this facility of $2,385,721 and $2,687,000 at December 31, 1997 and 1998,
respectively. The Company had $2,000,000 available for additional principal
borrowings at December 31, 1998. In addition, the Company has interest payable
under this agreement of $58,915 and $270,238 at December 31, 1997 and 1998,
respectively. Amounts charged to interest expense on the borrowings under this
related party debt facility amounted to $58,915 and $211,323 for the years ended
December 31, 1997 and 1998, respectively.
Equipment Financing
During 1998, the Company entered into an equipment financing agreement with
a secured lender. Borrowings under the agreement are repayable in thirty-six
(36) varying monthly installments. Interest is payable monthly at a fixed rate
of 10.3%. Principal payments under this financing are $417,168 in 1999, $302,699
in 2000 and $177,897 in 2001. In connection with the equipment financing, the
Company was required to place on deposit $382,000 as additional collateral. The
security deposit earns interest at a rate of 5.0% per annum and is refundable in
equal installments on April 1, 2000 and 2001.
Capital Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. The obligations for the equipment require the Company to make
monthly payments through September 2000, with implicit interest rates ranging
from 10.0% to 16.6%.
F-12
<PAGE> 93
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
The following is a summary of the aggregate annual maturities of long-term
debt, borrowings from NET and capital lease obligations as of December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................... $ 551,359
2000........................................... 371,342
2001........................................... 5,607,896
2002........................................... 2,957,238
----------
Total................................ $9,487,835
==========
</TABLE>
Interest paid for the nine months ended September 30, 1996 and the years
ended December 31, 1997 and 1998 was $4,870, $287,798 and $396,745,
respectively.
NOTE E -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Network costs............................................... $ 301,847 $1,020,413
Lease and contractual commitments........................... 184,780 184,780
Other....................................................... 523,402 1,267,774
---------- ----------
$1,010,029 $2,472,967
========== ==========
</TABLE>
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Lease and contractual commitments........................... $367,461 $214,499
Accrued compensation........................................ 284,000
-------- --------
$651,461 $214,499
======== ========
</TABLE>
NOTE F -- COMMITMENTS AND CONTINGENCIES
1. Telecommunications
The Company is committed to a minimum cumulative purchase commitment to a
telecommunications vendor for various products and services through December 31,
2000. As of December 31, 1998, the Company has met the minimum cumulative
purchase commitments of $16.5 million through December 31, 1999 and anticipates
meeting the future minimum cumulative purchase commitments of $20 million over
the remaining term; however, there can be no assurance that such minimum will be
met.
The Company has also entered into contracts expiring at various times
through the year 2002 with various communication vendors to provide services
consisting of aggregating, routing and transporting data communications over the
Company's network.
2. Facilities and Equipment Leases
The Company leases its office facilities and certain equipment with
expiration dates through November 2008. Certain operating leases for the office
facilities include rent holidays and scheduled base
F-13
<PAGE> 94
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
rent increases over the term of the lease. The total amount of base rent is
being charged to expense on the straight-line method over the terms of the
lease.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999........................................... $ 894,000
2000........................................... 900,000
2001........................................... 809,000
2002........................................... 699,000
2003........................................... 743,000
Thereafter..................................... 2,898,000
----------
Total................................ $6,943,000
==========
</TABLE>
Total rent expense for operating leases amounted to $253,000, $292,000
(including $89,000 to ORG), $862,000 and $898,000 for the nine months ended
September 30, 1996, the three months ended December 31, 1996 and the years ended
December 31, 1997 and 1998, respectively.
Effective January 1, 1997, the Company purchased all assets previously
leased from ORG for $2,129,000. The assets were purchased at book value, which
approximated fair value at the effective date.
3. Employment Agreements
The Board of Directors has provided for severance payments upon termination
of employment or change in control, as defined, for certain executive officers
of the Company. Under this provision, the maximum aggregate commitment at
December 31, 1998, excluding benefits, was approximately $1,265,000.
4. Litigation Matters
The Company is involved in various litigation which arise through the
normal course of business. Management believes that the resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
NOTE G -- REDEEMABLE PREFERRED STOCK
Effective January 1, 1997, the Company issued 15,000 shares of redeemable
preferred stock at $100 per share liquidation value to NET in satisfaction of
the $1,500,000 advance. Holders of shares of the redeemable preferred stock are
entitled to receive payment for cumulative dividends at the annual rate of
$14.00 per share (14%) beginning January 1, 1999, based upon a liquidation value
of $100 per share, payable quarterly. At December 31, 1998, the amount of
dividends payable on the 14% redeemable preferred stock was $420,000. All or any
part of the preferred stock may be redeemed by the Company at any time on or
after December 31, 2001, by resolution of the Company's Board of Directors. At
any time on or after December 31, 2001, any holder of preferred stock may
request that the Company redeem some or all of the holder's preferred stock
within sixty days of such request.
F-14
<PAGE> 95
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE H -- STOCKHOLDERS' EQUITY (DEFICIT) AND STOCK OPTIONS
The Company has authorized 25,000,000 shares of voting common stock and
5,000,000 shares of nonvoting common stock. In addition, the Company has
authorized 75,000 shares of preferred stock.
The Company's nonvoting common stock is identical in all respects to the
voting common stock, except that the holders of the nonvoting common stock do
not have the right to vote on any matter coming before the stockholders of the
Company, except to the extent required by law. At the option of the Company's
Board of Directors, all shares of nonvoting common stock can be converted into
shares of voting common stock.
On August 4, 1998, the Company completed a private placement of 1,150,000
shares of its voting common stock for proceeds of $4,985,719, net of issuance
costs of $80,951. In connection with the private placement, NET sold a portion
of its holdings in the Company. The stock purchase agreement also gives the
investors the right of first refusal to purchase any equity securities of the
Company at the same price, and on the same terms and conditions offered until
such time that any class of the Company's equity securities are registered under
the Securities and Exchange Act. In addition, NET granted an irrevocable proxy
to vote and to execute and deliver written consents or otherwise act with
respect to 1,260,000 shares of its current holdings of 3,250,000 shares to the
investors of the private placement.
The Company's 1996 Incentive Stock Option Plan has authorized the grant of
options to key employees, directors, advisors and consultants for up to
8,000,000 shares of the Company's common stock with an exercise price of not
less then the fair market value of the shares at the date of grant. All options
granted have ten-year terms and vest over one to five years following the date
of grant. The Board of Directors may exercise the right to accelerate the
vesting provisions of the option grants upon the occurrences or certain
conditions, as defined.
As permitted by SFAS No. 123, the Company has elected to follow the
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees," method of determining compensation cost. Under APB 25,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
THREE MONTHS ENDED ------------------
DECEMBER 31, 1996 1997 1998
------------------ ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................ 6.21% 5.40% 4.80%
Volatility factor.............................. .001 .001 .001
Expected life of options....................... 5 years 5 years 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the option valuation model requires the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the
F-15
<PAGE> 96
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
existing methods do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
Had the Company determined compensation cost for this plan in accordance
with SFAS No. 123, the Company's pro forma net loss attributable to common
stockholders and pro forma basic and diluted loss per common share would have
been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ---------------------------
DECEMBER 31, 1996 1997 1998
------------------ ------------ -----------
<S> <C> <C> <C>
Pro forma net loss attributable to
common stockholders................. $(1,765,450) $ (6,069,920) $(6,171,616)
Pro forma basic and diluted loss per
common share........................ $ (.27) $ (.93) $ (.73)
</TABLE>
A summary of the Company's stock option activity and related information
for the period October 1, 1996 through December 31, 1998, follows:
<TABLE>
<CAPTION>
WEIGHTED
PRICE AVERAGE
OPTIONS PER SHARE EXERCISE PRICE
---------- ----------- --------------
<S> <C> <C> <C>
Balance, October 1, 1996
Granted....................................... 3,296,500 $.084-$.20 $ .108
Forfeited..................................... (25,000) .394 .084
---------- ----------- --------------
Balance, December 31, 1996.................... 3,271,500 .084-.20 .108
Granted....................................... 586,555 .60 .60
Exercised..................................... (40,000) .20 .20
Forfeited..................................... (11,250) .394 .394
---------- ----------- --------------
Balance, December 31, 1997.................... 3,806,805 .084-.60 .182
Granted....................................... 1,474,515 .20-4.40 4.104
Exercised..................................... (2,372,890) .084-.60 .114
Forfeited..................................... (242,875) .084-.60 .438
---------- ----------- --------------
Balance, December 31, 1998.................... 2,665,555 $.084-$4.40 $ 2.39
========== =========== ==============
Exercisable, December 31, 1996................ 80,000 $.20 $ .20
========== =========== ==============
Exercisable, December 31, 1997................ 918,980 $.084-$ .60 $ .154
========== =========== ==============
</TABLE>
The weighted average fair values of options granted were $.02, $.00 and
$.87 for the three months ended December 31, 1996 and the years ended December
31, 1997 and 1998, respectively.
F-16
<PAGE> 97
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
The following table summarizes information about the shares outstanding and
exercisable for options at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
----------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE PRICE
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.084-$.092 483,545 1.17 $ .091 440,545 $ .09
.20-.60 817,495 7.89 .396 596,620 .32
4.40 1,364,515 9.84 4.40 136,740 4.40
--------- ---------
2,665,555 8.75 $2.39 1,173,905 $ .71
========= =========
</TABLE>
During 1997, the Board of Directors authorized the issuance of 85,000 Stock
Appreciation Rights (SARS) to certain executives at an exercise price varying
from $.20 to $.60. The SARS vest ratably over a four-year period or upon
occurrence of certain events. At the option of the Company, the SARS can be
converted into nonstatutory stock options at their exercise price. Because the
exercise price exceeded the fair market value of the underlying stock as of
December 31, 1997, no liability was recorded. During 1998, pursuant to the sale
of common stock of the Company described above, the SARS vested, the Company
recorded $341,000 of compensation expense and the SARS were converted into
nonstatutory stock options.
NOTE I -- RELATED PARTY TRANSACTIONS
1. Transactions With NET and ORG
Effective October 1, 1996, the Company purchased certain assets and assumed
certain liabilities of ORG in a noncash transaction. The following is a summary
of this transaction:
<TABLE>
<S> <C>
Assets purchased
Prepaid expense and other assets.......................... $116,927
Property and equipment (book value basis of $704,860)..... 773,839
Intangible assets (book value basis of $0)................ 758,000
Liabilities assumed
Accrued compensation...................................... $130,669
Deferred revenue.......................................... 601,507
Other accrued liabilities................................. 877,615
</TABLE>
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 48, the purchase of the intangible assets and the amount paid for property
and equipment in excess of the assets' net book value have been recorded as a
charge to retained earnings in the amount of $826,979.
The Company has entered into a resale agreement with ORG to serve as ORG's
sole source provider for Internet system and network management solutions to
ORG's customer base under contractual arrangements. ORG's customers consist of
(i) unrelated customers for which ORG serves as a conduit to the sales
transactions between the Company and these customers and (ii) member
institutions of ORG for which ORG provides pricing terms below that charged by
the Company to ORG. In addition,
F-17
<PAGE> 98
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
the Company provides services to ORG principally related to network development.
The Company's revenues from ORG's customer base and services to ORG for the
following periods are:
<TABLE>
<CAPTION>
THREE
MONTHS ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1996 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Unrelated customers........................... $ 916,773 $3,705,546 $3,051,837
Member institutions........................... 529,179 2,890,786 4,477,004
Services to ORG............................... 141,057 552,002 798,277
---------- ---------- ----------
$1,587,009 $7,148,334 $8,327,118
========== ========== ==========
</TABLE>
The excess of the Company's revenues over amounts charged by ORG to its
member institutions was approximately $243,000, $1,490,000 and $2,814,000 for
the three months ended December 31, 1996 and for the years ended December 31,
1997 and 1998, respectively.
The Company has also entered into a resource sharing agreement with both
NET and ORG. During the three months ended December 31, 1996 and the years ended
December 31, 1997 and 1998, the Company charged NET approximately $25,000,
$91,500 and $100,000 and ORG $63,000, $210,000 and $300,000, respectively, in
management fees.
During the year ended December 31, 1997, the Company purchased from ORG
fixed assets previously leased from ORG with a book value of $2,129,000. In
addition, the Company issued 15,000 shares of $100 per share liquidation value
preferred stock in settlement of the advances due to NET (Note G).
Transactions among the Company, ORG and NET throughout the period are
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------
DECEMBER 31, 1996 1997 1998
----------------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of period............. $ (39,016) $ 490,712 $ (400,277)
Revenue from ORG......................... 1,587,009 7,148,334 8,327,118
Payments made to the Company............. (6,123,558) (8,033,630)
Management fees.......................... 88,083 301,297 399,780
Expenses paid on behalf of the Company by
ORG.................................... (1,393,613) (10,997) (45,441)
Expenses paid by the Company on behalf of
ORG and Net............................ 323,824 96,756 136,733
Purchase of assets from ORG.............. (2,129,105)
Equipment lease.......................... (89,335) 46,267
Company receipts deposited by ORG and
NET.................................... 13,760 170,017
ORG and NET receipts deposited by the
Company................................ (219,983) (1,404,401)
----------- ----------- -----------
Balance, end of period................... $ 490,712 $ (400,277) $ (850,101)
=========== =========== ===========
</TABLE>
F-18
<PAGE> 99
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
2. Other
In 1998, two officers/stockholders of the Company borrowed a total of
$294,000 under term note agreements. The total principal amount plus accrued
interest is due in 2001. Interest is being accrued at a rate of 5.56%. Upon
demand by the Company the officers/stockholders will be required to pledge
common stock of the Company as collateral on these borrowings.
In December 1998, the Board authorized the Company to make available a $2.5
million credit line, effective January 1, 1999, to its Chairman/CEO to be used
exclusively for purchasing the Company's common stock, under certain
circumstances. This line of credit agreement will terminate upon consummation of
the initial public offering transaction described in Note A.
In October 1996, the Company entered into a consulting agreement with a
director/stockholder, which agreement expires in October 2000. The agreement,
which is automatically renewable annually after the initial term, is cancellable
by either party with notice, as defined. Under this agreement, the director/
stockholder receives $5,000 per-month in consulting fees. In addition, the
director/stockholder received 500,000 stock options in 1996 with an exercise
price of $.20 per-share which vest ratably over the term of the initial term of
the consulting agreement or upon occurrence of certain events. The compensation
charge pertaining to the stock options was nominal based on the fair value of
the common stock at the date of grant. These stock options became fully
exercisable in 1998 as a result of the August 4, 1998 private placement
transaction described in Note H. The Company incurred consulting fees of
$15,000, $60,000 and $60,000 during the three months ended December 31, 1996 and
the years ended December 31, 1997 and 1998, respectively.
During the year ended December 31, 1998, the Company incurred $25,000 in
consulting fees to one of its principal stockholders.
NOTE J -- INCOME TAXES
The Company generated taxable losses of approximately $1,285,000,
$5,526,000 and $4,916,000 for the three months ended December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1996 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards........... $ 501,000 $ 2,771,000 $ 4,607,000
Accruals not currently deductible for Tax
purposes................................. 462,000 391,000 618,000
Acquisition of intangible assets from
ORG...................................... 298,000 298,000 276,000
Other...................................... 12,000 130,000 256,000
----------- ----------- -----------
Gross deferred tax assets.................. 1,273,000 3,590,000 5,757,000
Valuation allowance........................ (1,273,000) (3,590,000) (5,757,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-19
<PAGE> 100
APPLIEDTHEORY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
A reconciliation between the Company's effective tax rate and the Federal
income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
THREE MONTHS DECEMBER 31,
ENDED --------------
DECEMBER 31, 1996 1997 1998
----------------- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate................. (34)% (34)% (34)%
Valuation allowance on net operating Loss......... 33 32 32
Valuation allowance on temporary Differences...... 1 1
Expenses not deductible for income tax purposes... 1 1 1
----- ----- -----
Effective income tax rate......................... 0% 0% 0%
===== ===== =====
</TABLE>
The Company has provided a net deferred tax asset valuation allowance for
net deferred tax assets since realization of these benefits cannot be reasonably
assured.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $11,727,000 for income tax purposes. These net operating losses
begin to expire in the year 2012. Utilization of the net operating loss arising
prior to August 4, 1998 will be subject to an annual limitation due to the
change in ownership on such date. Further limitations may occur in the event of
significant changes in the Company's ownership. In addition, their use is
limited to future earnings of the Company.
NOTE K -- RETIREMENT SAVINGS PLANS
During the nine months ended September 30, 1996, the Company participated
in a 403(b) defined contribution plan through Teachers Insurance Annuity (TIAA)
and College Retirement Equities Fund (CREF). This plan was available to eligible
employees. The Company contributed a percentage of each eligible employee's
regular salary. Total expense charged to operations relating to this plan for
the nine months ended September 30, 1996 was $296,000. As of January 1, 1997,
all employees were transferred to the AppliedTheory Communications, Inc. 401(k)
and Money Purchase Pension Plans, and the 403(b) plan with TIAA and CREF was
terminated and all participants were fully vested in their account balances.
The AppliedTheory Communications, Inc. Money Purchase Pension Plan and the
AppliedTheory Communications, Inc. 401(k) Profit Sharing Plan cover
substantially all employees. In addition to employee contributions, the Company
matched a percentage of the employee's elective salary deferral into the Profit
Sharing Plan and contributed a percentage of each eligible employee's salary to
the Money Purchase Plan. Effective October 1, 1997, the Company terminated the
AppliedTheory Communications, Inc. Money Purchase Pension Plan. All employees in
the Plan were vested, and all assets of the Plan were transferred into the
401(k) Profit Sharing Plan. The total contributions made by the Company under
both Plans totaled approximately $30,000 for the three months ended December 31,
1996, and $587,000 and $373,000 for the years ended December 31, 1997 and 1998,
respectively.
NOTE L -- SUBSEQUENT EVENT
1. Agreement
On January 26, 1999, the Company and IXC Internet Services, Inc., (a
principal stockholder) signed a Joint Marketing and Services Agreement. Under
the agreement each party can resell the services of the other party.
F-20
<PAGE> 101
[INSIDE BACK COVER --]
[GRAPHIC: GEMINI2000 LOGO, INCORPORATING LOGOS OF APPLIEDTHEORY CORPORATION
AND IXC COMMUNICATIONS, INC.]
[GRAPHIC: MAP OF THE UNITED STATES ILLUSTRATING THE GEMINI2000 NETWORK
GEOGRAPHICAL SCOPE. GEMINI2000 DATA CENTERS ARE ILLUSTRATED IN DALLAS, NEWARK
AND SAN FRANCISCO. CORE POP (POINT OF PRESENCE) SITES ARE INDICATED IN SEATTLE,
SAN FRANCISCO, SALT LAKE CITY, DALLAS, CHICAGO, ATLANTA, BALTIMORE/WASHINGTON
D.C. AND NEWARK. THE CORE POP SITES ARE INTERCONNECTED BY OC 48 LINES.
APPLIEDTHEORY EXPANSION CITIES ARE INDICATED IN LOS ANGELES, SAN DIEGO, PHOENIX,
MINNEAPOLIS, DETROIT, ST. LOUIS, HOUSTON, TAMPA, PHILADELPHIA, STAMFORD,
PROVIDENCE AND BOSTON. THE APPLIEDTHEORY EXPANSION CITIES ARE CONNECTED TO CORE
POP SITES BY OC 3 LINES.]
[GRAPHIC: THE GEMINI2000 REGIONAL HIERARCHY ILLUSTRATED WITH CORE POP SITES
CONNECTED BY OC 48 LINES. THE CORE POP SITES ARE CONNECTED TO PACKET OVER SONET
(POS) SITES AND ASYNCHRONOUS TRANSFER MODE (ATM) SITES WHICH ARE IN TURN
CONNECTED TO APPLIEDTHEORY EXPANSION CITY SITES, ALL BY OC 3 LINES.]
[TEXT: THE GEMINI2000 NETWORK IS A NEW HIGH SPEED INTERNET BACKBONE BUILT
FROM THE GROUND UP WITH THE LATEST FIBER TECHNOLOGY AND ELECTRONICS. UTILIZING A
UNIQUE HIERARCHICAL TOPOLOGY, IT IS 100 TO 1,000 TIMES FASTER THAN TYPICAL
INTERNET BUSINESS CONNECTIONS AVAILABLE TODAY.]
<PAGE> 102
- ---------------------------------------------------------------
- ---------------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER APPLIEDTHEORY CORPORATION NOR ANY UNDERWRITER HAS AUTHORIZED
ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF THESE SECURITIES.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 9
How We Intend to Use the Proceeds From the
Offering...................................... 21
Dividend Policy................................. 21
Capitalization.................................. 22
Dilution........................................ 23
Selected Financial Data......................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business........................................ 34
Management...................................... 53
Certain Transactions............................ 62
Principal Stockholders.......................... 66
Description of Capital Stock.................... 68
Shares Eligible for Future Sale................. 71
Certain U.S. Federal Tax Considerations for Non-
U.S. Holders of Common Stock.................. 72
Underwriting.................................... 73
Legal Matters................................... 75
Experts......................................... 75
Where You Can Find More Information............. 75
Index to Financial Statements................... F-1
</TABLE>
------------------------
Until , 1999 all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
APPLIEDTHEORY
CORPORATION
SHARES
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
BEAR, STEARNS & CO. INC.
CIBC WORLD MARKETS
LEHMAN BROTHERS
------------------------
, 1999
- ---------------------------------------------------------------
- ---------------------------------------------------------------
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
common stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee-Securities and Exchange Commission......... $15,985
NASDAQ National Market Listing Fee.......................... *
NASD Filing Fee............................................. 6,250
Blue Sky fees and expenses.................................. *
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
DGCL) provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or business, against
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to be
indemnified for such expenses which the court shall deem proper.
Section 145 of the DGCL further provides: (i) that to the extent a director
or officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) or in the defense of
any claim, issue, or matter therein, he shall be indemnified against any
expenses actually and reasonably incurred by him in connection therewith; (ii)
that indemnification provided for by Section 145 shall not be deemed exclusive
of any rights to which the indemnified party may be entitled; (iii) and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out
II-1
<PAGE> 104
of his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a corporation in its original
Certificate of Incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was illegal, or obtaining an improper
personal benefit. A provision of this type has no effect on the availability of
equitable remedies, such as injunction or rescission, for breach of fiduciary
duty. AppliedTheory's Certificate of Incorporation contains such a provision.
AppliedTheory's Certificate of Incorporation and By-Laws provide that
AppliedTheory shall indemnify officers and directors and, to the extent
permitted by the Board of Directors, employees and agents of AppliedTheory, to
the full extent permitted by and in the manner permissible under the laws of the
State of Delaware. In addition, the By-Laws permit the Board of Directors to
authorize AppliedTheory to purchase and maintain insurance against any liability
asserted against any director, officer, employee or agent of AppliedTheory
arising out of his capacity as such.
Prior to completion of this offering, AppliedTheory and each of its
directors will enter into an indemnification agreement. The indemnification
agreements will provide that AppliedTheory will indemnify the directors to the
full extent permitted by, and in the manner permissible under, the laws of the
State of Delaware and by the Certificate of Incorporation and the Bylaws.
The employment agreements of AppliedTheory's executive officers (which are
included as Exhibits to this Registration Statement) provide that AppliedTheory
shall indemnify the officers to the fullest extent permitted by law and by the
Certificate of Incorporation and Bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement,
AppliedTheory has issued securities that were not registered under the
Securities Act of 1933, as amended (the Securities Act) to a limited number of
persons, as described below.
AppliedTheory believes that the transactions described below were exempt
from registration under the Securities Act pursuant to (i) Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, as transactions by an
issuer not involving public offering, (ii) Rule 701 promulgated under Section
3(b) of the Securities Act, as transactions pursuant to compensatory benefit
plans and contracts relating to compensation; or (iii) Section 3(a)(9), as an
issuance of a security exchanged by the issuer with an existing security holder
exclusively where no commission or other remuneration was paid or given directly
or indirectly for soliciting such exchanged.
(A) ISSUANCES OF CAPITAL STOCK
In March 1996, AppliedTheory transferred 6,500,000 shares, which at the
time represented all of its outstanding stock, to NYSERNet.net in a
reorganization of NYSERNet, Inc. AppliedTheory received as consideration for its
stock certain operating assets of NYSERNet, Inc. and $13,000.
On March 12, 1997, AppliedTheory issued to NYSERNet 15,000 shares of
Preferred Stock pursuant to a revolving borrowing facility with NYSERNet. The
Preferred Stock has a liquidation value of $100 per share and provides for
dividends accruing at an annual rate of 14% of the liquidation value.
AppliedTheory may redeem the Preferred Stock after December 31, 2001 at a price
equal to the liquidation value plus any accrued but unpaid dividends.
II-2
<PAGE> 105
In August 1998, AppliedTheory issued 1,150,000 shares of Common Stock to
IXC Internet Service, Inc. and Grumman Hill Investments III, L.P., for an
aggregate offering price of $5,066,670, resulting in net proceeds of $4,985,719.
As of January 31, 1999, 2,956,596 shares of common stock have been issued
in connection with the exercise of stock options.
(B) GRANTS OF STOCK OPTIONS
Pursuant to a Non-Statutory Stock Option Contract dated October 5, 1996,
AppliedTheory issued to Shelley Harrison an option to purchase 500,000 shares of
AppliedTheory voting common stock at a price of $.20 per share. The option
vested with regards to 125,000 shares on October 1, 1997 and, with respect to
the remaining 375,000 shares, on August 4, 1998.
The 1996 Incentive Stock Option Plan was adopted, as amended, by
AppliedTheory's Board of Directors on September 2, 1998 and by the stockholders
of AppliedTheory on October 14, 1998. As of January 31, 1999, options to
purchase up to an aggregate of 5,357,570 shares of common stock had been granted
to employees of AppliedTheory, of which options to purchase up to an aggregate
of 2,121,849 shares of common stock remained outstanding on that date at a
weighted average exercise price of $2.96 per share.
In December 1998, the Board of Directors converted 85,000 outstanding Stock
Appreciation Rights held by Messrs. Mandelbaum, Luckett, Martin and Oros into
non-qualified options to purchase up to 85,000 shares of common stock of
AppliedTheory. The options vested immediately upon issuance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <C> <S>
1.01 -- Underwriting Agreement.*
3.01 -- Certificate of Incorporation of the Registrant.*
3.02 -- Bylaws of the Registrant.*
4.01 -- Specimen of Certificate for Common Stock of the Registrant.*
4.02 -- Registration Rights Agreement by and among IXC Internet
Services, Inc., Grumman Hill Investments III, L.P.,
AppliedTheory Communications, Inc., NYSERNet.net, Inc.,
Richard Mandelbaum, James D. Luckett, Denis J. Martin, Mark
A. Oros, David A. Buckel and Shelley A. Harrison, dated July
10, 1998.
5.01 -- Opinion of Dewey Ballantine LLP.*
10.01 -- Stock Purchase Agreement by and among IXC Internet Services,
Inc., Grumman Hill Investments III, L.P., AppliedTheory
Communications, Inc., NYSERNet.net, Inc., Richard
Mandelbaum, David Buckel, James Luckett, Denis Martin and
Mark Oros, dated August 4, 1998.
10.02 -- 1996 Incentive Stock Option Plan.
10.03 -- Form of Option Agreements among the Registrant, IXC Internet
Services, Inc. and Grumman Hill Investments III, L.P. and
John Pendray, Robert Riley, Bill Owens, Jacqueline A. Owens,
Patrick McManus, Stephen Kankus, Barbara J. DeMong, David
Buckel, Charles Brauch, Marc Bortniker, Shelley Harrison,
James Luckett, Richard Mandelbaum, Denis Martin, Mark Oros,
George Sadowsky and Yechiam Yemini, each dated August 4,
1998.
10.04 -- Non-Statutory Stock Option Contract with Shelley Harrison.
10.05 -- Agreement of Lease between 55 Broad Street Company and
AppliedTheory Communications, Inc. (as successor to
NYSERNet, Inc.), dated May 1, 1996.
10.06 -- Agreement of Lease between Cuttermill Realty Co. and
AppliedTheory Communications, Inc. and NYSERNet.org, Inc.
(together as successors to NYSERNet, Inc.), dated May, 1996.
10.07 -- Lease Agreement between Elwood Davis Road Company and
AppliedTheory Communications, Inc. (as successor to
NYSERNet, Inc.), dated November 1995.
</TABLE>
II-3
<PAGE> 106
<TABLE>
<C> <C> <S>
10.08 -- Form of Employment and Non-Competition Agreement between AppliedTheory Communications, Inc. and
Richard Mandelbaum, James Luckett, Mark Oros, Denis Martin and David Buckel.*
10.09 -- Agreement of Employment and Non-Competition between AppliedTheory Communications, Inc. and Lawrence B.
Helft, dated December 7, 1998.*
10.10 -- Consulting Agreement between AppliedTheory Communications, Inc. and Shelley A. Harrison, dated October
5, 1996.
10.11 -- Form of Indemnification Agreement between AppliedTheory Corporation and certain directors.*
10.12 -- Note with David A. Buckel, dated July 30, 1998.
10.13 -- Note with James D. Luckett, dated July 30, 1998.
10.14 -- Assignment, Software Development and License Agreement between NYSERNet.org, Inc. and AppliedTheory
Communications, Inc., dated October 1, 1996.
10.15 -- Joint Marketing and Services Agreement between AppliedTheory Communications, Inc. and IXC Internet
Services, Inc., dated January 26, 1999.
10.16 -- Resale Agreement between AppliedTheory Communications, Inc. (as successor to NYSERNet.com, Inc.), and
NYSERNet.org, Inc., dated October 1, 1996.
10.17 -- Resource Sharing Agreement between AppliedTheory Communications, Inc. (as successor to NYSERNet.com,
Inc.) and NYSERNet.org, Inc., dated October 1, 1996.
10.18 -- Agreement between AppliedTheory Communications, Inc. (as successor to NYSERNet, Inc.) and the New York
State Department of Labor, dated September 27, 1994.
10.19 -- Promissory Note between AppliedTheory Communications, Inc. and NYSERNet.net, Inc., dated ,
1999.*
10.20 -- Revolving Note Agreement between Fleet National Bank and AppliedTheory Communications, Inc., dated
January 20, 1998.
23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of Dewey Ballantine LLP (contained in Exhibit 5.1).*
24.1 -- Power of Attorney (included on page II-6).
27.1 -- Financial Data Schedules.
</TABLE>
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE> 107
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Great Neck, New York, on February 10,
1999.
APPLIEDTHEORY CORPORATION
By: /s/ RICHARD MANDELBAUM
------------------------------------
Richard Mandelbaum
Chairman of Board, Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names
appear below appoints and constitutes Richard Mandelbaum and David A. Buckel,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to execute any and all amendments to the
within Registration Statement, including post-effective amendments, and to sign
any and all registration statements relating to the same offering of securities
as this Registration Statement that are filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, and to file the same, together with all
exhibits thereto, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on February
10, 1999 in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD MANDELBAUM Chairman of the Board, Chief February 10, 1999
- --------------------------------------------------- Executive Officer and Director
Richard Mandelbaum (Principal Executive Officer)
/s/ DAVID A. BUCKEL Vice President and Chief February 10, 1999
- --------------------------------------------------- Financial Officer (Principal
David A. Buckel Financial and Accounting
Officer)
/s/ JAMES GUTHRIE Director February 10, 1999
- ---------------------------------------------------
James Guthrie
/s/ SHELLEY A. HARRISON Director February 10, 1999
- ---------------------------------------------------
Shelley A. Harrison
/s/ JAMES T. KELSEY Director February 10, 1999
- ---------------------------------------------------
James T. Kelsey
</TABLE>
II-6
<PAGE> 109
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN J. PENDRAY Director February 10, 1999
- ---------------------------------------------------
John J. Pendray
/s/ GEORGE SADOWSKY Director February 10, 1999
- ---------------------------------------------------
George Sadowsky
</TABLE>
II-7
<PAGE> 110
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
APPLIEDTHEORY CORPORATION
In connection with our audit of the financial statements of AppliedTheory
Corporation and its Predecessor referred to in our report dated January 29,
1999, we have also audited Schedule II for the nine months ended September 30,
1996, the three months ended December 31, 1996, and the years ended December 31,
1997 and 1998 of AppliedTheory Corporation and the Predecessor. In our opinion,
this schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be set forth therein.
GRANT THORNTON LLP
New York, New York
January 29, 1999
S-1
<PAGE> 111
APPLIEDTHEORY CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS --
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ------------ ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Predecessor:
Nine months ended September 30, 1996
Allowance for doubtful accounts............ $ 30 $12 $ 18
AppliedTheory Corporation:
Three months ended December 31, 1996
Allowance for doubtful accounts............ 25 2 23
Deferred tax valuation allowance........... 1,273 1,273
Year ended December 31, 1997
Allowance for doubtful accounts............ $ 23 120 21 122
Deferred tax valuation allowance........... 1,273 2,317 3,590
Year ended December 31, 1998
Allowance for doubtful accounts............ 122 60 25 157
Deferred tax valuation allowance........... 3,590 2,167 5,757
</TABLE>
S-2
<PAGE> 112
EXHIBIT INDEX
<TABLE>
<C> <C> <S>
1.01 -- Underwriting Agreement.*
3.01 -- Certificate of Incorporation of the Registrant.*
3.02 -- Bylaws of the Registrant.*
4.01 -- Specimen of Certificate for Common Stock of the Registrant.*
4.02 -- Registration Rights Agreement by and among IXC Internet
Services, Inc., Grumman Hill Investments III, L.P.,
AppliedTheory Communications, Inc., NYSERNet.net, Inc.,
Richard Mandelbaum, James D. Luckett, Denis J. Martin, Mark
A. Oros, David A. Buckel and Shelley A. Harrison, dated July
10, 1998.
5.01 -- Opinion of Dewey Ballantine LLP.*
10.01 -- Stock Purchase Agreement by and among IXC Internet Services,
Inc., Grumman Hill Investments III, L.P., AppliedTheory
Communications, Inc., NYSERNet.net, Inc., Richard
Mandelbaum, David Buckel, James Luckett, Denis Martin and
Mark Oros, dated August 4, 1998.
10.02 -- 1996 Incentive Stock Option Plan.
10.03 -- Form of Option Agreements among the Registrant, IXC Internet
Services, Inc. and Grumman Hill Investments III, L.P. and
John Pendray, Robert Riley, Bill Owens, Jacqueline A. Owens,
Patrick McManus, Stephen Kankus, Barbara J. DeMong, David
Buckel, Charles Brauch, Marc Bortniker, Shelley Harrison,
James Luckett, Richard Mandelbaum, Denis Martin, Mark Oros,
George Sadowsky and Yechiam Yemini, each dated August 4,
1998.
10.04 -- Non-Statutory Stock Option Contract with Shelley Harrison.
10.05 -- Agreement of Lease between 55 Broad Street Company and
AppliedTheory Communications, Inc. (as successor to
NYSERNet, Inc.), dated May 1, 1996.
10.06 -- Agreement of Lease between Cuttermill Realty Co. and
AppliedTheory Communications, Inc. and NYSERNet.org, Inc.
(together as successors to NYSERNet, Inc.), dated May, 1996.
10.07 -- Lease Agreement between Elwood Davis Road Company and
AppliedTheory Communications, Inc. (as successor to
NYSERNet, Inc.), dated November 1995.
10.08 -- Form of Employment and Non-Competition Agreement between
AppliedTheory Communications, Inc. and Richard Mandelbaum,
James Luckett, Mark Oros, Denis Martin and David Buckel.*
10.09 -- Agreement of Employment and Non-Competition between
AppliedTheory Communications, Inc. and Lawrence B. Helft,
dated December 7, 1998.*
10.10 -- Consulting Agreement between AppliedTheory Communications,
Inc. and Shelley A. Harrison, dated October 5, 1996.
10.11 -- Form of Indemnification Agreement between AppliedTheory
Corporation and certain directors.*
10.12 -- Note with David A. Buckel, dated July 30, 1998.
10.13 -- Note with James D. Luckett, dated July 30, 1998.
10.14 -- Assignment, Software Development and License Agreement
between NYSERNet.org, Inc. and AppliedTheory Communications,
Inc., dated October 1, 1996.
10.15 -- Joint Marketing and Services Agreement between AppliedTheory
Communications, Inc. and IXC Internet Services, Inc., dated
January 26, 1999.
10.16 -- Resale Agreement between AppliedTheory Communications, Inc.
(as successor to NYSERNet.com, Inc.), and NYSERNet.org,
Inc., dated October 1, 1996.
10.17 -- Resource Sharing Agreement between AppliedTheory
Communications, Inc. (as successor to NYSERNet.com, Inc.)
and NYSERNet.org, Inc., dated October 1, 1996.
10.18 -- Agreement between AppliedTheory Communications, Inc. (as
successor to NYSERNet, Inc.) and the New York State
Department of Labor, dated September 27, 1994.
10.19 -- Promissory Note between AppliedTheory Communications, Inc.
and NYSERNet.net, Inc., dated , 1999.*
10.20 -- Revolving Note Agreement between Fleet National Bank and
AppliedTheory Communications, Inc., dated January 20, 1998.
</TABLE>
<PAGE> 113
<TABLE>
<C> <C> <S>
23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of Dewey Ballantine LLP (contained in Exhibit 5.1).*
24.1 -- Power of Attorney (included on page II-6).
27.1 -- Financial Data Schedules.
</TABLE>
<PAGE> 1
Exhibit 4.02
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
August 4, 1998, by and among IXC Internet Services, Inc., a Delaware corporation
("IXC"), Grumman Hill Investments III, L.P., a Delaware limited partnership
("Grumman Hill"), AppliedTheory Communications, Inc., a New York corporation
(the "Company"), NYSERNet.net, Inc. ("NYSERNet"), Richard Mandelbaum
("Mandelbaum"), James D. Luckett, Denis Martin, Mark Oros and David A. Buckel
(collectively, the Management Stockholders") and Shelley A. Harrison
("Harrison").
RECITALS:
WHEREAS, pursuant to the Stock Purchase Agreement, dated May 19,
1998, by and among IXC, Grumman Hill, the Company, NYSERNet and certain
stockholders of the Company (the "Stock Purchase Agreement"), IXC and Grumman
Hill are purchasing, and the Company and NYSERNet are selling, for the purchase
price and upon the terms and subject to the conditions of the Stock Purchase
Agreement, certain shares of common stock (the "Common Stock"), of the Company
(the "Initial Shares"), in the amounts as set forth on Exhibit A attached to the
Stock Purchase Agreement;
WHEREAS, Grumman Hill, IXC, the Management Stockholders and
Harrison are entering into Option and Voting Agreements of even date herewith,
pursuant to which Grumman Hill and IXC may purchase certain shares of Common
Stock now or hereafter owned by the those stockholders (the "Option Shares");
and
WHEREAS, the parties desire in this Agreement to provide, with
respect to the Initial Shares, the Option Shares and any other shares that are
or may hereafter during the term of this Agreement become beneficially owned by
the parties hereto, for the granting to each of the parties hereto, the
registration rights set forth herein.
NOW, THEREFORE, in consideration of the premises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:
SECTION 1. Registration Rights.
1.1 Definitions. As used in this Section 1:
(a) The terms "register," "registered," and "registration" refer
to a registration effected by filing with the Securities and
Exchange Commission (the "SEC") a registration statement
("Registration Statement") in compliance with the Securities
Act of 1933, as amended (the "1933 Act"), and the declaration
or ordering by the SEC of the effectiveness of such
Registration Statement.
(b) The term "Registrable Securities" means (i) the Initial
Shares, (ii) the Option Shares and (iii) any other shares of
Common Stock that during the
<PAGE> 2
term of this Agreement are or become beneficially owned by a
party. The term "Registrable Securities" shall also include
any Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right, or other security that is
issued as) a dividend, stock split or other distribution with
respect to, or in exchange for, upon reclassification or in
replacement of, Registrable Securities. In the event of any
recapitalization by the Company, whether by stock split,
reverse stock split, stock dividend or otherwise, the number
of shares of Registrable Securities used throughout this
Agreement for various purposes shall be proportionately
increased or decreased. In the event that any shares that
would be deemed to be "Registerable Securities" become
eligible for resale under Rule 144(k) of the Securities Act of
1933, as amended or any successor thereto, without limitation
as to volume, are resold pursuant to Rule 144 or are covered
by an effective "shelf" registration statement, then said
shares shall no longer be deemed to be "Registerable
Securities."
1.2 Demand Registration. If the Company shall receive from any party (a
"Registering Party") a written request to register shares of
Registrable Securities (a "Demand"), the Company shall prepare and file
a Registration Statement under the 1933 Act covering the shares so
requested to be registered, and shall use its best efforts to cause as
expeditiously as possible such Registration Statement to become
effective; provided, however, that (i) at the time the Demand is made,
the Company shall have successfully completed an initial public
offering, and (ii) at least $10 million of Registrable Securities are
requested to be registered; provided, further, however, that if at the
time the request for registration is made, the Company is in the
process of registering securities under the 1933 Act for sale by it or
has pending or in process a material transaction, the disclosure of
which would, in the good faith judgment of the Board of Directors of
the Company, materially and adversely affect the Company, the Company
may defer the filing (but not the preparation) of the requested
Registration Statement (i) in the case of another registration
statement, for up to sixty (60) days, and (ii) in the case of a
material transaction, for up to thirty (30) days (but the Company shall
use its best efforts to resolve the transaction and file the
Registration Statement as soon as practicable). The Company shall be
required to register the Registrable Securities pursuant to this
Section 1.2 in response to any Demand by any Registering Party,
provided (i) only one Demand may be made by any Registering Party in
any six (6) month period and (ii) the Company shall not be required to
register the Registrable Securities more than once on registration
forms other than Form S-3 (or any substantially equivalent successive
form).
1.3 Piggy-Back Registrations. If (i) the Company proposes to file a
registration statement under the 1933 Act with respect to an offering
by the Company for its own account and/or for the account of any
stockholders of any shares of Common Stock (other than a registration
statement on Form S-4 or S-8 or successor forms thereto or filed in
connection with an exchange offer or an offering of securities solely
to the Company's existing stockholders), and (ii) the Board of
Directors of
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<PAGE> 3
the Company shall approve of a "piggy-back registration" then the
Company shall in each case give written notice of such proposed filing
to each of Mandelbaum, NYSERNet, IXC and Grumman Hill (each, a
"Piggy-Back Registering Party") at least 30 days before the anticipated
filing date, and such notice shall offer (except as otherwise
contemplated by the penultimate sentence of this Section) each such
Piggy-Back Registering Party the opportunity to register such number of
shares of Registrable Securities as such Piggy-Back Registering Party
may request. The Company shall use its best efforts to cause the
managing underwriter or underwriters of a proposed underwritten
offering to permit such Piggy-Back Registering Party to include such
securities in such offering on the same terms and conditions as any
similar securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering
delivers a written opinion to the Company that the inclusion of such
Registrable Securities by a Piggy-Back Registering Party would
materially and adversely affect the success or offering price of, or
materially increase the consideration (including commission) to be paid
to the underwriter in connection with, such offering, then the amount
of securities to be offered for the account of such Piggy-Back
Registering Party shall be reduced to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter; provided, that if
securities similar to those represented by the Registrable Securities
are being offered for the account of other persons as well as the
Company, if Registerable Securities owned by more than one Piggy-Back
Registering Party are being offered such reduction shall not represent
a greater fraction of the number of securities intended to be offered
by the Piggy-Back Registering Party than the fraction of similar
reductions imposed on such other persons other than the Company.
1.4 Expenses of Registration. All expenses incurred in connection with the
first two registrations effected pursuant to Section 1.2 and all
registrations effected the first two pursuant to Section 1.3,
including, without limitation, all registration, filing, listing and
qualification fees (including SEC, securities exchange, National
Association of Securities Dealers Inc. and blue sky fees and expenses),
printing expenses, escrow fees, fees and disbursements of counsel for
the Company, and expenses of any special audits and/or "cold comfort"
letters incidental to or required by such registration, fees and
disbursements of underwriters customarily paid by companies or sellers
of securities, and the reasonable fees and expenses of any special
experts retained by the Company in connection with the registration
shall be borne by the Company; provided, however, that the Company
shall not be required to pay underwriters' discounts or commissions
relating to Registrable Securities or any of the expenses for more than
two registrations under Section 1.2.
1.5 Holdback Agreement; Restrictions on Public Sale by the Company and
Others. Each of IXC, Grumman Hill, the Company, NYSERNet and the
stockholders party hereto agree, upon the request of the managing
underwriter or underwriters in an underwritten offering in which such
party is to participate as a Registering
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<PAGE> 4
Party, not to effect any public or private offer, sale or distribution
of any securities of the Company of the same class as the securities
included in any registration statement, or any securities convertible
into or exchangeable or exercisable for such securities (except as part
of such registration or pursuant to registrations on Forms S-4 or S-8
or any successor form to such Forms), during the 90-day period
beginning on, the effective date of such registration statement.
1.6 Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC (but in any event within
seventy-five (75) days after the date of the Demand pursuant
to Section 1.2) a Registration Statement with respect to such
Registrable Securities (which, in the case of a Demand
registration pursuant to Section 1.2, shall be on a form
designated by the underwriters) and use its diligent best
efforts to cause such Registration Statement to become
effective, and keep such Registration Statement effective for
up to one hundred twenty (120) days or such longer period as
the Company may agree upon, or until the distribution has been
completed, whichever occurs first;
(b) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be
necessary to keep such registration Statement effective as
provided in Section 1.6(a) and to comply with the provisions
of the 1933 Act with respect to the disposition of all
securities covered by such Registration Statement;
(c) furnish to a Registering Party such numbers of copies of the
Registration Statement, the prospectus, including a
preliminary prospectus, and of each amendment and supplement
(in each case, including all exhibits), in conformity with the
requirements of the 1933 Act, and such other documents as the
Registering Party may reasonably request in order to
facilitate the disposition of Registrable Securities owned by
the Registering Party;
(d) use its best efforts to register and qualify the securities
covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions in such
states as shall be reasonably necessary to facilitate an
orderly distribution of the Registrable Securities, provided
that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business in any
such jurisdiction in which, but for the requirements of this
Section 1.6d), it would not otherwise be obligated to be so
qualified in to file a general consent to service of process
in any such states or jurisdictions, but the Company will
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<PAGE> 5
be required to consent to service of process in actions
arising out of or in connection with the sale of any
Registrable Securities;
(e) use its best efforts to cause such securities covered by such
Registration Statement to be registered with or approved by
such other governmental agencies or authorities of the United
States of America or any state thereof as may be necessary to
consummate the disposition of such securities;
(f) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement,
usual and customary in form, with the managing underwriter of
such offering and take such other actions as the underwriters
reasonably request in order to expedite or facilitate a
disposition of such securities;
(g) use its best efforts to cause all such securities covered by
such Registration Statement to be listed on any securities
exchange on which the Common Stock is then listed, and if the
Common Stock is not already so listed at such time, to use its
best efforts promptly to cause all such securities to be
listed on either the New York Stock Exchange or the American
Stock Exchange or to be included in the National Association
of Securities Dealers Automated Quotation System and to
provide a transfer agent and registrar for such securities
covered by such Registration Statement no later than the
effective date of such Registration Statement;
(h) use its best efforts to obtain a "cold comfort" letter or
letters from the Company's independent public accountants in
customary form and covering matters of the type customarily
covered by "cold comfort" letters;
(i) notify the Registering Party at any time when a prospectus
relating thereto is required to be delivered under the 1933
Act of the happening of any event as a result of which, or of
the Company becoming otherwise aware that, the prospectus
included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request
of the Registering Party, prepare and furnish to the
Registering Party, a reasonable number of copies of an amended
or supplemental prospectus as may be necessary so that, as
thereafter delivered to the Registering Party of such
securities under the Registration Statement, such prospectus
shall not include an untrue statement of a material fact or a
misstatement of a material fact required to be stated therein
or necessary to make the statements therein not misleading in
light of the circumstances then existing;
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<PAGE> 6
(j) make reasonably available for inspection by, and grant
reasonable access to officers and employees of Company to
answer questions of, representatives of the Registering Party,
by any underwriter participating in any disposition to be
effected pursuant to such Registration Statement and by any
attorney, accountant or other agent retained by the
Registering Party or any such underwriter, all pertinent
information such as financial and other records, pertinent
corporate documents and properties of the Company reasonably
requested by such persons in connection with the Registration
Statement;
(k) in the event of the issuance of any stop order suspending the
effectiveness of any registration statement or of any order
suspending or preventing the use of any prospectus or
suspending the qualification of any Restricted Stock for sale
in any jurisdiction, use its best efforts promptly to obtain
its withdrawal;
(l) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve
months, beginning with the first fiscal quarter beginning
after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder; and
(m) cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc. (the
"NASD") and in the performance of any due diligence
investigation by any Registering Party (including any
"qualified independent underwriter" that is required to be
retained in accordance with the rules and regulations of the
NASD).
Each Party agrees that, upon receipt of any notice from the
Company of the happening of any event described in Section 1.6(i), the
Registering Party will forthwith discontinue disposition of such securities
pursuant to such Registration Statement until the Registering Party's receipt of
the copies of the supplemental or amended prospectus contemplated by Section
1.6(i), and, as so directed by the Company, the Registering Party will deliver
to the Company (at the Company's expense) all copies, other than permanent file
copies then in the Registering Party's possession, of the prospectus covering
such securities covered by such Registration Statement current at the time of
receipt of such notice. In the event the Company shall give any such notice, the
period mentioned in Section 1.6(a) shall be extended by the number of days
during the period from the date of the giving of such notice pursuant to Section
1.6(i) and through the date when each seller of such securities covered by such
Registration Statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 1.6(i).
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<PAGE> 7
1.7 Selection of Underwriter. The Company shall select, in its sole
discretion, the managing underwriter or underwriters with respect to
the related offering of its Common Stock.
1.8 Indemnification.
(a) The Company will, and does hereby undertake to, indemnify and
hold harmless the Registering Party, each of the Registering
Party's officers, directors and affiliates and each person
controlling the Registering Party, with respect to any
registration, qualification, listing or compliance effected
pursuant to this Section 1, and each underwriter, if any
(including any broker or dealer which may be deemed an
underwriter), and each person who controls any underwriter
(including any such broker or dealer), of the Registrable
Securities held by or issuable to the Registering Party,
against all claims, losses, damages, liabilities and expenses,
joint or several (or actions in respect thereto whether or not
a party thereto) ("Claims"), to which they may become subject
under the 1933 Act, the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), or other federal, state or common
law, or otherwise, arising out of or based on (i) any untrue
statement (or alleged untrue statement) of a material fact
contained in any preliminary, final or summary prospectus,
offering circular, or other similar document or any amendment
or supplement thereto (including any related Registration
Statement, notification, or the like) incident to any such
registration, qualification, listing, or compliance, or
arising out of or based upon any omission (or alleged
omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or (ii) any violation or alleged violation by the
Company of any federal, state or common law, rule or
regulation applicable to the Company in connection with any
such registration, qualification, or compliance, and will
reimburse, as incurred, the Registering Party, each such
underwriter, and each such director, officer, affiliate and
controlling person, for any legal and any other expenses
reasonably incurred in connection with investigating or
defending such Claim (whether or not the indemnified party is
a party to any proceeding); provided that the Company will not
be liable in any such case to the extent that any such Claim
arises out of or is based on any untrue statement or omission
based upon written information furnished to the Company by an
instrument duly executed by the Registering Party or by such
underwriter and stated to be specifically for use therein.
Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the
Registering Party or any other indemnified party and shall
survive the transfer of such securities by the Registering
Party.
(b) The Registering Party will indemnify the Company, each of its
directors, and each officer who signs a Registration Statement
in connection
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<PAGE> 8
therewith, and each person controlling the Company, each
underwriter, if any, and each person who controls any
underwriter, of the Company's securities covered by such a
Registration Statement, against all Claims, joint or several
(or actions in respect thereto whether or not a party
thereto), arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
such Registration Statement, preliminary, final or summary
prospectus, offering circular, or other document, or any
omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse, as
incurred, the Company, each such underwriter and each such
director, officer, partner and controlling person, for any
legal or any other expenses reasonably incurred in connection
with investigating or defending any such Claim (whether or not
the indemnified party is a party to any proceeding), in each
case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or
alleged omission) was made in such Registration Statement,
preliminary, final or summary prospectus, offering circular or
other document, in reliance upon and in conformity with
written information furnished to the Company by an instrument
duly executed by the Registering Party and stated to be
specifically for use therein. In no event shall the
Registering Party be required to contribute any amount (A) in
excess of the lesser of (i) that proportion of the total of
such Claims indemnified against equal to the proportion of the
total securities sold under such registration statement that
is being sold by the Registering Party or (ii) the net
proceeds received by the Registering Party from its sale of
securities under such registration statement and (B) for
amounts paid in settlement of any Claims if such settlement is
effected without the consent of the Registering Party, such
consent not to be unreasonably withheld.
(c) Promptly after the receipt by the indemnified party of a
notice of any claim, action, suit or proceeding of any third
party which is subject to indemnification hereunder, such
party (the "Indemnified Party") shall give written notice of
such claim to the party obligated to provide indemnification
hereunder (the "Indemnifying Party"), stating the nature and
basis of such claim and the amount thereof, to the extent
known. Failure of the Indemnified Party to give such notice
promptly shall not relieve the Indemnifying Party from any
liability which it may have on account of this indemnification
or otherwise, except to the extent that the Indemnifying Party
is materially prejudiced thereby (except that the Indemnifying
Party shall not be liable for any expenses incurred during the
period in which the Indemnified Party failed to give such
notice). The Indemnifying Party shall be entitled to
participate in the defense of and, if it so chooses, to assume
the defense of, or otherwise contest, such claim, action, suit
or proceeding with counsel selected by the Indemnifying Party
and reasonably satisfactory to the Indemnified Party;
provided, that, the
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<PAGE> 9
Indemnified Party shall be entitled, to the extent it so
elects and at its sole cost and expense, to assume and control
the defense of any claim involving any equitable claim,
including, but not limited to, injunctive relief. Upon the
election by the Indemnifying Party to assume the defense of,
or otherwise contest, such claim, action, suit or proceeding,
the Indemnifying Party shall not be liable for any legal or
other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof, although the
Indemnified Party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense.
Notwithstanding the foregoing, the Indemnifying Party shall be
liable for the reasonable fees and expenses of counsel
employed by the Indemnified Party, if, and only to the extent
that (i) the Indemnifying Party has not employed counsel (or
such counsel is not reasonably acceptable to the Indemnified
Party) to assume the defense of such action within a
reasonable time after receiving notice of the commencement of
the action, (ii) the employment of counsel and the amount
reimbursable therefor by the Indemnified Party has been
authorized in writing by the Indemnifying Party or (iii)
representation of the Indemnifying Party and the Indemnified
Party by the same counsel would, in the reasonable
determination of such Indemnified Party, constitute a conflict
of interest (in which case the Indemnifying Party will not
have the right to direct the defense of such action on behalf
of the Indemnified Party). The Parties shall use commercially
reasonable efforts to minimize damages from Claims by third
parties and shall act in good faith in responding to,
defending against, settling or otherwise dealing with such
Claims, notwithstanding any dispute as to liability as between
the Parties under this Section 1.8. The Parties shall also
cooperate in any such defense, give each other reasonable
access to all information relevant thereto and make employees
and other representatives available on a mutually convenient
basis to provide additional information and explanation of any
material provided in connection therewith. Whether or not the
Indemnifying Party shall have assumed the defense, the
Indemnifying Party shall not be obligated to indemnify the
other party hereunder for any settlement entered into without
the Indemnifying Party's prior written consent, which consent
shall not be unreasonably withheld or delayed.
(d) If the indemnification provided for in this Section 1.8 is for
any reason held by a court of competent jurisdiction to be
unavailable to an Indemnified Party in respect of any Claims
referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified
Party as a result of such Claims (i) in such proportion as is
appropriate to reflect the relative benefits received by the
Indemnifying Party and the Indemnified Party, or (ii) if the
allocation provided by clause (i)
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above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of
the Indemnifying Party and the Indemnified Party in connection
with the action or inaction which resulted in such Claims, as
well as any other relevant equitable considerations. In
connection with any registration of the Company's securities,
the relative benefits received by the Indemnifying Party and
the Indemnified Party shall be deemed to be in the same
respective proportions that the net proceeds from the offering
(before deducting expenses) received by the Indemnifying Party
and the Indemnified Party, in each case as set forth in the
table on the cover page of the applicable prospectus, bear to
the aggregate public offering price of the securities so
offered. The relative fault of the Indemnifying Party and the
Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the Parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Indemnifying Party and the Indemnified Party agree that it
would not be just and equitable if contribution pursuant to
the foregoing paragraph were determined by pro rata or per
capita allocation or by any other method of allocation which
does not take account of the equitable considerations referred
to in the immediately preceding paragraph.
(f) If the Registrable Securities are to be sold pursuant to any
underwritten public offering, the Company and each seller
shall enter into an underwriting agreement that contains,
among other things, customary representations, warranties,
covenants and indemnities relating to such offering.
(g) Indemnification similar to that specified herein (with
appropriate modifications) shall be given by the Company and
the Registering Party with respect to any required
registration or other qualification of securities under any
federal or state law or regulation or governmental authority
other than the 1933 Act.
(h) The obligations of the parties under this Section 1.8 shall be
in addition to any liabilities which any party may otherwise
have to any other party.
1.9 Information by the Registering Party. The Registering Party shall
furnish to the Company such information regarding the Registering Party
and the distribution proposed by the Registering Party as the Company
may reasonably request in writing and as shall be required in
connection with any registration, qualification, or compliance referred
to in this Section 1.
Page 10
<PAGE> 11
1.10 Rule 144/Rule 144A Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may permit
the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) at all times make and keep public information available, as
those terms are understood and defined in SEC Rule 144 and
Rule 144A or any similar or analogous rule promulgated under
the 1933 Act;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and 1934
Act; and
(c) so long as any Party owns any Registrable Securities, furnish
to such Party forthwith upon request: a written statement by
the Company as to its compliance with the reporting
requirements of said Rule 144 and Rule 144A of the 1933 Act,
and of the 1933 Act and the 1934 Act; a copy of the most
recent annual or quarterly report of the Company; and such
other reports and documents as such Party may reasonably
request in availing itself of any rule or regulation of the
SEC allowing it to sell any such securities without
registration.
SECTION 2. Miscellaneous.
2.1 Entire Agreement. This Agreement, the Stock Purchase Agreement and the
other agreements and documents referred to therein constitute the
entire agreement of the parties and supersede all prior written or oral
agreements, contemporaneous oral agreements, understandings and
negotiations between the parties with respect to the subject matter
hereof.
2.2 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
2.3 Amendments and Waivers. This Agreement may not be modified, amended or
waived except by written document specifically identifying this
Agreement and signed by the parties.
2.4 Headings. The headings included in this Agreement are for convenience
of the parties only and shall not affect the construction or
interpretation of this Agreement.
2.5 Notices. All notices hereunder shall be in writing and shall be given
to the respective parties by U.S. mail, personal delivery, or facsimile
transmission to their respective addresses as follows:
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<PAGE> 12
If to the Company:
AppliedTheory Communications, Inc.
125 Elwood Davis Road
Syracuse, NY 13212
Attn: Richard Mandelbaum, President and Treasurer
with a copy to:
Frank E. Morgan II, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
If to IXC:
IXC Internet Services, Inc.
1122 Capital of Texas Hwy S.
Austin, TX 78746-6426
Attn: Jeffrey C. Smith, Esq.
with a copy to:
Michael P. Whalen, Esq.
Riordan & McKinzie
696 Town Center Drive, Suite 1500
Costa Mesa, CA 92626
If to Grumman Hill:
Grumman Hill Investments III, L.P.
60 East 42nd Street, Suite 2915
New York, NY 10165
Attn: Elizabeth Fath
with a copy to:
Michael P. Whalen, Esq.
Riordan & McKinzie
696 Town Center Drive, Suite 1500
Costa Mesa, CA 92626
Page 12
<PAGE> 13
If to NYSERNet:
NYSERNet.net, Inc.
125 Elwood Davis Rd.
Syracuse, NY 13212
Attn: David Buckel, Assistant
Secretary/Assistant Treasurer
with a copy to:
Robert Mechur, Esq.
Underberg & Kessler LLP
1800 Chase Square
Rochester, NY 14604
If to the Stockholders
At their respective addresses as
communicated to the Company
from time to time.
All such notices shall be deemed effective upon receipt.
2.6 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns.
2.7 Remedies, Waivers. No failure or delay on the part of any party in the
exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. Any waiver or consent shall be
effective only in the specific instance and for this specific purpose
for which it was given. The parties to this Agreement acknowledge and
agree that the breach of any of the terms of this Agreement will cause
irreparable injury for which an adequate remedy at law is not
available. Accordingly, it is agreed that either party shall be
entitled to an injunction, restraining order or other equitable relief
to prevent breaches of this Agreement and to enforce specifically the
terms and provisions hereof in any court of competent jurisdiction in
the United States or any state thereof, without the requirement of
posting any bond. All rights and remedies existing under this Agreement
are cumulative to and not exclusive of, any rights or remedies
available under this Agreement or otherwise.
2.8 Severability. In the event that any provision of this Agreement or the
application of any provision hereof is declared to be illegal, invalid
or otherwise unenforceable by a court of contempt jurisdiction, such
provision shall be
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<PAGE> 14
reformed, if possible, to the extent necessary to render it legal,
valid and enforceable, or otherwise deleted, and the remainder of this
Agreement shall not be affected except to the extent necessary to
reform or delete such illegal, invalid or unenforceable provision.
2.9 Termination. The provisions of this Agreement shall terminate and be of
no further effect upon (a) as to all Parties, upon the mutual consent
of the Parties and (b) as to a Party, such Party ceasing to own or have
rights to acquire Registrable Securities.
2.10 Further Assurances. Each party shall cooperate and take such action as
may be reasonably requested by the other party in order to carry out
the provisions and purposes of this Agreement and the transactions
contemplated hereby.
2.11 Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, but which together shall
constitute one and the same instrument.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers, duly authorized for such purpose, as
of the date first written above.
IXC INTERNET SERVICES, INC.
By: /s/ Stuart K. Coppens
--------------------------------
Name: Stuart K. Coppens
Title: VP
GRUMMAN HILL INVESTMENTS III, L.P.
By: Grumman Hill Group LLC
--------------------------------
Its General Partner
By: /s/ James T. Kelsey
--------------------------------
Name: James T. Kelsey
Title: President
APPLIEDTHEORY COMMUNICATIONS, INC.
By: /s/ Richard Mandelbaum
--------------------------------
Name: Richard Mandelbaum
Title: President & CEO
NYSERNet.net, INC.
By: /s/ David A. Buckel
--------------------------------
Name: David A. Buckel
Title: Asst. Sec/Treas
Page 15
<PAGE> 16
STOCKHOLDERS:
/s/ Richard Mandelbaum
------------------------------------
Richard Mandelbaum
/s/ David A. Buckel
------------------------------------
David A. Buckel
/s/ James D. Luckett
------------------------------------
James D. Luckett
/s/ Denis Martin
------------------------------------
Denis Martin
/s/ Mark Oros
------------------------------------
Mark Oros
/s/ Shelley A. Harrison
------------------------------------
Shelley A. Harrison
Page 16
<PAGE> 1
EXHIBIT 10.01
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of this 19th day of May, 1998 (the "Closing Date"), by and among IXC
Internet Services, Inc., a Delaware corporation ("IXC"), Grumman Hill
Investments III, L.P., a Delaware limited partnership ("Grumman Hill", and,
together with IXC, the "Purchasers"), AppliedTheory Communications, Inc., a
New York corporation (the "Company"), NYSERNet.net, Inc. ("NYSERNet") and
Richard Mandelbaum, David Buckel, James Luckett, Denis Martin and Mark Oros (the
"Management Stockholders").
WITNESSETH
WHEREAS, Purchasers desire to purchase, and the Company and NYSERNet
desire to sell, for the purchase price and upon the terms and subject to the
conditions of this Agreement, certain shares of common stock of the Company from
the persons named and in the amounts set forth on Exhibit A hereto (the "Initial
Shares"); and
WHEREAS, the parties desire to enter into certain other agreements
regarding future purchases by Purchasers and sales of shares of common stock of
the Company by the Management Stockholders and other stockholders of the Company
(the "Option Shares") in the amounts set forth on Exhibit A attached hereto;
and to enter into other agreements referred to herein (the "Ancillary
Agreements") in connection with such purchases and sales.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective representations, warranties, covenants, agreements and conditions
contained herein, the sufficiency of which is hereby acknowledged, the parties,
intending to be legally bound, agree as follows:
ARTICLE I
AGREEMENTS
1.1. Purchase and Sale of Stock. On the Closing Date, upon the terms
and subject to the conditions of this Agreement, the Company shall issue, sell,
assign, transfer and deliver, as applicable, and NYSERNet shall sell, assign,
transfer and deliver, the Initial Shares to Purchasers (two-thirds to IXC and
one-third to Grumman Hill) and Purchasers shall purchase and acquire the Initial
Shares from the Company and NYSERNet.
1.2. Purchase Price. The purchase price for the sale, assignment,
transfer and delivery of the 880,000 Initial Shares to Purchasers (the "Purchase
Price") is $22.0290 per share for an aggregate purchase price for all the
Initial Shares of $19,385,520. The Purchase Price shall be payable by Purchasers
(two-thirds by IXC and
<PAGE> 2
one-third by Grumman Hill) to the Company and NYSERNet in cash by wire transfer
to each of their respective accounts, in the amounts set forth opposite each of
their respective names on Exhibit A hereto, which amounts, in the aggregate,
shall be equal to the aggregate Purchase Price.
1.3. Amendment to By-laws. On the Closing Date, the Company shall adopt
By-laws in the form attached hereto as Exhibit B.
1.4. Joint Marketing Agreement. IXC and the Company agree to work
together in good faith to negotiate, on mutually acceptable terms, an agreement
(the "Joint Marketing Agreement") to cover the resale by each company of the
others' products and services.
1.5. Option Agreements. On the Closing Date, the Purchasers and certain
stockholders of the Company as set forth on Exhibit A hereto shall enter into
and deliver an Option Agreement substantially in the form of Exhibit C hereto
with respect to the Option Shares. Within ten (10) business days after the
Closing Date, the Purchasers shall offer all other stockholders of the Company
the right to sell up to an aggregate of 20,000 of their shares to the Purchasers
by executing an Option Agreement with the Purchasers.
1.6. Other Agreements. On the Closing Date, the Purchasers, the
Company, NYSERNet and the Stockholders shall enter into and deliver (i) that
certain Stockholders Agreement substantially in the form of Exhibit D hereto and
(ii) that certain Registration Rights Agreement substantially in the form of
Exhibit E hereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY, MANAGEMENT AND NYSERNET
The Company and the Management Stockholders hereby represent and
warrant to Purchasers as follows:
2.1. Company's Organization, Good Standing, Capitalization. The
Company is a corporation, duly organized, validly existing and in good standing
under the laws of the State of New York. The Company has all requisite power and
authority to carry on its business as it is now being conducted, and is duly
qualified to do business as a foreign entity and is in good standing in each
jurisdiction in which such qualification is necessary under applicable law with
respect to the business presently conducted by the Company (the "business"),
except where the failure to be so qualified would not have a material adverse
effect on the business, financial condition, results of operations or prospects
of the Company taken as a whole (a "Material Adverse Effect"). True, complete
and current copies of the Certificate of Incorporation, Bylaws and stock ledger
of the Company as of the date of this Agreement have been delivered to
Purchasers and no amendment or modification has been made thereto.
As of the date hereof, the authorized capital stock of the Company
consists of (i) 75,000 shares of the Company's preferred stock, $.01 par value
per share (the
2
<PAGE> 3
"Preferred Stock"), of which 15,000 shares are issued and outstanding and (ii)
2,500,000 shares of the Company's common stock, $.01 par value per share (the
"Common Stock"), of which 1,439,475 shares are issued and outstanding. The
number of outstanding shares of Preferred Stock and Common Stock are hereinafter
referred to as the "Outstanding Shares." All of the Outstanding Shares have been
duly authorized and validly issued and are fully paid and non-assessable and
free of preemptive rights with respect thereto and were issued in compliance
with all applicable securities laws. There are no voting trusts or other
agreements, arrangements or understandings with respect to the voting of the
Common Stock to which the Company, any Stockholder or any other person is a
party. Except as set forth in Schedule 2.1 hereto, there are no preemptive
rights, registration rights, subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to issued or unissued shares of Common Stock or other securities of the
Company and there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire or sell, issue or otherwise transfer any
outstanding securities thereof.
Schedule 2.1 hereto sets forth the record ownership of all the
outstanding shares and options.
2.2. Authority; Execution; Delivery. The Company has full power and
authority to enter into and perform its obligations under this Agreement and
each of the Ancillary Agreements to be executed or delivered by it, and to sell
the shares to be sold by the Company pursuant to this Agreement (the "Shares")
in accordance with the terms hereof so as to vest in Purchasers on the Closing
Date good and marketable title to the Shares, free and clear of any claim, lien,
pledge, option, charge, security interest or encumbrance of any nature
whatsoever (collectively, "liens"). The execution, delivery and performance of
this Agreement by the Company has been duly and effectively authorized by all
necessary corporate or other organizational action. Except as set forth on
Schedule 2.2 hereof, no other corporate or other organizational proceedings on
the part of the Company are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, or other similar laws affecting the enforcement of creditors rights
in general, moratorium laws or by general principles of equity.
2.3. Consents; No Violation, Etc. (a) Except as reflected in Schedule
2.3(a), no authorization, consent, approval, license, exemption by filing or
registration with any court, arbitrator or governmental, administrative or
self-regulatory authority, is or will be necessary in connection with the entry
into, execution, delivery and performance of this Agreement or any of the
documents relating to the transactions contemplated hereunder by the Company, or
for the consummation of the transactions contemplated hereby and thereby.
(b) Except as set forth on Schedule 2.3(b), neither the execution and
delivery of this Agreement, the other agreements contemplated hereby, the
3
<PAGE> 4
consummation of the transactions contemplated herein or therein, nor compliance
by the Company with any of the provisions hereof or thereof will (with or
without the giving of notice or the passage of time) (i) violate, conflict with,
result in a breach of, constitute a default under, or result in the creation of
any lien upon the assets, under any of the terms, conditions or provisions of
(A) the certificate of incorporation of the Company, (B) any note, bond,
mortgage, indenture, deed of trust, or any license, agreement, or any other
instrument or obligation to which the Company is a party, or by which the
Company or any of the Company's assets or properties may be bound or affected,
or (ii) violate any judgment, order, writ, injunction, decree, statute, law,
rule or regulation applicable to the Company or any of the Company's assets or
properties.
2.4. Financial Statements. Attached hereto as Schedule 2.4 are the
financial statements of the Company at and for the fiscal year ended December
31, 1997 (the "Financial Statements"). Except as disclosed on Schedule 2.4, such
Financial Statements: (a) have been prepared in accordance with the books and
records of the Company; (b) have been prepared in accordance with GAAP
consistently applied throughout the period covered thereby; (c) fairly present
the financial condition and results of operations of the Company's business as
of the date thereof and for the period covered therein; and (d) contain and
reflect all necessary adjustments and accruals, subject to normal year-end
adjustments, for a fair presentation of the financial condition and the results
of operations of the business as of the date thereof and for the period covered
by such Financial Statements.
2.5. Absence of Undisclosed Liabilities and Obligations. Except as set
forth on Schedule 2.5, to the best of the Company's knowledge, the Company has
no liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) other than (a) liabilities reflected or reserved
against in the Financial Statements or incurred in the ordinary course of
business since the date of the Financial Statements and (b) liabilities and
obligations specifically disclosed on a Schedule hereto.
2.6. Absence of Certain Changes or Events. Except as disclosed on
Schedule 2.6, since the date of the Financial Statements, there has not been
any:
(a) change in the business which has or is reasonably likely to result
in a Material Adverse Effect;
(b) change in the shares of outstanding capital stock, issuance of any
security convertible into capital stock or any declaration, setting aside,
or payment of any dividend or other distribution (whether in cash,
securities, property or otherwise) in respect of the Company's capital
stock;
(c) increase in the compensation payable or to become payable by the
Company in connection with the business to any of its current or former
officers, directors, employees, consultants or agents (collectively, the
"Personnel") or any increase of general applicability in the compensation
payable to Personnel (other than pursuant to existing corporate policies,
practices and procedures) or any amendment to any Employee Plan or the
adoption of any new Employee Plan, as defined in Section 2.13, that would
increase the benefits or rights of Personnel
4
<PAGE> 5
participating under such Plans;
(d) significant labor trouble or any material controversy or
unsettled grievance pending or, to the best of the Company's knowledge,
threatened between the Company and any Personnel or a collective bargaining
organization representing or seeking to represent Personnel;
(e) sale, assignment or transfer of any material asset or any
conducting of business other than in the ordinary course;
(f) waiver of any material rights of the Company with respect to the
Company's business whether or not in the ordinary course of business;
(g) material liability or loss incurred with respect to any of the
Company's assets or the operation of the business, except liabilities
incurred in the ordinary course of business consistent with past practice
and operating losses consistent with the Company's business plan;
(h) any capital expenditure or execution of any lease with respect to
any of the assets or any aspect of the business, or any incurring of
liability therefor, requiring any payment or payments in excess of $10,000
individually or $250,000 in the aggregate;
(i) borrowing or lending of money by or pledging the credit of the
business or guaranteeing of any indebtedness of others by the Company or
default with respect to, or failure to pay, any material obligation of the
Company;
(j) failure to operate the business in the ordinary course so as to
preserve the business intact and to preserve the goodwill of the business'
suppliers, customers and others having business relations with it;
(k) loss of service of any Personnel that is or are material,
individually or in the aggregate, to the conduct of the business;
(l) material change in accounting practice of the Company with respect
to the business, except as required by GAAP;
(m) material cancellations by any supplier, customer or contractor with
respect to the business;
(n) any agreement, arrangement or understanding by the Company to do
any of the foregoing.
2.7. Taxes. (a) For purposes of this Agreement, the term "Tax" means
any net or gross income, gross receipts, sales, use, rental, value added, ad
valorem, transfer, turnover, franchise, profits, license, withholding, payroll,
employment, excise, capital, severance, stamp, occupation, premium, property or
windfall profits tax, alternative or add-on minimum tax, customs, duty or other
tax, fee, assessment or charge
5
<PAGE> 6
of any kind whatsoever, together with any interest and any penalty, fine,
addition to tax or additional amount imposed by any governmental department,
court or other authority, whether domestic or foreign.
(b) For purposes of this Agreement, the term "Tax Return" means any
report, return, declaration, statement, form, extension or other document filed
or required to be filed with any federal, state, local or other governmental
department, court or other authority in respect of Taxes.
(c) Except as set forth on Schedule 2.7(c), all Tax Returns required to
be filed on or before the Closing Date by or on behalf of the Company have been
or will be timely filed on or before the Closing Date. All such Tax Returns were
(or to the extent not yet filed will be) true, complete and correct in all
material respects and filed on a timely basis.
(d) The Company has complied (and until the Closing Date will comply)
in all material respects with the provisions of the Code relating to the payment
and withholding of Taxes, including without limitation, the withholding and
reporting requirements under Sections 1441 through 1464, 3401 through 3406, and
6041 and 6049 of the Code, as well as similar provisions under any other laws,
and has, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so paid.
(e) The Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency and there are no outstanding deficiencies, assessments, or written
proposals for the assessment of any amount of Taxes proposed, asserted or
assessed against the Company.
(f) The Company has established on its books and records reserves
adequate to pay all Taxes attributable to periods prior to the Closing Date and
not yet due and payable in accordance with GAAP.
(g) There are no liens for Taxes (other than for current Taxes not yet
due and payable) on the Company's assets.
2.8. Accounts Receivable. Except as set forth on Schedule 2.8, the
Company's accounts receivable arose out of the sale of services in the ordinary
course of the business, have been billed or invoiced in the ordinary course of
the business in accordance with all applicable laws, regulations and
administrative rulings and procedures, represent bona fide indebtedness of the
applicable account debtor not subject to defense, set-off or counterclaim and
are collectible in full, net of the reserves set forth in the books of the
Company.
2.9. Properties. The structures and equipment owned, operated or leased
by the Company are in good operating condition and repair (ordinary wear and
tear, excepted), and are in conformity in all material respects with all
applicable laws, ordinances, orders, regulations and other requirements
(including applicable zoning,
6
<PAGE> 7
environmental, occupational safety and health laws and regulations) presently in
effect or, to the Company's knowledge, presently scheduled to take effect.
2. 10. Intellectual Property. (a) All domestic and foreign patents,
patent applications, trademarks, trademark registrations, servicemarks, trade
names, registered copyrights and licenses with respect to the foregoing
("Intellectual Property"), owned in whole or in part, related to or used by the
Company and that relate to and are used by the business are set forth on
Schedule 2.10(a).
(b) All registration and maintenance fees that have become due and
payable in respect of any grant or registration of any Intellectual Property
have been paid and no act has been done or omitted to be done by the Company, or
any licensee thereof or any holder of any rights with respect thereto, to impair
or dedicate to the public or entitle any U.S. or foreign governmental authority
or any other person to cancel, forfeit, modify or consider abandoned any
Intellectual Property, or to give any person any rights with respect thereto,
and all of the Company's rights in the Intellectual Property are valid,
enforceable and free of defects. The Company has no knowledge of any facts or
claims which cause or might cause any patent to be invalid or unenforceable, and
the Company has not received any notice of an intention on the part of any
person to assert such a claim. Except as set forth on Schedule 2.10(b), the
Company is the sole and exclusive owner of the Intellectual Property. Except as
set forth on Schedule 2.10(b), the Company owns or otherwise has the right to
use any and all Intellectual Property that is used in or is necessary for the
conduct of its business free and clear of any lien, royalty or other payment
obligations.
(c) The Company has not received any notice of any conflict with or
violation or infringement of, nor are proceedings or claims pending, nor have
any such proceedings or claims been instituted or asserted in writing against
the Company, nor are any proceedings threatened, alleging any violation, nor is
there any valid basis known to the Company for any such proceeding or claim, of
any rights or asserted rights of any other person with respect to any
Intellectual Property of such other person.
(d) The Company has taken all actions consistent with standard practice
in its industry to preserve and maintain its Intellectual Property relating to
the business.
2.11. Insurance. The Company maintains policies of insurance against
such losses and risks as are adequate in accordance with customary industry
practice to protect the Company's business, subject to the Company's
self-insurance retention levels. The Company has not received notice from any
insurer or agent of such insurer that substantial capital improvements or other
expenditures will have to be made in order to continue such insurance and, so
far as known to the Company, no such improvements or expenditures are required.
2.12. Employment Matters. Except as set forth on Schedule 2.12, with
respect to the Personnel, (i) there are no pending claims by any current or
former Personnel against the Company other than for compensation and benefits
due in the ordinary course of employment; (ii) there are no pending claims
against the Company
7
<PAGE> 8
arising out of any statute, ordinance or regulation relating to employment
practices or occupational or safety and health standards; (iii) there are no
pending or, to the best knowledge of the Company, threatened labor disputes,
strikes or work stoppages against the Company; and (iv) to the best knowledge of
the Company, there are no union organizing activities in process or contemplated
with respect to the business.
2.13. Employee Benefit Plans. (a) A list of all employee
profit-sharing, incentive, deferred compensation, welfare, pension, retirement,
group insurance, bonus, severance and other employee benefit plans, arrangements
or agreements (oral or written), regardless of whether any such plan,
arrangement or agreement is an "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or previously maintained or contributed to or previously
contributed to by the Company for the benefit of current or former Personnel
("Employee Plans") is set forth on Schedule 2.13(a).
(b) The Employee Plans by their terms and operation are in material
compliance with all applicable laws (including, but not limited to, ERISA and
the Code). There are no actions, suits or claims pending or threatened (other
than routine noncontested claims for benefits) or, to the Company's knowledge,
no set of circumstances exist which may reasonably give rise to such a claim
against any Employee Plan or administrator or fiduciary of any such Employee
Plan.
2.14. Litigation. There is neither (a) any litigation, proceeding,
arbitral action or government investigation pending or, so far as known to the
Company, threatened against, relating to or affecting (i) the business, (ii) any
Employee Plan or any fiduciary or administrator thereof or (iii) the
transactions contemplated by this Agreement, nor (b) any valid basis known to
the Company for any such litigation, proceeding or investigation which if
adversely determined could, in any one case or in the aggregate, have a Material
Adverse Effect. Except as set forth on Schedule 2.14 hereof, there are no
decrees, injunctions or orders of any court or governmental department or agency
outstanding against the Company with respect to the business.
2.15. Compliance with Laws. (a) The Company has complied in all
material respects with all applicable statutes, regulations, rules, orders,
ordinances and other laws ("Laws") of the United States of America, all state,
local and foreign governments and other governmental bodies and authorities, and
agencies of any of the foregoing ("Governmental Authority") to which it is
subject with respect to regulatory matters. The Company has maintained all
material records required to be maintained by all governmental authorities and
there are no presently existing circumstances known to the Company which would
result or would be likely to result in violations of any such laws.
(b) The Company is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Authority
(including, without limitation, Environmental Laws (as such term is hereinafter
defined in Section 2.19) applicable to the business), except to the extent
noncompliance would not have a Material Adverse Effect. Except as set forth on
Schedule 2.15(b), the Company has not
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received any notice or other communication to the effect that, or otherwise been
advised that, it is not in compliance with any of such laws, and the Company has
no reason to anticipate that any presently existing circumstances are likely to
result in violations of any such laws which could, in any one case or in the
aggregate, have a Material Adverse Effect.
(c) The Company has not made, and, to the knowledge of the Company, no
Personnel or representative of the Company or any person acting on behalf of the
Company has made, directly or indirectly with respect to the Company's business,
any bribes, kickbacks, or other illegal payments or illegal political
contributions, illegal payments from corporate funds to governmental officials
in their individual capacities, or illegal payments from corporate funds to
obtain or retain business either within the United States or abroad.
2.16. No Brokers. The Company has not entered into and will not enter
into any agreement, arrangement or understanding with any person or firm which
will result in the obligation of Purchaser to pay any finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby or any other transaction.
2.17. Transactions with Certain Persons. Except as disclosed in the
Financial Statements and on Schedule 2.17 hereto, no affiliate, shareholder.,
officer, director, employee or agent of the Company, or member of his or her
immediate family, is presently a party to any material transaction with the
Company relating to the business, including, without limitation, any contract,
agreement or other arrangement (a) providing for the furnishing of services by,
(b) providing for the rental of real or personal property from, or (c) otherwise
requiring payments to (other than services as officers, directors or employees)
any such person or entity in which any such person has a substantial interest as
a shareholder, officer, director, trustee, member, partner or similar status.
2.18. Records. The records of the Company relating to the business have
been maintained in all material respects in accordance with good business
practices and, as applicable, in accordance with GAAP consistently applied. The
minute books of the Company are correct, complete and current in all material
respects.
2.19 Environmental Matters. (a) No substance defined as or subject to
regulation as hazardous substances, hazardous or toxic pollutants or hazardous
wastes, in or pursuant to any of the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act of 1976, the Hazardous Materials
Transportation Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Emergency Planning and Community
Right-to-Know Act or in any other federal, state or local environmental law in
effect on the Closing Date (collectively, "Environmental Laws"), including,
irrespective of inclusion or exclusion from any of the aforementioned
categories, crude oil or any substances derived from the fractional distillation
of crude oil, polychlorinated biphenyls, asbestos-containing material,
radioactive materials, pesticides, and any pharmaceutical products that exhibit
any characteristics that would render such products a regulated hazardous waste
if a waste (all
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of the above being collectively referred to herein as "Hazardous Materials")
have been or are stored, treated, disposed of, managed, generated, manufactured,
produced, released (as defined in CERCLA Section 101(22)), emitted or discharged
on, to, in, under or from the real property owned or leased by the Company
relating to the business or disposed of at a location owned or operated by a
third party pursuant to an arrangement for disposal.
(b) The Company is in compliance in all material respects with all
Environmental Laws and has obtained all environmental licenses, permits,
approvals, registrations and authorizations (federal, state and local) material
to the business. Except as set forth on Schedule 2.19(b), all such licenses,
permits, approvals, registrations and authorizations will remain in full force
and effect as of the Closing.
(c) No governmental or private action, suit or proceeding to enforce or
impose liability under any Environmental Laws is pending or, to the best of the
Company's knowledge, threatened against the Company and, to the best of the
Company's knowledge, no lien has been created on any real property owned or
leased by the Company relating to the business, under any Environmental Laws.
2.20. Investments. The Company does not own any capital stock,
partnership interests or other equity interests in any corporation, partnership,
joint venture, trust or other business association.
2.21. Material Contracts and Other Agreements. Schedule 2.21 hereto
discloses all material peering agreements, arrangements and relationships,
collocate agreements, service swap agreements and local access agreements; all
material vendor maintenance contracts; a written description of any and all
material affinity, bounty and retail programs; all agreements containing
covenants not to compete on the part of the Company or otherwise restricting the
ability of the Company or any Management Stockholder in any material way to
engage in the business of the Company as currently conducted; all material
notes, mortgages, indentures, letters of credit, guarantees, performance bonds
an other obligations and agreements and other instruments for or relating to any
lending or borrowing (including assumed debt) entered into by the Company or
pursuant to which any properties or assets of the Company are pledged or
mortgaged as collateral; any employment or consulting agreement with any
Stockholder or any present or former director, officer or employee of the
Company which calls for annual compensation in excess of Fifty Thousand Dollars
($50,000); all agreements with independent sales representatives or contractors
relating to the sale and distribution of the Company's products and services;
all material personal property leases; and any other Contracts which are
material to the Company. With respect to each such Contract, (1) such Contract
is valid, binding and enforceable against the Company and, to the best knowledge
of the Company and the Stockholders, and each other party thereto in accordance
with its terms; (2) neither the Company nor, to the best knowledge of the
Company and the Management Stockholders, and other party to such Contract is in
material breach thereof or material default thereunder, and (3) there does not
exist any event that, with the giving notice or the lapse of time or both, would
constitute a material of or a material default under such Contract, and neither
the Company nor the Management Stockholders has received or given notice of any
such breach, default or
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event. None of the Company or the Stockholders is aware of any circumstances
pursuant to which Purchaser's purchase of shares pursuant to the terms of this
Agreement could reasonably be expected to materially and adversely affect the
relationship of the Company with any party or parties to any Contract.
2.22. Suppliers and Customers. Schedule 2.22 hereto sets forth the ten
(10) largest suppliers of goods and services of the Company for the fiscal year
ended December 31, 1997 (the "Large Suppliers"), the amount of all payments made
to each large Supplier for such fiscal year, the ten (10) largest customers,
groups of related customers or bulk customers for the fiscal year ended December
31, 1997 (the "Large Customers"), and the amount of all payments made by such
Large Customers for such fiscal year. The Company has a good business
relationship with its Large Suppliers and Large Customers and no supplier is a
sole source of supply of any good or service used by the Company. None of the
Large Suppliers or Large Customers has canceled or otherwise terminated or
threatened in writing to cancel or otherwise terminate, its relationship with
the Company or since the Balance Sheet Date, decreased materially, or threatened
to decrease or limit materially, it services, supplies or materials to the
Company or its usage or purchase of the products or services of the Company.
Neither the Company nor the Stockholders is aware of any circumstances pursuant
to which Purchasers' purchase of shares pursuant to the terms of this Agreement
could reasonably be expected to materially and adversely affect the relationship
of the Company with any Large Supplier or Large Customer.
2.23. Title to Assets. The Company owns or leases all tangible personal
property necessary for the conduct of its business as presently conducted. Each
such asset has been maintained in accordance with ordinary industry practice, is
in good operating condition and is usable in the ordinary course of business,
other than where any such failures individually or in the aggregate would not
have a Material Adverse Effect. Except for Encumbrances arising under Contracts
identified on Schedule 2.23 hereto and for other imperfections which
individually or in the aggregate would not have a Material Adverse Effect and
except for leased or licensed assets, the Company has good and marketable title
to all of the owned tangible personal property used in the conduct of its
business, free and clear of any and all Encumbrances. The Company has good and
valid leasehold title to all leased tangible personal property leased by it from
third parties, free and clear of all Encumbrances, except for imperfections
individually or in the aggregate as would not cause a Material Adverse Effect.
2.24. Disclosure. No representation or warranty by the Company or
NYSERNet set forth in this Agreement, or any other agreement delivered in
connection herewith contains any untrue statement of a material fact or omits to
state any material fact necessary, in light of the circumstances under which it
was made, in order to make such representations and warranties not misleading.
2.25. Exclusive Representations and Warranties. Other than the
representations and warranties set forth herein, the Company is not making any
other representation or warranty, express or implied, with respect to its
business or operations.
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NYSERNet represents and warrants to the Purchasers as follows:
2.26. Corporate Organization. NYSERNet is duly organized, validly
existing and in good standing under the laws of the State of New York, with all
requisite power and authority to own, operate and lease its properties and to
carry on its business as it is now being conducted.
2.27. Authority Relative to Agreement. NYSERNet has the full power and
authority to execute and deliver this Agreement and each of the Ancillary
Agreements, to the extent it is a party thereto, to carry out its obligations
hereunder and thereunder, and to consummate the transactions contemplated on its
part hereby and thereby. This Agreement and each of the Ancillary Agreements, to
the extent NYSERNet is a party thereto, have been duly executed and delivered by
NYSERNet and constitute the legal, valid and binding obligations of NYSERNet,
enforceable against NYSERNet in accordance with their terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
2.28. No Violations or Consents. Except as set forth on Schedule 2.28
hereto, the execution, delivery and performance of this Agreement and each of
the Ancillary Agreements by NYSERNet, to the extent NYSERNet is a party thereto,
and the consummation by it of the transactions contemplated hereby and thereby
will not (a) violate or conflict with any provision of any law applicable to
NYSERNet by which any property or asset of it is bound or (b) require the
consent, waiver, approval, license or authorization of or any filing by NYSERNet
with any public authority.
2.29. Ownership. NYSERNet has good and marketable title in and to the
shares (the "NYSERNet Shares") set forth opposite its name on Schedule 2.1
hereto. The NYSERNet Shares are, and on the Closing Date will be, free and clear
of any and all Encumbrances. At the Closing, upon consummation of the
transactions contemplated by this Agreement, Purchasers will acquire good and
marketable title to the NYSERNet Shares, free and clear of any and all
Encumbrances.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser represents and warrants to the Company as follows:
3. 1. Corporate Organization. Such Purchaser is duly organized, validly
existing and in good standing under the laws of its state of formation, with all
requisite power and authority to own, operate and lease its properties and to
carry on its business as it is now being conducted.
3.2. Authority Relative to Agreement. Such Purchaser has the full power
and authority to execute and deliver this Agreement and each of the Ancillary
Agreements, to the extent it is a party thereto, to carry out its obligations
hereunder and thereunder, and to consummate the transactions contemplated on its
part hereby and
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thereby. This Agreement and each of the Ancillary Agreements, to the extent such
Purchaser is a party thereto, have been duly executed and delivered by such
Purchaser and constitute the legal, valid and binding obligations of such
Purchaser, enforceable against such Purchaser in accordance with their terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
3.3. No Violations or Consents. The execution, delivery and performance
of this Agreement and each of the Ancillary Agreements by such Purchaser, to the
extent such Purchaser is a party thereto, and the consummation by it of the
transactions contemplated hereby and thereby will not (a) violate or conflict
with any provision of any law applicable to such Purchaser or by which any
property or asset of it is bound or (b) require the consent, waiver, approval,
license or authorization of or any filing by such Purchaser with any public
authority.
3.4. Securities Act Representation. Such Purchaser hereby represents,
acknowledges, covenants and agrees as follows: (i) the Initial shares acquired
hereunder are being acquired for such Purchaser's own account for investment
purposes only and not with a view to any resale in violation of the Securities
Act of 1933, as amended (the "Securities Act") or any state securities or "blue
sky" law; (ii) the Initial Shares have not been registered under the Securities
Act or any state securities or "blue sky" law (iii) such Purchaser is an
"accredited investor" within the meaning of Rule 501(a) of Regulation D
promulgated under the Securities Act; and (iv) such Purchaser has been afforded
an opportunity to examine all documents and to ask questions of, and to receive
answers from, the Company and its representatives concerning the terms of this
Agreement, the transactions contemplated hereby and as set forth in the Exhibits
attached hereto and such Purchaser's purchase of the Initial shares.
3.5. Further Representations. IXC hereby represents, acknowledges,
covenants and agrees as follows: (i) the IRU and Stock Purchase Agreement dated
as of July 22, 1997, as amended (the "PSINet Agreement"), by and between IXC and
PSINet Inc. ("PSI") and the Contribution Agreement dated as of December 22, 1997
by and between IXC and IXC Carrier Inc. ("Carrier") (the "Fiber Agreement") are
in full force and effect, (ii) IXC owns of record or beneficially at least fifty
percent (50%) of the approximately 20% interest in common stock of PSI received
under the PSINet Agreement (a total of approximately 10 million shares), which
has as of April 15, 1998 a market value of not less than $60 million, (iii) IXC
owns an IRU in two fibers over a significant portion of the network of Carrier,
as set forth in the Fiber Agreement and (iv) IXC shall not transfer any of its
assets to any other entity including any Affiliate of IXC with the intent of
avoiding its obligations hereunder or under the Option Agreements contemplated
hereby.
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ARTICLE 4
INDEMNITY
4.1. Indemnification by Purchasers. (a) Each Purchaser agrees to
indemnify the Stockholders against, and hold each Stockholder harmless from, any
and all Damages (as defined in Section 4.3 below) arising out of the breach of
any representation, warranty, covenant or agreement of Purchasers contained
herein or as set forth in the Exhibits attached hereto. Notwithstanding the
foregoing, Purchasers shall not be liable to the Stockholders under this Section
4.1(a) for any Damages arising out of the breach of any representation or
warranty of Purchasers herein or as set forth in Exhibits attached hereto unless
and until the aggregate amount of all such Damages exceeds $100,000
("Purchasers' Threshold Amount"), in which case Purchasers shall be required to
indemnify the Stockholders for the amount of such Damages above the Purchasers'
Threshold Amount.
(b) The Stockholders agree to give each Purchaser prompt written notice
of any action by or in respect of a third party of which they have actual
knowledge concerning any Damage as to which they may request indemnification
hereunder. Purchasers shall have the right to direct, through counsel of their
choosing, the defense or settlement of any such action (provided that Purchasers
shall have first acknowledged their indemnification obligations hereunder
specifically in respect of such action) at their own expense, which counsel
shall be reasonably satisfactory to the indemnified party or parties. If
Purchasers elect to assume the defense of any such action, the indemnified party
or parties may participate in such defense, but in such case the expenses of the
indemnified party or parties incurred in connection with such participation
shall be paid by the indemnified party or parties. The indemnified party or
parties shall cooperate with Purchasers in the defense or settlement of any such
action. If Purchasers elect to direct the defense of any such action, the
indemnified party or parties shall not pay, or permit to be paid, any part of
any claim or demand arising from such asserted Damages, unless (i) each
Purchaser consents in writing to such payment, (ii) each Purchaser withdraws
from the defense of such asserted Damages, or (iii) a final judgment from which
no appeal may be taken by or on behalf of Purchasers is entered against such
indemnified party for such Damages. If Purchasers shall fail to defend, or if,
after commencing or undertaking any such defense, Purchasers (i) fail to
prosecute or (ii) withdraw from such defense, the indemnified party or parties
shall have the right to undertake the defense or settlement thereof at
Purchaser's expense.
4.2. Indemnification by the Company and NYSERNet. (a) The Company and
NYSERNet agree to indemnify each Purchaser against and hold each Purchaser
harmless from any and all Damages of such Purchaser arising out of the breach of
any representation, warranty, covenant or agreement of the Company contained
herein. NYSERNet also agrees to indemnify each Purchaser against and hold each
Purchaser harmless from any and all Damages of such Purchaser arising out of the
breach of any representation, warranty, covenant or agreement of NYSERNet
contained herein. Notwithstanding the foregoing, neither the Company nor
NYSERNet shall be liable to Purchasers under this Section 4.2 (a) for any
Damages arising hereunder unless and until the aggregate amount of all such
Damages exceeds $100,000 (the "Company's and
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NYSERNet's Threshold Amount"), in which case (i) the Company and NYSERNet shall
be required to indemnify Purchasers for the amount of such Damages above the
Company's and NYSERNet's Threshold Amount, and (ii) the aggregate liability of
the Company and NYSERNet under this Section 4.2 (a) shall not exceed 10% of the
total amount of the Purchase Price received by such person pursuant to this
Agreement.
(b) Each Purchaser agrees to give the Company and NYSERNet prompt
written notice of any action by or in respect of a third party of which it has
actual knowledge concerning any Damages as to which it may request
indemnification hereunder. The Company and NYSERNet shall have the right to
direct, through counsel of their own choosing, the defense or settlement of any
such action (provided that the Company and NYSERNet shall have first
acknowledged their indemnification obligations hereunder specifically in respect
of such action) at their own expense, which counsel shall be reasonably
satisfactory to Purchasers. If the Company and NYSERNet elect to assume the
defense of any such action, Purchasers may participate in such defense, but in
such case the expenses of Purchasers incurred in connection with such
participation shall be paid by Purchasers. Purchasers shall cooperate with the
Company and NYSERNet in the defense or settlement of any such action. If the
Company and NYSERNet elect to direct the defense of any such action, Purchasers
shall not pay, or permit to be paid, any part of any claim or demand arising
from such asserted Damages, unless the Company and NYSERNET (i) consent in
writing to such payment, (ii) the Company and NYSERNet withdraw from the defense
of such asserted Damages, (iii) a final judgment from which no appeal may be
taken by or on behalf of the Company and NYSERNet is entered against Purchasers
for such Damages. If the Company and NYSERNet (i) fail to defend, or if, after
commencing or undertaking any such defense, the Company and NYSERNet fail to
prosecute or (ii) withdraw from such defense, Purchasers shall have the right to
undertake the defense or settlement thereof at the Company's and NYSERNet's
expense.
4.3. Damages. "Damages" shall mean any claim, demand, loss, liability,
damage or expense, including without limitation, interest, penalties and
reasonable attorneys', accountants' and experts' fees and costs of investigation
incurred as a result thereof. The term "Damages" shall not be limited to matters
asserted by third parties against the indemnified party, but shall also include
Damages sustained or incurred by the indemnified party in the absence of third
party claims. In particular, in the event of the existence or occurrence of a
fact or event which is not disclosed on the disclosure schedules and which
constitutes a breach of a representation or warranty by the Company or NYSERNet,
the Damages relating to such breach for IXC or GHI, respectively, shall be
deemed equal to the product of: (1) the Detriment (as defined) to the Company
with respect to such breach, and (2) IXC's or GHI's Ownership Percentage (as
defined). "Detriment" shall mean the dollar value of the negative effect on the
Company of the existence or occurrence of the fact or event constituting the
breach, e.g., in the event an undisclosed liability for $100,000 exists, the
Detriment is $100,000. "Ownership Percentage" shall mean the percentage of the
outstanding shares of the Company's common stock purchased hereunder by IXC or
GHI, as applicable.
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4.4. General Indemnification Provisions. If the indemnifying party is
controlling the defense of an action, the indemnifying party will not, without
the prior written consent of the indemnified party or parties, enter into any
settlement of such action which could reasonably be expected to lead to
liability or create any financial or other obligation on the part of the
indemnified party or parties. If the indemnified party or parties are
controlling the defense of an action, the indemnified party or parties will not
enter into any settlement of such action without the consent of the indemnifying
party, which consent shall not be unreasonably withheld. The controlling party
shall deliver, or cause to be delivered, to the other party or parties copies of
all correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the defense of any such
action and timely notices of, and the right to participate in any hearing or
other court proceeding relating to such action.
4.5. Company and Management Stockholders' Representations and
Warranties. Purchasers' review of the books and records of the Company shall not
be deemed to constitute actual knowledge so as to reduce Purchasers' right to
rely on the Company's and the Management Stockholders' representations and
warranties contained herein.
ARTICLE 5
THE CLOSING
5. 1. Conduct Prior to the Closing. (a) From and after the date of this
Agreement until the earlier to occur of (i) the Closing Date or (ii) the
termination of this Agreement by mutual consent of the parties hereto, except as
expressly contemplated by this Agreement or as consented to by the Purchasers,
neither the Company, NYSERNet nor any Management Stockholder shall take any
action inconsistent with the terms of this Agreement or which would cause any
representation or warranty hereunder not to be true as of the Closing Date.
(b) Access to Information and Documents, Confidentiality. From and
after the date of this Agreement, the Company shall give each Purchaser and such
Purchaser's attorneys, accountants and other representatives full access to its
properties, documents, books and records and shall furnish each Purchaser with
such information concerning the Company as such Purchaser may reasonably
request. Each Purchaser acknowledges and agrees that (i) the information it has
obtained and will obtain concerning the Company's business is confidential and
belongs to the Company, and (ii) such Purchaser will hold and will cause its
officers, directors, attorneys, accountants and agents to hold all such
confidential information in confidence and will use, and cause such other
persons to, use such information solely in connection with such Purchaser's
investment in the Company.
(c) Best Efforts to Satisfy Closing Conditions. The Company and each
Purchaser shall use best efforts to cause the closing conditions set forth below
to be satisfied as soon as practicable following the execution hereof.
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5.2. Closing. The Closing shall be held on May _, 1998 at 10:00 a.m. at
the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New
York 10019, or at such other time and place mutually agreeable to the parties
hereto.
5.3. Conditions of the Obligations of the Purchasers. The obligation of
each Purchaser to purchase the Initial Shares is subject to the fulfillment or
waiver of each of the following conditions on or before the Closing Date:
(a) Representations and Warranties. The representations and warranties
of the Company, NYSERNet and the Management Stockholders herein shall be true on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date.
(b) Performance. The Company, NYSERNet and the Management Stockholders
shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by them on or before the Closing Date.
(c) Proceedings, Documents and Approval. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchasers, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request. Any required governmental consent or approval shall have been obtained.
(d) Employment and Non-Competition Agreements. Each of the following
persons shall have executed and delivered to the Company an Employment and
Non-Competition Agreement in the Form of Exhibit F hereto: Messrs. Mandelbaum,
Buckel, Luckett, Martin and Oros.
(e) Stockholders' Agreement. The Company, NYSERNet, the Management
Stockholders and Harrison shall have executed and delivered the Stockholders'
Agreement.
(f) Registration Rights Agreement. The Company, NYSERNet, the
Management Stockholders and Harrison shall have executed and delivered the
Registration Rights Agreement.
(g) Option Agreements. Each Management Stockholder and Harrison shall
have executed and delivered to Grumman Hill and IXC an Option Agreement.
(h) New York State Requirements. Other than those required generally of
New York State corporations, no limitations, consents or requirements relating
to the Company or NYSERNet's interest in the Company, including but not limited
to the Attorney General's consent, shall remain in effect at the Closing Date.
(i) Preferred Stock Rights. The Company shall have delivered to the
Purchasers for filing with the Secretary of State of New York a Restated
Certificate of
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Incorporation in the form of the Certificate filed on March 12, 1998 except that
Sections 4, 5.02 and 6 shall be deleted therefrom and other sections shall, as
required, be appropriately renumbered to reflect such deletions.
5.4. Conditions of the Obligations of the Company. The obligation of
the Company to sell Shares to each Purchaser is subject to the fulfillment or
waiver of each of the following conditions on or before the Closing Date:
(a) Representations and Warranties. The representations and warranties
of each Purchaser hereunder shall be true on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of the Closing Date.
(b) Performance. Each Purchaser shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with on or before the Closing Date.
(c) Approvals. Any required governmental consent or approval shall
have been obtained.
5.5. Conditions of the Obligations of NYSERNet.
The obligation of NYSERNet to sell Shares to each Purchaser is subject
to the fulfillment or waiver of each of the following conditions on or before
the Closing Date:
(a) Representations and Warranties. The representations and warranties
of each Purchase hereunder shall be true on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of the Closing Date.
(b) Performance. Each Purchaser shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with on or before the Closing Date.
(c) Proceedings, Documents and Approval. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchasers, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request. Any required governmental consent or approval shall have been obtained.
(d) Stockholders' Agreement. Grumman Hill and IXC shall have executed
and delivered the Stockholders' Agreement.
(e) Registration Rights Agreement. Grumman Hill and IXC shall have
executed and delivered the Registration Rights Agreement.
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(f) Option Agreements. Grumman Hill and IXC shall have executed and
delivered an Option Agreement for each of the Management Stockholders and
Harrison.
5.6. Deliveries by the Company, NYSERNet. On the Closing Date, the
Company, NYSERNet and the Management Stockholders (to the extent each is a party
thereto) shall deliver the following:
(a) Certificates representing all of the Initial Shares, registered in
the name of the Purchasers and, as to those registered in the name of NYSERNet,
duly endorsed by NYSERNet, for transfer to Purchasers (two-thirds to IXC and
one-third to Grumman Hill) or accompanied by an assignment duly executed by
NYSERNet and any other documents that are necessary to transfer to Purchasers
good and marketable title to all of the Initial Shares;
(b) Evidence of the Company and NYSERNet having obtained the licenses,
permits, authorizations, consents and approvals set forth on Exhibit G hereto;
(c) Executed copies of the Stockholders' Agreement and Registration
Rights Agreement and Option Agreements;
(d) A legal opinion from Dewey Ballantine LLP, legal counsel for the
Company, and of Underberg & Kessler, LLP, legal counsel for NYSERNet, each dated
the Closing Date, in form and substance reasonably satisfactory to the
Purchasers.
5.7. Deliveries by Purchasers. On the Closing Date, Purchasers shall
deliver the following:
(a) Cash by wire transfer to each of the sellers of the Initial Shares
set forth on Exhibit A hereto, in the amount set forth opposite each of such
persons' names.
(b) Executed copies of the Stockholders' Agreement, Registration Rights
Agreement and all Option Agreements.
5.8 Further Assurances. NYSERNet and the Company, at any time on or
after the Closing Date, will execute, acknowledge and deliver any further
assignments and other assurances, documents and instruments of transfer,
reasonably requested by Purchaser, and will take any other action that may be
reasonably requested by Purchasers, for the purpose of assigning, transferring
and confirming to Purchasers, or reducing to possession, any or all of the
Initial Shares purchased hereunder.
ARTICLE 6
ADDITIONAL COVENANTS OF PARTIES
-------------------------------
6.1. Governmental Filings. To the extent necessary to complete all
contemplated transactions under this Agreement and the Option Agreements entered
into on the Closing Date, the Purchasers, NYSERNet, the Company and the
Management Stockholders, as applicable, undertake and covenant to use their best
efforts to file any required applications and filings with any governmental
authorities, including but not
19
<PAGE> 20
limited to any initial, renewal or extension filings under the Hart-Scott-Rodino
Antitrust Improvements Act, and to obtain all necessary consents, approvals and
permits and to meet all required waiting periods thereunder in a timely fashion
in order to permit the transactions contemplated by this Agreement to occur and
in any event prior to the time that the "put" provided for in the Option
Agreements is first exercisable and thereafter throughout the entire period the
"put" is exercisable.
6.2. Right of First Offer. (a) At any time from the Closing under this
Agreement until the time that any class of the Company's equity securities are
registered under the Securities and Exchange Act of 1934, as amended, in the
event that the Company desires to enter into negotiations to issue, sell or
otherwise transfer any of its capital stock or securities exercisable for, or
exchangeable into capital stock (the "Offered Stock") to any person, it shall
promptly so notify Grumman Hill, IXC, NYSERNet and the Management Stockholders
(other than Richard Mandelbaum) (the "Offerees") and shall offer to sell to each
of the Offerees (the "Offer") its pro rata share (as defined below) of the
Offered Stock it desires to sell at the price, and on the terms and conditions,
upon which the Company would be willing to sell the Offered Stock to that
person. In the event that the consideration to be paid by such person is not
cash, the Board shall determine in good faith an equivalent cash price and the
Offerees, at their option, can choose to pay the equivalent cash price, or, if
practicable, to pay consideration of the same or similar kind to that which such
person will pay. At any time during the first seven (7) days following receipt
of the Offer, the Offerees may notify the Company that they exercise their right
to purchase their pro rata portion of the Offered Stock (based on the respective
Offeree's percentage ownership of the Company's capital stock computed on a
basis that assumes full exercise of (i) all employee stock options and (ii) the
put option in the Option Agreements referred to herein) on the same terms and
conditions as are specified in the Offer (an "Acceptance Notice").
If the Company shall not receive any Acceptance Notice or shall not
receive Acceptance Notices sufficient to sell all of the Offered Stock, it shall
have the right to sell any remaining shares of the Offered Stock to any person
or entity at a price equal to the price set out in the Offer, and upon such
other terms and conditions as are no less favorable to the Company than those
set out in the Offer; provide, however, that none of such terms and conditions
shall violate any provision of this Agreement and such sale must be consummated
within ninety (90) days from the date of the Offer.
(b) With respect to each purchase of Offered Stock by the Offerees
under this Section 6.2, the closing therefor shall be held at 10 a.m. at the
principal office of the Company on the date determined in accordance with
Section 6.2(a) hereof. The purchase price for the Offered Stock shall be paid in
full at such closing in cash or by certified check payable to the order of the
Company against delivery of the appropriate stock certificates or instruments
evidencing such Offered Stock, duly endorsed or with duly executed stock powers
attached thereto. Stock delivered at each closing hereunder shall be free and
clear of all liens, charges and encumbrances, and all title thereto, and all
rights and privileges of ownership thereof, immediately shall be vested in the
purchaser thereof. The purchaser shall pay all transfer taxes, and all requisite
transfer tax stamps shall be duly affixed to the stock certificates at the time
of delivery.
20
<PAGE> 21
(c) The first offer rights of the Offerees pursuant to this Section 6.2
shall not apply to securities issued, (A) as a stock dividend or upon any
subdivision of shares of Common Stock, provided that the securities issued
pursuant to such stock dividend or subdivision are limited to additional shares
of Common Stock, (B) pursuant to subscriptions, warrants, options, convertible
securities, or other rights outstanding as of the date hereof, (C) options for
employees, directors or consultants issued post Closing provided such options
are solely for non-voting stock, (D) pursuant to a firm commitment underwritten
public offering, and (E) upon the exercise of any right which was not itself
issued in violation of the terms of this Section 6.2. In the event stock options
are issued post Closing for shares of the Company's voting stock, the right of
first offer under this Section 6.2 shall apply such that the Offerees may
acquire their pro rata amount of the shares into which the options are
exercisable at the option issuance date upon payment of the aggregate exercise
price for said shares but shall have no right to acquire actual options
themselves. This right must be exercised, if at all, within seven (7) days
following receipt of the Offer for said shares.
(d) The right of first offer set forth in this Section 6.2 is not
transferable by any party other than Grumman Hill which shall be permitted to
assign its right of first offer rights herein to (i) one or more of its limited
partners, (ii) any affiliated fund, i.e. an investment partnership with the same
or an affiliated general partner or manager as Grumman Hill, or (iii) IXC or an
affiliate of IXC, provided, however, that in such case, the rights would only be
assignable to the extent that assuming the exercise of the transferred rights,
IXC and its affiliates would beneficially own not more than 49.9% of the
outstanding equity of the Company unless such transfer has received the prior
unanimous consent of the Company's Board of Directors.
6.3 Right of First Refusal At any time after the Closing under this
Agreement and for so long as IXC owns a minimum of the number of shares (subject
to adjustment in the event of stock splits, combinations, other
recapitalization, stock dividends and similar events) acquired from the Company
and NYSERNet under the Agreement, in the event that the Company (or any
subsidiary thereof) develops a need for broadband or private-line services, the
Company will provide written notice to IXC of the nature of the Company's
requirements as soon as is reasonably practicable. IXC shall have the exclusive
right to provide all, or any portion of, such broadband or private-line services
to the Company so long as the price charged by IXC to the Company for such
services is competitive with the prices and discounts of other providers for a
similar amount of similar services. If the Company is able to obtain a quote for
a similar amount of broadband or private-line services from another provider at
less than the price then being quoted by IXC, then IXC shall not have the right
to provide such services to the Company unless it is willing to provide those
services at the price quoted by such other provider.
6.4. Irrevocable Proxy NYSERNet hereby grants to IXC and Grumman Hill
an irrevocable proxy with full power of substitution and revocation pursuant to
the provisions of Section 609 of the New York Business Corporation Law (the
"Proxy") to vote, and to execute and deliver written consents or otherwise act
with respect to 252,000 shares of the Company's Common Stock reduced by the
amount of the shares of the
21
<PAGE> 22
Company's common stock acquired after the date of this Agreement by IXC and
Grumman Hill from the Company or from any stockholders of the Company for the
duration of the Initial Option Period (as this term is defined in the Option
Agreement attached hereto as Exhibit C), with such proxy exercisable by IXC with
respect to two thirds the shares of stock and by Grumman Hill with respect to
one third of the shares of stock. NYSERNet hereby affirms that the Proxy is
given as a condition of this Agreement and as such is coupled with an interest
and is irrevocable.
ARTICLE 7
MISCELLANEOUS
7.1. Survival. All of the representations and warranties set forth in
this Agreement and the provisions of Section 7.9 shall terminate and be
extinguished on the first anniversary hereof.
7.2. Notices. All notices, requests, demands and other communications
made under this Agreement shall be in writing, correctly addressed to the
recipient at the addresses set forth under such recipient's signature on the
signature page hereto and shall be deemed to have been duly given; (a) upon
delivery, if served personally on the party to whom notice is to be given; (b)
on the date of receipt, refusal or non-delivery indicated on the receipt if
mailed to the party to whom notice is to be given by first class mail,
registered or certified, postage prepaid, or by air courier; or (c) on
confirmation of receipt if delivered by facsimile transmission, provided the
original thereof is sent by mail, in the manner set forth above, within the next
business day after the facsimile transmission is sent. Any party may give
written notice of a change of address in accordance with the provisions of this
Section 7.2 and after such notice of change has been received, any subsequent
notice shall be given to such party in the manner described at such new address.
7.3. Headings, Agreement. The headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
The term "Agreement" for purposes of representations and warranties hereunder
shall be deemed to include the Schedules and Exhibits hereto.
7.4. Publicity. So long as this Agreement is in effect, unless
otherwise required by applicable law, the parties hereto shall not, and shall
cause their affiliates not to, issue or cause the publication of any press
release or other announcement with respect to the transactions contemplated by
this Agreement or this Agreement without the consent of the other parties, which
consent shall not be unreasonably withheld or delayed.
7.5. Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) constitutes the entire agreement among the parties and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof
7.6. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefits of the parties hereto and their
respective
22
<PAGE> 23
successors and permitted assigns. Neither this Agreement nor any of the rights,
interests or obligations hereunder (except as permitted by the terms of Section
6.2(d) hereof) shall be assigned by any of the parties hereto without the prior
written consent of the other parties, provided that Purchasers shall be
permitted to assign this Agreement to any respective affiliate thereof without
the prior written consent of the Company or NYSERNet. For this purpose, however,
Grumman Hill and IXC shall not be considered as affiliates of each other.
7.7. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
7.8. Governing Law and Choice of Forum. The validity, construction and
performance of this Agreement, and any action arising out of or relating to this
Agreement or any of the Ancillary Agreements, shall be governed by the laws,
without regard to the laws as to choice or conflict of laws, of the State of New
York.
7.9. Cumulative Remedies. No remedy made available hereunder by any of
the provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise. Notwithstanding the foregoing, the parties
have agreed that the indemnification provisions contained in Sections 4.1 and
4.2, above, shall be the sole and exclusive remedies of the parties with respect
to the breach by the other parties of any representation, warranty, covenant or
agreement herein, except in the case of party who has committed a fraud in
respect thereto.
7.10. Third-Party Beneficiaries. This Agreement is not intended to
confer upon any other person any rights or remedies hereunder.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by an individual thereunto duly authorized, all as of the date first
written above.
IXC INTERNET SERVICES, INC.
By: /s/ Ben L. Scott
------------------------
Name: Ben L. Scott
Title: Chairman & CEO
Address:
1122 Capital of Texas Hwy S.
Austin, Texas 78746-6426
Attn: Jeffrey C. Smith, Esq.
With a copy to:
Michael P. Whalen, Esq.
Riordan & McKinzie
695 Town Center Drive, Suite 1500
Costa Mesa, California 92626
GRUMMAN HILL INVESTMENTS III, L.P.
By: Grumman Hill Group LLC, general partner
By: /s/ James T. Kelsey
------------------------
Name: James T. Kelsey
Title:
With a copy to:
Michael P. Whalen, Esq.
Riordan & McKinzie
695 Town Center Drive, Suite 1500
Costa Mesa, California 92626
APPLIED THEORY
COMMUNICATIONS, INC.
By: /s/ Richard Mandelbaum
------------------------
Name: Richard Mandelbaum
Title: President & CEO
Address:
125 Elwood Davis Road
Syracuse, NY 13212
Attention: Chief Financial Officer
With a copy to:
Frank E. Morgan, II
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
STOCKHOLDERS
/s/ Richard Mandelbaum
- ------------------------
Richard Mandelbaum
/s/ David Buckel
- ------------------------
David Buckel
/s/ James Luckett
- ------------------------
James Luckett
/s/ Denis J. Martin
- ------------------------
Denis Martin
/s/ Mark Oros
- ------------------------
Mark Oros
With a copy to:
Frank E. Morgan, II, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
<PAGE> 25
NYSERNET.NET, INC.
By: /s/ Richard Mandelbaum
------------------------
Name: Richard Mandelbaum
Title: Chairman
c/o Robert F. Mechur, Esq.
Underberg & Kessler, LLP
1800 Chase Square
Rochester, NY 14604
2
<PAGE> 1
EXHIBIT 10.02
NYSERNet.com, INC.
1996 INCENTIVE STOCK OPTION PLAN
as amended by Resolution of the Board of Directors on 09/02/98
and of the shareholders on 10/14/98
1. Purpose. The NYSERNet.com, Inc. 1996 INCENTIVE STOCK OPTION PLAN
(hereinafter referred to as the "Plan") is designed to furnish additional
incentive to key employees and, as to Nonstatutory Options (as hereinafter
defined) directors, advisors, consultants and other employees of NYSERNET.com,
Inc., a New York corporation (hereinafter referred to as the "Company"), and its
parents or subsidiaries, upon whose judgment, initiative and efforts the
successful conduct of the business of the Company largely depends, by
encouraging such persons to acquire a proprietary interest in the Company or to
increase the same, and to strengthen the ability of the Company to attract and
retain persons of training, experience and ability. Such purpose will be
effected through the granting of stock options ("Stock Options"), as herein
provided. Such options will either be "Incentive Stock Options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("Statutory Options") or nonstatutory stock options which are not
Incentive Stock Options ("Nonstatutory Options") as determined by the Board of
Directors of the Company at the time each option is granted.
2. Eligibility.
(a) The persons who shall be eligible to receive Statutory Options
under the Plan shall be those employees of the Company, or of any of its parents
or subsidiaries within the meaning of Section 425(e) and (f) of the Code, who
are exempt from the overtime provisions of the Fair Labor Standards Act of 1938,
as amended, by reason of employment in an executive, administrative or
professional capacity under 29 U.S.C. Section 213(a)(1). No Statutory Option
shall be granted to a person who would, at the time of the grant of such option,
own, or be deemed to own for purposes of Section 422(b)(6) of the Code, more
than 10% of the total combined voting power of all classes of shares of stock of
the Company or its parents or subsidiaries unless at the time of the grant of
the option both of the following conditions are met:
(i) the option price is at least 110% of the fair market value
of the shares of stock subject to the option, as defined in
subparagraph 4(a) hereof, and
(ii) the option is, by its terms, not exercisable after the
expiration of five years from the date the option is granted.
(b) The persons who shall be eligible to receive Nonstatutory Options
shall be those employees, officers and directors of, and advisors and
consultants to, the Company as the Board of Directors may from time to time
select.
<PAGE> 2
3. Shares Subject to Options.
(a) Subject to the provisions of Section 4(g) hereof, Stock Options may
be granted under the Plan to purchase in the aggregate not more than 8,000,000
shares of the Common Stock of the Company, consisting of a combination of not
more than 5,000,000 shares of the $0.01 par value Voting Common Stock and not
more than 3,000,000 shares of the $0.01 par value Non-Voting Common Stock of the
Company (hereinafter referred to as "Shares"), which Shares may, in the
discretion of the Board of Directors of the Company, consist either in whole or
in part of authorized but unissued Shares or Shares held in the treasury of the
Company. Any Shares subject to an option which for any reason expires or is
terminated unexercised as to such Shares shall continue to be available for
options under the Plan.
(b) The aggregate fair market value, determined as of the time any
Statutory Option is granted to any individual, of Shares for which Incentive
Stock Options within the meaning of the Code are exercisable for the first time
by such individual in any calendar year, under all incentive stock option plans
of the Company or in any corporation which is a parent or subsidiary of the
Company, shall not exceed $100,000. Any options granted hereunder in excess of
such number shall be Nonstatutory Options. In determining whether any option is
a Statutory or Nonstatutory Option, options shall be considered in the order in
which they were granted.
4. Terms and Conditions of Stock Options. Stock Options shall by
granted by the Board of Directors or by any other party delegated such authority
pursuant to section 8 of this Plan and shall be subject to the following terms
and conditions:
(a) Price. Each Stock Option shall state the number of Shares subject
to the option and the option price, which, in the case of Statutory Options,
shall be not less than the fair market value of the Shares with respect to which
the option is granted at the time the option is granted; provided, however, that
the option price shall be at least 110% of fair market value in the case of a
grant of a Statutory Option to a person who would at the time of the grant, own,
or be deemed to own for purposes of Section 422(b)(6) of the Code, more than 10%
of the total combined voting power of all classes of the capital stock of the
Company or its parents or subsidiaries. For purposes of this subsection, "fair
market value" shall mean:
(i) the mean between the bid and asked price for the Shares on
the business day immediately preceding the date of the grant of the
option; or
(ii) the most recent sale price for the Shares as of the date
of the grant of the option; or
(iii) such price as shall be determined by the Board of
Directors of the Company in an attempt made in good faith to meet the
requirements of Section 422(b)(4) of the Code.
(b) Term. Except as otherwise provided in subparagraphs 4(d) and 4(e),
the term of each Stock Option shall be determined by the Board of Directors of
the
2
<PAGE> 3
Company, but in no event shall an option be exercisable either in whole or in
part after the expiration of ten years from the date on which it is granted. The
Board of Directors and an optionee may, by mutual agreement, terminate any Stock
Option granted to such optionee. In the case of the merger, consolidation,
dissolution, liquidation, or change in ownership of the Corporation, the Board
of Directors of the Corporation may, in its sole discretion, accelerate the
expiration date and the dates on which any part of any Stock Option shall be
exercisable; provided, however, that such acceleration shall be effective only
upon the consummation of any such transaction.
(c) Non-Assignment During Life. During the lifetime of the optionee, a
Stock Option shall be exercisable only by him and shall not be assignable or
transferable by him, whether voluntarily or by operation of law or otherwise,
and no other person shall acquire any rights therein.
(d) Death of Optionee. In the event that an optionee shall die while
employed by the Company or within three months after retirement, but prior to
the exercise of all Statutory Options granted to him under the Plan, the
remaining Statutory Options may be exercised in whole or in part after the date
of the optionee's death only: (i) by the optionee's estate or by or on behalf of
the person or persons to whom the optionee's rights under the option pass under
the optionee's Will or the laws of descent and distribution; (ii) to the extent
that the optionee was entitled to exercise the option at the date of his death;
and (iii) during the balance of the term of the option or within one year of the
date of the Optionee's death, whichever is shorter.
(e) Order of Option Exercise. An optionee may exercise Stock Options in
any order the Optionee chooses, regardless of the order in which the Stock
Options were granted.
(f) Termination of Employment. A Statutory Option shall be exercisable
during the lifetime of the optionee to whom it is granted only if, at all times
during the period beginning on the date of the granting of the Statutory Option
and ending on the day three months before the date of such exercise, he is an
employee of the Company or any of its parents or subsidiaries, or an employee of
a corporation or a parent or subsidiary of such corporation issuing or assuming
a Statutory Option granted hereunder in a transaction to which Section 425(a) of
the Code applies; provided, however, that in the case of an optionee who is
disabled within the meaning of Section 105(d)(4) of the Code, the three-month
period after cessation of employment during which a Statutory Option shall be
exercisable shall be one year. A Nonstatutory Option shall terminate (i)
immediately upon the resignation of the optionee from any position held by him
as an officer, director, employee, advisor or consultant to the Company, (ii)
immediately upon the termination by the Company of the optionee from any such
position for cause or (iii) thirty (30) days after the termination by the
Company of the optionee from any such position without cause. Notwithstanding
the foregoing, no Stock Option shall be exercisable after the expiration of the
stated term thereof. For purposes of this subsection, an employment relationship
will be treated as continuing intact while the optionee is on military duty,
sick leave or other bona fide leave of absence, such as temporary employment by
the Government, if the period of such leave does not exceed
3
<PAGE> 4
90 days, or, if longer, so long as a statute or contract guarantees the
optionee's right to re-employment with the Company, or any of its parents or
subsidiaries, or another corporation issuing or assuming a Stock Option granted
hereunder in a transaction to which Section 425(a) of the Code applies. When the
period of leave exceeds 90 days and the individual's right to re-employment is
not guaranteed either by statute or by contract, the employment relationship
will be deemed to have terminated on the 91st day of such leave.
(g) Anti-Dilution Provisions. Subject in the case of Statutory Options
to the provisions of Section 422 of the Code and the regulations promulgated
thereunder, the aggregate number and kind of Shares available for Stock Options
under the Plan, and the number and kind of Shares subject to, and the option
price of, each outstanding Stock Option shall be proportionately adjusted by the
Board of Directors of the Company for any increase, decrease or change in the
total outstanding Shares of the Company resulting from a stock dividend,
recapitalization, merger, consolidation, split-up, combination, exchange of
Shares or similar transaction (but not by reason of the issuance or purchase of
Shares by the Company in consideration for money, services or property).
(h) Power to Establish Other Provisions. Subject to the discretion of
the Board of Directors of the Company and, in the case of Statutory Options,
subject to the provisions of Section 422 of the Code and the regulations
promulgated thereunder, Stock Options granted under the Plan shall contain such
other terms and conditions as the Board of Directors of the Company shall deem
advisable.
5. Exercise of Option. Stock Options shall be exercised as follows:
(a) Notice and Payment. Each Stock Option, or any installment thereof,
shall be exercised, whether in whole or in part, by giving written notice to the
Company at its principal office, specifying the number of Shares purchased and
the purchase price being paid, and accompanied by the payment of all or such
part of the purchase price as shall be specified in the option, by cash or by
certified or bank check payable to the order of the Company. Each such notice
shall also contain representations on behalf of the optionee that
(i) the optionee acknowledges that the Company is selling the
Shares being acquired by him under a claim of exemption from
registration under the Securities Act of 1933, as amended (hereinafter
referred to as the "Act"), as a transaction not involving any public
offering;
(ii) the optionee is acquiring the Shares without a view to
distribution or resale;
(iii) the optionee understands and agrees that the Shares
purchased may not be thereunder transferred unless (A) a registration
statement with respect thereto shall then be effective under the Act,
and the Company will have complied with any other applicable laws, or
(B) the optionee shall have obtained an opinion of counsel, in form and
content reasonably satisfactory to the
4
<PAGE> 5
Company and to its counsel, to the effect that the proposed transfer
will be exempt from the registration provisions of the Act, will comply
with applicable state laws, and will not result in any violation of the
Act or of any other applicable laws;
(iv) because any Shares purchased will not have been
registered under the Act, they must be held indefinitely unless and
until they are subsequently registered under the Act or an exemption
from such a registration is available;
(v) any routine sales of the Shares purchased made in reliance
upon Rule 144 promulgated under the Act can be made only in limited
amounts and in accordance with all the terms and conditions of that
Rule, and in case the Rule is not applicable, compliance with
Regulation A or some other disclosure exemption may be required; and
(vi) the Company has no obligation to register the Shares, to
comply with any disclosure exemption, or to take such action as may be
necessary to meet the requirements of Rule 144.
Appropriate legends may be placed on any certificate for Shares received by an
optionee pursuant to the exercise of a Stock Option in order to give notice of
the transfer restrictions set forth herein, and the Company may cause stop
transfer orders to be placed against such certificate(s). It shall be a further
condition to any exercise of the option and the purchase of Shares pursuant
thereto that the Company counsel be satisfied that the issuance of such Shares
will be in compliance with the Act and any other laws applicable thereto, and
the Company shall be entitled to receive such other information, assurances,
documents, representations or warranties as it or its counsel may reasonably
require with respect to such compliance.
(b) Issuance of Certificates. Certificates representing the Shares
purchased by the optionee shall be issued as soon as practicable after the
optionee has complied with the provisions of Section 5(a) hereof.
(c) Rights as a Shareholder. The optionee shall have no rights as a
Shareholder with respect to the Shares purchased until the date of the issuance
to him of a Certificate representing such Shares.
(d) Order of Option Exercise. An optionee may exercise Stock Options
granted by the Company under the Plan in any order the optionee chooses,
regardless of the chronological order in which the options were granted.
6. Term of Plan. Stock Options may be granted pursuant to the Plan from
time to time within a period of ten years after the date the Plan is adopted by
the Board of Directors of the Company or the date the Plan is approved by the
holders of a majority of the outstanding Shares of the Company, whichever date
is earlier. However, the Plan shall not take effect until approved by the
holders of a majority of the outstanding Shares of the Company, at a duly
constituted meeting thereof held, or by
5
<PAGE> 6
unanimous written consent of such Shareholders obtained, within 12 months before
or after the date the Plan is adopted by the Board of Directors.
7. Amendment and Termination of Plan. The Board of Directors of the
Company, without further approval of the Shareholders of the Company, may at any
time suspend or terminate the Plan, or may amend it from time to time in any
manner; provided, however, that no amendment shall be effective without prior
approval of the Shareholders of the Company which would: (i) except as provided
in Section 4(g) hereof, increase the maximum number of Shares for which Stock
Options may be granted under the Plan; (ii) change the eligibility requirements
for individuals entitled to receive Stock Options under the Plan; or (iii) cause
Stock Options granted or to be granted under the Plan which are designated as
Statutory Options to fail to qualify as Incentive Stock Options under Section
422 of the Code and the regulations promulgated thereunder.
8. Administration. The Plan shall be administered by the Board of
Directors of the Company and decisions of the Board of Directors concerning the
interpretation and construction of any provisions of the Plan or of any Stock
Option granted pursuant to the Plan shall be final. The Company shall effect the
grant of Stock Options under the Plan in accordance with the decisions of the
Board of Directors, which may, from time to time, adopt rules and regulations
for the carrying out of the Plan. For purposes of the Plan, a Stock Option shall
be deemed to be granted on the date the grant of such stock option is approved
by the Board of Directors of the Company. Subject to the express provisions of
the Plan, the Board of Directors shall have the authority, in its discretion and
without limitation (a) to determine: the individuals to receive Stock Options;
the times when such individuals shall receive Stock Options; the number of
Shares to be subject to each option; the term of each option; the date(s) on
which each option shall become exercisable; whether an option shall be
exercisable in whole, in part, or in installments; the number of Shares to be
subject to each installment; the date each installment shall become exercisable;
the term of each installment; the option price of each option; and the terms of
payment for Shares purchased by the exercise of each option; (b) to accelerate
the date of exercise of any installment; and (c) to make all other
determinations necessary or advisable for administering the Plan. The Board of
Directors may appoint a Stock Option Committee or a Compensation Committee of
not less than three members, and may delegate to such Committee the
responsibilities and authority of the Board of Directors hereunder. In the event
of such appointment and delegation, any reference in the Plan to the Board of
Directors shall be deemed a reference to such Committee. The Board of Directors
and any Stock Option Committee or Compensation Committee thereof may authorize
the President and Chief Executive Officer of the Company to grant a maximum of
5,000 Stock Options per quarter, such Stock Options to be granted in the
discretion of the President and Chief Executive Officer to employees of the
Company; provided, that the President and Chief Executive Officer shall not be
authorized to grant more than 500 options to any particular employee in any
given quarter; provided, further that the President and Chief Executive shall
not have the authority to grant options to any Company employee who is employed
at or above the level of Director.
6
<PAGE> 7
9. Reservation of Shares. The Board of Directors of the Company shall
be under no obligation to reserve Shares to fill Stock Options. Likewise,
because of the substantial nature of the conditions which must be met to entitle
eligible employees to deliveries of reserved Shares, the Board of Directors
shall be under no obligation to reserve Shares against such deliveries. The
optioning and reservation of Shares for employees hereunder shall not be
construed to constitute the establishment of a trust of the Shares so optioned
and reserved, and no particular Share shall be identified as optioned and
reserved for employees hereunder. The Company shall be deemed to have complied
with the terms of the Plan if, at the time of the issuance and delivery pursuant
to option or reservation, or both, it has a sufficient number of Shares
authorized and unissued for the purpose of the Plan, irrespective of the date
when such Shares were authorized.
10. Application of Proceeds. The proceeds of the sale of Shares by the
Company under the Plan will constitute general funds of the Company and may be
used by the Company for any purpose.
Date approved by
Board of Directors - September 2, 1998
Shareholders - October 14, 1998
7
<PAGE> 1
EXHIBIT 10.03
OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered
into as of __________ ____, 1998, by and among ________________ ("Stockholder"),
NYSERNet.net, Inc. ("NYSERNet") and IXC Internet Services, Inc., a Delaware
corporation ("IXC"), and Grumman Hill Investments III, L.P. ("Grumman Hill" or
"GHI", and together with IXC, "Purchasers").
A. Pursuant to that certain Stock Purchase Agreement of even date
herewith by and among AppliedTheory Communications, Inc., a New York corporation
("ATC"), IXC, Grumman Hill, NYSERNet and certain stockholders (including
Stockholder) of ATC (the "Stock Purchase Agreement"), Purchasers are purchasing
certain shares of common stock of ATC.
B. The parties hereto hereby acknowledge that none of them would be
willing to enter into the transactions contemplated by the Stock Purchase
Agreement without the execution and delivery of this Agreement at the closing of
the transactions contemplated by the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants, representations, warranties and promises set forth
herein, the parties hereto agree as follows:
ARTICLE I
THE PUT OPTION
SECTION 1.1 THE PUT OPTION. During the Initial Option Period defined
below, the Stockholder shall have the option (the "Put Option"), in
Stockholder's own discretion, to sell _____ shares of Common stock of ATC held
by Stockholder (the "Stock"), either directly or through one or more trusts
established for the benefit of himself or family members, for the Purchase Price
defined below to Purchasers (two-thirds to IXC, one-third to Grumman Hill). This
option cannot be revoked by Purchasers without the consent of Stockholder.
SECTION 1.2 INITIAL OPTION PERIOD. The "Initial Option Period" shall
begin on the thirteen month anniversary of the execution of this Agreement and
shall end on the twenty-sixth month anniversary of the execution of this
agreement.
SECTION 1.3 PURCHASE PRICE. The "Purchase Price" shall be $22.0290
per share.
SECTION 1.4 EXERCISE OF PUT OPTION. Stockholder may exercise the Put
Option in whole or in part on one or more occasions during the Initial Period by
written notice to Purchasers at the address set forth in the Stock Option
Agreement. On or before
<PAGE> 2
20 business days from the date of such notice, each Purchaser shall pay the
Stockholder for the Stock, with such Purchaser paying a pro-rata share of the
Purchase Price in (two-thirds IXC, one-third Grumman Hill). The date of such
payment is referred to as the "Put Option Closing". Stockholder agrees that,
upon such payment, without further action on Stockholder's part, IXC will become
the sole legal and beneficial owner of two-thirds of the shares of Stock and
Grumman Hill will become the sole legal and beneficial owner of one-third of the
shares of Stock. Stockholder covenants to sell and transfer to Purchasers all
right, title and interest in and to the Stock, free and clear of all liens,
claims, charges, encumbrances, restrictions, liabilities, obligations, rights or
interests of others of any kind. From and after the receipt of payment by
Stockholder as set forth above, Stockholder shall cease to have any rights with
respect to the Stock.
THE CALL OPTION
THE CALL OPTION. During the Subsequent Option Period defined below, Purchasers
shall have the option (the "Call Option"), in their discretion, to purchase the
Stock held by the Stockholder for the Purchase Price per share. This Call Option
can be separately exercised, in whole or in part, by IXC as to two-thirds of the
shares of Stock and by Grumman Hill as to one-third of the shares of Stock. This
option cannot be revoked by Stockholder.
SECTION 1.5 SUBSEQUENT OPTION PERIOD. The "Subsequent Option Period"
shall begin on the first day of the twenty-seventh month from the date this
Agreement is executed and shall end on the last day of the thirty-sixth month
from the execution date of this Agreement.
SECTION 1.6 EXERCISE OF CALL OPTION. Either Purchaser may exercise
its Call Option by written notice to Stockholder at the address set forth in the
Stock Purchase Agreement. On or before 10 business days from the date of such
notice, such Purchaser shall pay the Stockholder for the Stock. The date of such
payment is referred to as a "Call Option Closing." Stockholder agrees that, upon
such payment, without further action on Stockholder's part, such Purchaser, will
become the sole legal and beneficial owner of the Stock purchased. Stockholder
covenants to sell and transfer to such Purchaser all right, title and interest
in and to the Stock, free and clear of all liens, claims, charges, encumbrances,
restrictions, liabilities, obligations, rights or interests of others of any
kind. From and after the receipt of payment as set forth above, Stockholder
shall cease to have any rights with respect to the Stock.
CREATION OF ESCROW ACCOUNT
SECTION 1.7 DELIVERY OF STOCK TO ESCROW AGENT. Stockholder shall,
within ninety days of the date hereof, deliver to _______________ (the "Escrow
Agent") a certificate representing the shares of Stock subject to the Put Option
and the Call Option. Such certificate shall be properly endorsed for transfer or
accompanied by a stock power duly endorsed for transfer. Stockholder may, from
time to time, substitute
Page 2
<PAGE> 3
certificates representing an equivalent number of shares of the Stock with the
endorsement or stock powers referred to above in substitution of the
certificates then held in escrow pursuant to this Agreement.
SECTION 1.8 RELEASE OF STOCK BY ESCROW AGENT. At any Put Option
Closing or Call Option Closing, the Escrow Agent shall deliver to the
Purchasers, free from any lien or encumbrance, a certificate representing the
shares of Stock to which the Put Option or Call Option pertained and for which
the Purchase Price was delivered to the Stockholder. At the expiration of the
Subsequent Option Period, a certificate representing the shares of Stock, if
any, not previously delivered to the Purchasers by the Escrow Agent under the
terms of this Agreement shall be delivered by the Escrow Agent to the
Stockholder, together with any corresponding stock power.
SECTION 1.9 ADJUSTMENT IN OPTIONS. In the event that the outstanding
shares of the Stock subject to either the Put Option or the Call Option are
changed into or exchanged for a different number or kind of shares of ATC or
other securities of ATC by reason of merger, consolidation, recapitalization,
reclassification, stock split, stock dividend or combination or shares,
Stockholder and the Escrow Agent shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Put Option or Call
Option apply.
ADDITIONAL AGREEMENTS
SECTION 1.10 ASSIGNMENT. This Agreement shall not be assigned by any
party without the other parties' prior written consent. Notwithstanding the
foregoing, this Agreement may be assigned without prior written notice or
consent by IXC to Grumman Hill or GHI to IXC or to any Affiliate of IXC or
Grumman Hill or entity which merges with or into IXC or Grumman Hill or acquires
substantially all the assets of IXC or GHI, so long as the consideration to be
received by Stockholder shall not be different from that contemplated hereunder.
SECTION 1.11 NOTICES. All notices, demands and other communications
which may or are required to be given hereunder or with respect hereto shall be
in writing, shall be given either by personal delivery or by nationally
recognized overnight courier or by telecopier, and shall be deemed to have been
given or made when personally delivered, one business day after delivered to a
nationally recognized overnight courier, postage prepaid and receipt requested,
or one business day after transmission by telecopier, receipt confirmed,
addressed as set forth in the Stock Purchase Agreement.
SECTION 1.12 ENTIRE AGREEMENT. This Agreement, together with the
Stock Purchase Agreement and the related agreements in substantially the form of
the exhibits to the Stock Purchase Agreement, constitutes the entire agreement
between the parties and supersedes and cancels any and all prior agreements
between the parties relating to the subject matter hereof.
Page 3
<PAGE> 4
SECTION 1.13 RULES OF CONSTRUCTION. This Agreement shall be
construed as follows:
(a) Except as otherwise defined in this Agreement, words shall be
given their commonly understood meaning in agreements of this nature,
except that accounting terms shall be given the meaning ascribed thereto
by generally accepted accounting principles and interpretations;
(b) This Agreement has been negotiated on behalf of the parties
hereto with the advice of counsel and no general rule of contract
construction requiring an agreement to be more stringently construed
against the drafter or proponent of any particular provision shall be
applied in construction of this Agreement;
(c) The captions of Articles and Sections hereof are for convenience
only and shall not control or affect the meaning or construction of any of
the provisions of this Agreement;
(d) Throughout this Agreement, the masculine, feminine or neuter
genders shall be deemed to include the masculine, feminine and neuter, and
the singular and plural, and vice versa; and
(e) All of the exhibits and schedules attached hereto are
incorporated herein and made a part of this Agreement by reference
thereto.
SECTION 1.14 LAW GOVERNING. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York, but
not including the choice of law rules thereof.
SECTION 1.15 WAIVER OF PROVISIONS. The terms, covenants,
representations, warranties or conditions of this Agreement may be waived only
by a written instrument executed by the party waiving compliance. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by any party of any condition, or the breach of any provision, term,
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or of the
breach of any other provision, term, covenant, representation or warranty of
this Agreement. The representations and warranties of ATC and the Stockholder
contained in this Agreement or in any certificate or other document delivered
pursuant hereto or in connection herewith prior to or at the Closing shall not
be deemed waived or otherwise amended or modified by any investigation made by
any party hereto.
SECTION 1.16 SUCCESSORS. All of the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the successors and
permitted assigns of Purchasers and Stockholder. For the purpose of this
Agreement, the term "successors" shall include but not be limited to heirs,
legatees, and devisees.
SECTION 1.17 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement, binding on all
of the parties hereto, notwithstanding that all parties are not signatory to the
original or the same counterpart.
Page 4
<PAGE> 5
SECTION 1.18 SEVERABILITY. In the event that any provision in this
Agreement be held invalid or unenforceable, by a court of competent
jurisdiction, such provision shall be severable from, and such invalidity or
unenforceability shall not be construed to have any effect on, the remaining
provisions of this Agreement, unless such provision goes to the essence of this
Agreement in which case the entire Agreement may be declared invalid and not
binding upon any of the parties.
SECTION 1.19 COSTS AND EXPENSES. Each party shall pay all attorney
fee's, accountant's fees and expenses incurred by it in connection with the
proposed transaction. No party will retain any broker, finder or similar
intermediary in connection with the proposed transaction and each party will
indemnify the other parties from any commissions, finder's fees or similar
obligations incurred by such party.
Page 5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day, month and year first above written.
IXC INTERNET SERVICES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
GRUMMAN HILL INVESTMENTS III, L.P.
By:________________________________________
Name:______________________________________
Title:_____________________________________
NYSERNet.net, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
STOCKHOLDER:
___________________________________________
Name:____________________
Page 6
<PAGE> 1
EXHIBIT 10.04
APPLIEDTHEORY COMMUNICATIONS, INC.
NON-STATUTORY STOCK OPTION CONTRACT
Optionee: SHELLEY HARRISON
Number of Optioned Shares: 100,000
Date of Grant: October 5, 1996
Option Price Per Share: $1.00
This NON-STATUTORY STOCK OPTION CONTRACT is made between AppliedTheory
Communications, Inc., a New York Corporation (hereinafter referred to as the
"Company") and the Optionee whose name is set forth above.
WITNESSETH:
1. The Company hereby grants to the Optionee an option to
purchase an aggregate of that number of shares of the One Cent ($.01) par value
Voting Common Stock of the Company set forth above (hereinafter referred to as
the "Shares"), at the price per share set forth above.
2. The period during which the option granted hereby shall be
exercisable shall commence on the date of grant set forth above and terminate on
December 31, 2005. This option may be exercised at any time and from time to
time, in whole or in part, subject to the following limitations:
(a) Until and including September 30, 1997, Optionee
may not exercise his option to purchase any of the Shares which Optionee is
entitled to purchase hereunder.
(b) Beginning on October 1, 1997, Optionee may
exercise his option to purchase not more than 25,000 of the Shares which
Optionee is entitled to purchase hereunder.
(c) The remaining 75,000 options will vest as stated
in the consulting agreement dated October 5, 1996.
If the foregoing in (c) does not occur by December 31, 2006, the remaining
75,000 options expire, ungranted.
3. In order for the options granted hereby to be exercised, in
whole or in part, the. notice by the Optionee to the Company must be accompanied
by payment in full of the option price for the Shares being purchased.
4. The option granted hereby is not transferable by the
Optionee other than by will or the laws of descent and distribution and is
exercisable, during his lifetime, only by him.
1
<PAGE> 2
5. The Optionee acknowledges that, in reliance on his
representations set forth herein, the option granted hereunder and the sale of
Shares to him pursuant to the exercise of all or any part of such option are and
will be granted and sold under a claim of exemption from registration under the
Securities Act of 1933, as amended (the "Act"), as transaction(s) not involving
any public offering.
6. The Optionee hereby represents and agrees that, on any
exercise of the option granted hereby,
A. He will acquire the Shares without a view to
distribution or resale;
B. The Shares purchased may not be thereafter
transferred unless (i) a registration statement with respect thereto shall then
be effective under the Act, and the Company will have complied with any other
applicable laws, or (ii) the Optionee shall have obtained an opinion of counsel,
in form and content reasonably satisfactory to the Company and to its counsel,
to the effect that the proposed transfer will be exempt from the registration
provisions of the Act, will comply with applicable state laws, and will not
result in any violation of the Act or of any other applicable law;
C. Because any Shares purchased will not have been
registered under the Act, they must be held indefinitely unless and until they
are subsequently registered under the Act or an exemption from such registration
is available;
D. Any routine sales of the Shares purchased, made in
reliance upon Rule 144 promulgated under the Act, can be made only in limited
amounts and in accordance with all the terms and conditions of that Rule, and in
case the Rule is not applicable, compliance with Regulation A or some other
disclosure exemption may be required;
E. Except as set forth in Section 8 below, the
Company has no obligation to register the Shares, to comply with any such
disclosure exemption, or to take such action as may be necessary to meet the
requirements of Rule 144;
F. Appropriate legends may be placed on any
certificate for the Shares received by him in order to give notice of the
repurchase and transfer restrictions set forth herein, and the Company may cause
stop transfer orders to be placed against such certificate(s); and
G. The Company counsel must be satisfied that the
issuance of Shares pursuant to the exercise of the option will be in compliance
with the Act and any other laws applicable thereto, and the Company shall be
entitled to receive such other information, assurances, documents,
representations or warranties as it or its counsel may reasonably require with
respect thereto.
7. Optionee and the Company agree that the option granted
hereby is not part of or governed by the terms and provisions of the Company's
1996 Incentive Stock Option Plan (the "Plan).
8. If the Company files a registration statement on Form S-8
or other applicable form covering shares of its common stock issuable pursuant
to the Plan, the Company will, at its option, either include the Shares in such
registration statement, or file a separate registration statement for the
Shares.
9. This Non-Statutory Stock Option Contract shall be binding
upon and inure to the benefit Of any successor or assignee of the Company and
any executor, administrator, legal representative, legatee or distributee
entitled by law to exercise the Optionee's rights hereunder.
2
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Non-Statutory
Stock Option Contract to be executed in its behalf by its duty authorized
officer, and the Optionee has hereunto set his hand, the day and year written
below.
AppliedTheory Communications, Inc.
By: /s/ Richard Mandelbaum
---------------------------------
Richard Mandelbaum, President
-------------------------------------
Shelley Harrison, Optionee
Dated: Syracuse, New York
Dec 31, 1997
3
<PAGE> 1
Exhibit 10.05
AGREEMENT OF LEASE
Between
55 BROAD STREET COMPANY,
Owner
and
NYSERNet, INC.,
Tenant
Premises
Portion of Sixteenth (16th) Floor
New York Information Technology Center
55 Broad Street
New York, New York
Dated May 1, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 Demised Premises, Term, Rents
ARTICLE 2 Use and Occupancy
ARTICLE 3 Alterations
ARTICLE 4 Ownership of Improvements
ARTICLE 5 Repairs
ARTICLE 6 Compliance With Laws
ARTICLE 7 Subordination, Attornment, Etc.
ARTICLE 8 Property Loss, Etc.
ARTICLE 9 Destruction-Fire or Other Casualty
ARTICLE 10 Eminent Domain
ARTICLE 11 Assignment and Subletting
ARTICLE 12 Tenant's Initial Installation and Owner's Work
Contribution
ARTICLE 13 Access to Demised Premises
ARTICLE 14 Vault Space
ARTICLE 15 Certificate of Occupancy
ARTICLE 16 Default
ARTICLE 17 Remedies
ARTICLE 18 Damages
ARTICLE 19 Fees and Expenses; Indemnity
ARTICLE 20 Entire Agreement
ARTICLE 21 End of Term
ARTICLE 22 Quiet Enjoyment
ARTICLE 23 Escalation
ARTICLE 24 No Waiver
ARTICLE 25 Mutual Waiver of Trial by Jury
ARTICLE 26 Inability to Perform
ARTICLE 27 Notices
ARTICLE 28 Partnership Tenant
ARTICLE 29 Utilities and Services
ARTICLE 30 Table of Contents, Etc.
ARTICLE 31 Miscellaneous Definitions, Severability and
Interpretation Provisions
ARTICLE 32 Adjacent Excavation
ARTICLE 33 Building Rules
ARTICLE 34 Broker
ARTICLE 35 Security
ARTICLE 36 Arbitration, Etc.
ARTICLE 37 Parties Bound
ARTICLE 38 Single Rights for Additional Option Space
SCHEDULE A Building Rules
EXHIBIT 1 Plan of Demised Premises
EXHIBIT 2 Core Work
EXHIBIT 3 Certificate of Occupancy
-i-
<PAGE> 3
LEASE dated as of the 1st day of May, 1996, between 55 BROAD STREET
COMPANY, a New York partnership having its principal office at 345 Park Avenue,
Borough of Manhattan, City, County, and State of New York, as landlord
(referred to as "Owner"), and NYSERNet, INC., a New York corporation, having
its principal office at 200 Elwood Davis Road, Suite 1013, Liverpool, NY,
13088-6147, as tenant (referred to as "Tenant").
W I T N E S S E T H:
Owner and Tenant hereby covenant and agree as follows:
ARTICLE I
DEMISED PREMISES, TERM, RENTS
Section 1.01. Demised Premises: Owner hereby leases to Tenant and Tenant
hereby hires from Owner that portion of the sixteenth (16th) floor indicated by
outlining and diagonal markings in the floor plan initialled by the parties and
annexed hereto as Exhibit "1" in the building known as 55 Broad Street, in the
Borough of Manhattan, City of New York (said building is referred to as the
"Building", and the Building together with the plot of land upon which it stands
is referred to as the "Real Property"), at the annual rental rate or rates set
forth in Section 1.03, and upon and subject to all of the terms, covenants and
conditions contained in this Lease. The premises leased to Tenant, together with
all appurtenances, fixtures, improvements, additions and other property attached
thereto or installed therein at the commencement of, or at any time during, the
term of this Lease, other than Tenant's Personal Property (as defined in Article
4), are referred to, collectively, as the "Demised Premises".
Section 1.02. Demised Term: A. The Demised Premises are leased for a term
(referred to as the "Demised Term") to commence on the 1st day of May, 1996,
and the Demised Term shall end on the 30th day of September, 2006 unless sooner
terminated pursuant to any of the terms, covenants or conditions of this Lease
or pursuant to law. The date upon which the Demised Term shall commence
pursuant to this Subsection A is referred to as the "Commencement Date" and the
date fixed pursuant to this Subsection A as the date upon which the Demised
Term shall end is referred to as the "Expiration Date".
B. Owner shall perform the core work ("Core Work") referred
to in Exhibit "2", which Core Work shall be performed by Owner, at Owner's
expense, prior to the Commencement Date, except that Owner shall have the right
to enter the Demised Premises after the Commencement Date to complete
unfinished details of such work and the performance of such work by Owner shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent or relieve Tenant of any
of its obligations under this Lease or impose any liability upon Owner or its
agents or upon any lessor under a "Superior Lease" (as hereinafter defined) or
upon the holder of any "Mortgage" (as hereinafter defined) by reason of any
annoyance or interference with Tenant's business or otherwise. Owner agrees
that the performance by Owner of the completion of unfinished details of the
Core Work shall be done in a manner designed to minimize interference with the
performance by Tenant of Tenant's Initial Alterations, without any obligation
on Owner's part to employ labor at overtime or other premium pay rates.
Section 1.03. Fixed Rent: A. This Lease is made at the annual rental rates
(referred to as "Fixed Rent") of NINETY-NINE THOUSAND SEVEN HUNDRED FIFTY and
00/100 ($99,750.00) DOLLARS with respect to the period ("First Rent Period")
from the Commencement Date to the last day of the calendar month in which the
day immediately preceding the date which is five (5) months next following the
first anniversary of the Commencement Date shall occur, both dates inclusive,
ONE HUNDRED FIVE THOUSAND and 00/100 ($105,000.00) DOLLARS with respect to the
next year of the Demised Term ("Second Rent Period") and ONE
<PAGE> 4
HUNDRED TEN THOUSAND TWO HUNDRED FIFTY and 00/100 ($110,250.00) DOLLARS with
respect to each of the next three (3) years of the Demised Term ("Third Rent
Period") and ONE HUNDRED TWENTY-THREE THOUSAND THREE HUNDRED SEVENTY-FIVE and
00/100 ($123,375.00) DOLLARS ("Fourth Rent Period") with respect to the
remainder of the Demised Term.
B. The Fixed Rent, any increases in the Fixed Rent and any
additional rent payable pursuant to the provisions of this Lease shall be
payable by Tenant to Owner at its office (or at such other place as Owner may
designate in a notice to Tenant) in lawful money of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment or by Tenant's good check drawn on a bank or trust company
whose principal office is located in New York City and which is a member of the
New York Clearinghouse Association, without prior demand therefor and without
any offset or deduction whatsoever except as otherwise specifically provided in
this Lease. The Fixed Rent shall be payable in equal monthly installments of
EIGHT THOUSAND THREE HUNDRED TWELVE and 50/100 ($8,312.50) DOLLARS, with
respect to the First Rent Period, EIGHT THOUSAND SEVEN HUNDRED FIFTY and 00/100
($8,750.00) DOLLARS with respect to the Second Rent Period, NINE THOUSAND ONE
HUNDRED EIGHTY-SEVEN and 50/100 ($9,187.50) DOLLARS with respect to the Third
Rent Period and TEN THOUSAND TWO HUNDRED EIGHTY-ONE and 25/100 ($10,281.25)
DOLLARS with respect to the Fourth Rent Period and shall be payable in advance,
on the first (1st) day of each month during the Demised Term (except as
otherwise provided in Subsection C of this Section).
C. The sum of EIGHT THOUSAND THREE HUNDRED TWELVE and
50/100 ($8,312.50) DOLLARS, representing the installment of Fixed Rent for the
first (1st) full calendar month of the Demised Term after the expiration of
the Rent Holiday Period (as hereinafter defined), is due and payable at the
time of the execution and delivery of this Lease.
Section 1.04. Tenant's General Covenant: Tenant covenants (i) to pay the
Fixed Rent, any increases in the Fixed Rent, and any additional rent payable
pursuant to the provisions of this Lease, and (ii) to observe and perform, and
to permit no violation of, the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed.
Section 1.05. Rent Holiday: Provided Tenant is not then in default in the
observance and performance of any of the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed, Tenant shall be
entitled to a rent holiday and shall not be required to pay any portion of the
Fixed Rent with respect to the period (the "Rent Holiday Period") from the
Commencement Date to and including the date one hundred fifty (150) days next
following the Commencement Date but, during such period of one hundred fifty
(150) days, Tenant shall otherwise be required to comply with all of the other
terms, covenants and conditions of this Lease on Tenant's part to be observed
and performed, including, but not limited to, the payment of all sums payable
pursuant to the provisions of Article 23 and Article 29. The date next
following the expiration of the Rent Holiday Period is referred to as the "Rent
Commencement Date".
ARTICLE 2
USE AND OCCUPANCY
Section 2.01. General Covenant of Use: Tenant shall use and occupy the
Demised Premises for the following purpose: general offices of Tenant for
Tenant's information technology business and a staging facility for Tenant's
products, but at all times in compliance with the provisions of this Lease and
in accordance with the Certificate of Occupancy affecting the Building and the
Demised Premises.
-2-
<PAGE> 5
SECTION 2.02. NO ADVERSE USE: Tenant shall not use or occupy, or permit the
use or occupancy of, the Demised Premises or any part thereof, for any purpose
other than the purpose specifically set forth in Section 2.01, or in any manner
which (a) shall adversely affect or interfere with (i) any services required to
be furnished by Owner to Tenant or to any other tenant or occupant of the
Building, or (ii) the proper and economical rendition of any such service, or
(iii) the use or enjoyment of any part of the Building by any other tenant or
occupant, or (b) shall impair the character or dignity of the Building below
that of a First-Class Building.
ARTICLE 3
ALTERATIONS
SECTION 3.01. GENERAL ALTERATION COVENANTS: Tenant shall not make or
perform, or permit the making or performance of, any alterations,
installations, decorations, improvements, additions or other physical changes
in or about the Demised Premises (referred to collectively, as "Alterations"
and individually as an "Alteration") without Owner's prior consent in each
instance. Owner agrees not unreasonably to withhold its consent to any
non-structural Alterations proposed to be made by Tenant to adapt the Demised
Premises for Tenant's business purposes. Notwithstanding the foregoing
provisions of this Section or Owner's consent to any Alterations, all
Alterations shall be made and performed in conformity with and subject to the
following provisions:
A. All Alterations shall be made and performed at Tenant's sole
cost and expense and at such time and in such manner as Owner may, from time to
time, reasonably designate;
B. No Alteration shall adversely affect the structural integrity of
the Building;
C. Alterations shall be made only by contractors or mechanics
approved by Owner, such approval not unreasonably to be withheld
(notwithstanding the foregoing, all Alterations requiring mechanics in heating,
ventilation air conditioning, electrical, plumbing, sprinklers and other
mechanical trades with respect to which Owner has adopted or may hereafter
adopt a list or lists of approved contractors shall be made only by contractors
selected by Tenant from such list or lists provided there are at least three
[3] contractors on each such list and the prices charged by such contractors
are competitive for similar work in the Borough of Manhattan in comparable
first class office buildings);
D. No Alteration shall affect any part of the Building other than
the Demised Premises or adversely affect any service required to be furnished
by Owner to Tenant or to any other tenant or occupant of the Building
(including, without limitation, the Building-wide standard systems required to
provide elevator, heat, ventilation, air-conditioning and electrical and
plumbing services in the Building);
E. No Alteration shall intentionally reduce the value or utility of
the Building or any portion thereof as a First-Class building;
F. No Alteration shall affect the Certificate of Occupancy for the
Building or the Demised Premises;
G. No Alteration shall affect the outside appearance of the
Building or the color or style of any venetian blinds (except that Tenant may
remove any venetian blinds provided that they are promptly replaced by Tenant
with blinds of a similar type, material and color);
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H. All business machines and mechanical equipment shall be placed
and maintained by Tenant in settings sufficient, in Owner's reasonable
judgment, to absorb and prevent vibration, noise and annoyance to other
tenants or occupants of the Building;
I. Tenant shall submit to Owner detailed plans and specifications
stamped by Tenant's architect (including layout, architectural, mechanical and
structural drawings) for each proposed Alteration and shall not commence any
such Alteration without first obtaining Owner's approval of such plans and
specifications, such approval not unreasonably to be withheld or delayed,
notwithstanding the foregoing. Tenant shall not be required to submit any
detailed plans and specifications for any Alterations unless such plans and
specifications are, in the ordinary course, prepared for such Alterations or are
required to be prepared in connection with any filings or other applicable
requirements of any law, order, rule or regulation of any federal, state, county
or municipality, including but not limited to, the Department of Building of the
City of New York, and in those cases where Tenant shall not be required to
submit such detailed plans and specifications, Tenant shall submit to Owner, in
lieu thereof, information with respect to such Alterations in reasonably
sufficient detail so as to enable Owner to determine the nature and extent of
the work to be performed, and following the completion of each Alteration,
Tenant shall submit to Owner a computerized "as built" drawing file for the
Demised Premises (or if the Demised Premises comprise more than one (1) floor,
for each floor of the Demised Premises being altered) and in those cases where
Tenant shall not be so required to submit such detailed plans and
specifications, Tenant shall submit to Owner, in lieu thereof, information with
respect to such Alterations in reasonably sufficient detail so as to enable
Owner to determine the nature and extent of the work to be performed; such file
will be in DXF format and contain, on a separate layer, all ceiling-height
partitions and doors within the Demised Premises (or if the Demised Premises
comprise more than one (1) floor, within each floor of the Demised Premises
being altered);
J. Prior to the commencement of each proposed Alteration, Tenant
shall have procured and paid for and exhibited to Owner, so far as the same may
be required from time to time, all permits, approvals and authorizations of all
Governmental Authorities (as defined in Section 6.01.) having or claiming
jurisdiction;
K. Prior to the commencement of each proposed Alteration, Tenant
shall furnish to Owner duplicate original policies of workmen's compensation
insurance covering all persons to be employed in connection with such
Alteration, including those to be employed by all contractors and
subcontractors, and of comprehensive public liability insurance (including
property damage coverage) in which Owner, its agents, the holder of any Mortgage
(as defined in Section 7.01.) and any lessor under any Superior Lease (as
defined in Section 7.01.) shall be named as parties insured, which policies
shall be issued by companies, and shall be in form and amounts, satisfactory to
Owner and shall be maintained by Tenant until the completion of such Alteration;
L. In the event Owner or its agents employ any independent
architect or engineer to examine any plans or specifications submitted by
Tenant to Owner in connection with any proposed Alteration, Tenant agrees to
pay to Owner a sum equal to any reasonable actual out-of-pocket fees incurred
by Owner in connection therewith.
M. All fireproof wood test reports, electrical and air conditioning
certificates, and all other permits, approvals and certificates required by all
Governmental Authorities shall be timely obtained by Tenant and submitted to
Owner;
N. All Alterations, once commenced, shall be made promptly and in a
good and workmanlike manner;
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O. Notwithstanding Owner's approval of plans and specifications for
any Alteration, all Alterations shall be made and performed in full compliance
with all Legal Requirements (as defined in Section 6.01.) and with all
applicable rules, orders, regulations and requirements of the New York Board of
Fire Underwriters and the New York Fire Insurance Rating Organization or any
similar body;
P. All Alterations shall be made and performed in accordance with
the Building Rules and Building Rules for Alterations;
Q. All materials and equipment to be installed, incorporated or
located in the Demised Premises as a result of all Alterations shall be new and
first quality;
R. No materials or equipment shall be subject to any lien,
encumbrance, chattel mortgage or title retention or security agreement of any
kind, except for Tenant's business equipment;
S. Tenant, before commencement of each Alteration, the estimated
cost of which constituting a single project shall exceed ONE HUNDRED THOUSAND
and 00/100 ($100,000.00) DOLLARS, shall furnish to Owner a performance bond or
other security satisfactory to Owner, in an amount at least equal to the
estimated cost of such Alteration, guaranteeing the performance and payment
thereof. Such sum of ONE HUNDRED THOUSAND and 00/100 ($100,000.00) DOLLARS set
forth in this subsection shall be deemed increased annually by the percentage
increase in the Consumer Price Index for the month in which the first
anniversary of the Commencement Date and each subsequent anniversary date
thereof occurs over the Consumer Price Index in the month in which the
Commencement Date shall occur. The foregoing requirement to furnish a
performance bond or other security satisfactory to Owner shall not apply with
respect to the performance of Tenant's Initial Installation;
T. Other than with respect to Tenant's Initial Installation, unless
such Alteration was payable by Owner in full, no Alteration shall be commenced
unless any preceding Alteration shall have been fully paid for and proof of such
payment furnished to Owner;
U. Following the completion of each Alteration, Tenant, at Tenant's
expense, shall obtain certificates of final approval of such Alteration required
by any Governmental Authority and shall furnish Owner with copies thereof.
V. Tenant agrees that Tenant will not install, affix, add or paint
in or on, nor permit, any work of visual art (as defined in the Federal Visual
Artists' Rights Act of 1990 or any successor law of similar import) or other
Alteration to be installed in or on, or affixed, added to, or painted on, the
interior or exterior of the Demised Premises, or any part thereof, including,
but not limited to, the walls, floors, ceilings, doors, windows, fixtures and on
land included as part of the Demised Premises, which work of visual art or other
Alteration would, under the provisions of the Federal Visual Artists' Rights Act
of 1990, or any successor law of similar import, require the consent of the
author or artist of such work or Alteration before the same could be removed,
modified, destroyed or demolished.
W. Under no circumstances shall Tenant be permitted to locate any
telecommunications facilities in the telecommunications closets of the Building.
With respect to Tenant's telecommunications facilities, (i) Tenant shall
contract separately with all providers of Tenant's telecommunications facilities
(each of which is referred to as a "Provider") and pay each Provider for all
services provided by it to Tenant, and (ii) each Provider shall use,
exclusively, the telecommunications cable distribution system in the Building
designated by Owner and shall contract separately with the company providing
cable distribution service in the Building (referred to as the
"Telecommunications Cable Distribution Company") for the supply and
maintenance of distribution cables. The Provider and Tenant shall comply with
all reasonable rules and regulations adopted by Owner and the Telecommunications
Cable Distribution Company. Except for Owner's acts, Owner shall
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not be liable to Tenant or anyone claiming through or under Tenant for any
damages, including, but not limited to, special, incidental, remote or
consequential damages, including, without limitation, lost revenue, lost
profits and additional operating or personnel expenses arising from any acts,
omissions or negligence of the Provider and the Telecommunications Cable
Distribution Company.
SECTION 3.02. NO CONSENT TO CONTRACTOR/NO MECHANICS LIEN: Nothing in this
Lease shall be deemed or construed in any way as constituting the consent or
request of Owner, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer or materialmen, for the performance of any
labor or the furnishing of any material for any specific Alteration to, or
repair of, the Demised Premises, the Building, or any part of either. Any
mechanic's or other lien filed against the Demised Premises or the Building or
the Real Property for work claimed to have been done for, or materials claimed
to have been furnished to, Tenant or any person claiming through or under
Tenant or based upon any act or omission or alleged act or omission of Tenant or
any such person shall be discharged by Tenant, at Tenant's sole cost and
expense, within ten (10) days after the filing of such lien.
SECTION 3.03. LABOR HARMONY: Tenant shall not, at any time prior to or
during the Demised Term, directly or indirectly employ, or permit the employment
of, any contractor, mechanic or laborer in the Demised Premises, whether in
connection with any Alteration or otherwise, if such employment will interfere
or cause any conflict with other contractors, mechanics, or laborers engaged in
the construction, maintenance or operation of the Building by Owner, Tenant or
others. In the event of any such interference or conflict, Tenant, upon demand
of Owner, shall cause all contractors, mechanics or laborers causing such
interference or conflict to leave the Building immediately. Notwithstanding the
foregoing, Owner agrees that all work performed by Owner in the Demised Premises
pursuant to Article 1 herein shall be performed using so-called "Union labor".
Owner represents and warrants to Tenant that similar requirements are contained
in all present leases in the Building and will be contained in all future leases
in the Building during the Demised Term. Owner agrees that Owner shall enforce
all similar requirements in all other leases in the Building against the tenants
thereof and all persons claiming through or under such tenants.
SECTION 3.04. COMPLIANCE WITH FIRE SAFETY: Without in any way limiting
the generality of the provisions of Section 3.01, all Alterations shall be made
and performed in full compliance with all standards and practices adopted by
Owner for fire safety in the Building. No Alteration shall affect all or any
part of any Class E Fire Alarm and Communication system installed in the Demised
Premises, except that in connection with any such Alteration Tenant may relocate
certain components of such system, provided (i) such relocation shall be
performed in a manner first approved by Owner such approval not to be
unreasonably withheld or delayed, (ii) the new location of any such component
shall be first approved by Owner such approval not to be unreasonably withheld
or delayed, (iii) prior to any such relocation Tenant shall submit to Owner
detailed plans and specifications therefor which shall be first approved by
Owner such approval not to be unreasonably withheld or delayed and (iv) Owner
shall have the election of relocating such components either by itself or by its
contractors, in which event all reasonable expenses incurred by Owner shall be
reimbursed by Tenant upon demand of Owner, as additional rent. Owner represents
that the Demised Premises will be in compliance with Local Law #5 of 1973, Local
Law #16 of 1984 and Local Law #58 and the Americans With Disabilities Act on the
Commencement Date, and as Owner completes Alterations in the public portions of
the Building such public portions of the Building will be completed in
compliance with Local Law #5 of 1973, Local Law #16 of 1984 and Local Law #58
and the Americans With Disabilities Act.
SECTION 3.05. SPRINKLERS: The Demised Premises shall contain a sprinkler
system and notwithstanding anything to the contrary set forth in Sections 5.01
and 6.01, Owner, at Owner's expense, shall perform routine maintenance of, and
shall repair and replace if necessary, said sprinkler system and any
replacements thereof, unless such repair or replacement is due to Tenant's acts,
omissions or negligence, in which event Owner shall repair or replace same, at
Tenant's sole cost and expense. Owner shall also perform controlled inspections
of said sprinkler system as and when required by law and Tenant shall give Owner
reasonable access
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to perform such repairs, maintenance and inspections. Any sprinkler system and
any replacements thereof whether made at Tenant's expense or Owner's expense,
shall be deemed the property of Owner.
SECTION 3.06. HAZARDOUS MATERIAL: If any Legal Requirement of any
Governmental Authority requires that any hazardous material contained in or
about the Demised Premises and installed therein by Tenant or any person
claiming through or under Tenant be removed or dealt with in any particular
manner in connection with any Alterations of the Demised Premises or otherwise,
then it shall be Tenant's obligation, at Tenant's expense, to remove or so deal
with such hazardous material in accordance with all such laws, orders, rules and
regulations. In the event Tenant is required to remove or so deal with such
hazardous material in accordance with the provisions of the foregoing sentence
then, notwithstanding anything to the contrary contained herein, Owner, at
Owner's election, shall have the option to itself remove or so deal with such
hazardous material and, in such event, Tenant shall pay to Owner all of Owner's
costs in connection therewith within ten (10) days next following the rendition
of a statement thereof by Owner to Tenant.
SECTION 3.07. DISPUTE RESOLUTION: Any dispute with respect to the
reasonability of any failure or refusal of Owner to grant its consent or
approval to any request for such consent or approval pursuant to the provisions
of Section 3.01 with respect to which request Owner has agreed, in such Section
not unreasonably to withhold such consent or approval, shall be determined by
arbitration in accordance with the provisions of Article 36.
SECTION 3.08. FIRE ALARM AND COMMUNICATION SYSTEM CONNECTION FEES: In the
event that Tenant, pursuant to the provisions of this Lease, including, but not
limited to, the provisions of this Article 3 and Article 6, connects any of the
following equipment to any Class E Fire Alarm and Communication system installed
in the Demised Premises, Tenant shall pay to Owner as a one (1) time connection
fee the following sums set forth opposite the equipment listed below (which sums
shall be subject to increases due to increases in the cost to Owner of operating
and maintaining such Class E Fire Alarm and Communication system over such costs
on the date of this Lease):
A. Speakers in excess of 4 per floor of
the Demised Premises (or if the Demised
Premises contain less than one (1) floor,
in excess of four in the Demised Premises) $500.00 per device
B. Strobe Lights (single unit) $100.00 per device
C. Combination Speakers/Strobe light $250.00 per device
D. Duct Detectors (supplementary air
conditioning systems) $500.00 per point
E. Smoke Detectors (multi-purpose) $500.00 per point
F. Preaction Sprinkler System:
waterflow $500.00 per point
tamper $500.00 per point
G. Warden Phone (additional) $1,000.00 per unit
H. Fail Safe Door Release $250.00 per connection
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SECTION 3.09. A. In the event that, at any time during the Demised Term,
in connection with any Alterations proposed to be performed by Tenant in the
Demised Premises Tenant is unable to obtain a New York City Department of
Environmental Protection Form ACP5 dated 9/91 (or any successor form), signed by
a certified asbestos investigator, or any other form or approval required by
Federal, State, County or Municipal authorities, indicating that said
Alterations do not constitute an asbestos project, Owner agrees, upon notice
from Tenant to such effect, to perform such work as shall be required to enable
Tenant to obtain any such form or approval.
B. If any laws, orders, rules or regulations of any Federal,
State, County or Municipal authority require that any asbestos or other
hazardous material contained in or about the Demised Premises be removed or
dealt with in any particular manner, then it shall be Owner's obligation, at
Owner's expense, with due diligence, to remove or so deal with such asbestos or
other hazardous material in accordance with such laws, orders, rules and
regulations.
C. Notwithstanding the provisions of subsections A and B of
this Section, in the event any work performed by Owner pursuant to the
provisions of either or both of such subsections is in any way disturbed or
damaged by Tenant or any person claiming through or under Tenant, or asbestos or
other hazardous material is installed in the Demised Premises by or on behalf of
Tenant, or any person claiming through or under Tenant, Owner shall have no
responsibility in connection with the disturbed or damaged work or the asbestos
or other hazardous material so installed by Tenant or any person claiming
through or under Tenant and no obligation to perform any work with respect to
the disturbed or damaged work or the asbestos or other hazardous material so
installed by Tenant or any person claiming through or under Tenant, but it shall
be Tenant's obligation, at Tenant's expense, to (i) perform such work with
respect to such disturbed or damaged work or the asbestos or other hazardous
material so installed by Tenant or any person claiming through or under Tenant
as shall be required to enable Tenant to obtain any form or approval referred to
in subsection A, and (ii) remove or so deal with such asbestos or other
hazardous material in accordance with all such laws, orders, rules and
regulations referred to in subsection B.
D. Owner shall cause to perform any such work it is so
required to perform hereunder with reasonable diligence and, if required in
Owner's reasonable judgment in connection therewith, the employment of labor or
contractors at overtime or other premium pay rates.
ARTICLE 4
OWNERSHIP OF IMPROVEMENTS
-------------------------
SECTION 4.01. GENERAL RIGHTS OF OWNER AND TENANT: All appurtenances,
fixtures, improvements, additions and other property attached to or installed in
the Demised Premises, whether by Owner or Tenant or others, and whether at
Owner's expense, or Tenant's expense, or the joint expense of Owner and Tenant,
shall be and remain the property of Owner, except that any such fixtures,
improvements, additions and other property installed at the sole expense of
Tenant with respect to which Tenant has not been granted any credit or allowance
by Owner, whether pursuant to Addendum A or otherwise, and which are removable
without material damage to the Demised Premises shall be and remain the property
of Tenant and are referred to as "TENANT'S PERSONAL PROPERTY". Any replacements
of any property of Owner, whether made at Tenant's expense or otherwise, shall
be and remain the property of Owner.
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ARTICLE 5
REPAIRS
SECTION 5.01. TENANT'S REPAIR OBLIGATIONS: Tenant shall take good care of
the Demised Premises (including, but not limited to, any Class E Fire Alarm and
Communication system and any sprinkler system installed therein and any
installations made or equipment installed therein as a result of any requirement
of New York City Local Law #16 of 1984 or any successor law or like import) and,
at Tenant's sole cost and expense, shall make all repairs and replacements,
structural and otherwise, ordinary and extraordinary, foreseen and unforeseen as
and when needed to preserve the Demised Premises (including, but not limited to,
any Class E Fire Alarm and Communication system and any installations made or
equipment installed therein as a result of any requirement of New York City
Local Law #16 of 1984 or any successor law of like import) in good and safe
working order and in first class repair and condition, except that Tenant shall
not be required to make any repairs or replacements to the Demised Premises
unless necessitated or occasioned by the acts, omissions or negligence of Tenant
or any person claiming through or under Tenant or any of their servants,
employees, contractors, agents, visitors or licensees, or by the manner of use
or occupancy of the Demised Premises by Tenant or any such person (in
contradistinction to the mere use or occupancy of the Demised Premises for the
purposes set forth in Section 2.01). For the purposes of this Article, any
repairs or work involving asbestos or other hazardous materials or involving
compliance with Local Laws #5 of 1973, #16 of 1984, #58 of 1987 and the
Americans With Disabilities Act and any successor laws of like import shall be
deemed to be non-structural repairs or replacements. Without affecting Tenant's
obligations set forth in the preceding sentence, Tenant, at Tenant's sole cost
and expense, shall also (i) make all repairs and replacements, and perform all
maintenance as and when necessary, to the lamps, tubes, ballasts, and starters
in the lighting fixtures installed in the Demised Premises, (ii) make all
repairs and replacements, as and when necessary, to Tenant's Personal Property
and to any Alterations made or performed by or on behalf of Tenant or any person
claiming through or under Tenant, and (iii) if the Demised Premises shall
include any space on any ground, street, mezzanine or basement floor in the
Building, make all replacements, as and when necessary, to all windows and plate
and other glass in, on or about such space, and obtain and maintain, throughout
the Demised Term, plate glass insurance policies issued by companies, and in
form and amounts, satisfactory to Owner, in which Owner, its agents and any
lessor under any ground or underlying lease shall be named as parties insured,
and (iv) perform all maintenance and make all repairs and replacements, as and
when necessary, to any air conditioning equipment, private elevators,
escalators, conveyors or mechanical systems (other than the Building's standard
equipment and systems) which may be installed in the Demised Premises by Owner,
Tenant or others. However, the provisions of the foregoing sentence shall not be
deemed to give to Tenant any right to install air conditioning equipment,
elevators, escalators, conveyors or mechanical systems. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be made and performed in conformity with, and subject to the
provisions of Article 3 and shall be at least equal in quality and class to the
original work or installation. The necessity for, and adequacy of, repairs and
replacements pursuant to this Article 5 shall be measured by the standard which
is appropriate for first class office buildings of similar construction and
class in the Borough of Manhattan, City of New York.
SECTION 5.02. Supplementing the provisions of Section 5.01, Owner, at
Owner's sole cost and expense, shall timely make (i) all structural repairs to
the Demised Premises as and when required, (ii) all repairs necessary to
furnish the plumbing, electrical, air conditioning, ventilating, heating and
elevator services required to be furnished by Owner to Tenant under the
provisions of Article 29, and (iii) all necessary repairs to the public
portions of the Building which affect Tenant's use and enjoyment of the Demised
Premises, except that Owner shall not be required to make any of the repairs
referred to in subdivision (i), (ii) or (iii) of this sentence if Tenant is
obligated to make such repairs pursuant to the provisions of Section 5.01.
Notwithstanding the foregoing provisions of this Section, Owner shall have no
obligation to make any repairs unless and until notice of any repair claimed
necessary shall have been given to Owner.
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ARTICLE 6
COMPLIANCE WITH LAWS
SECTION 6.01. GENERAL COVENANTS: Tenant, at Tenant's sole cost and expense,
shall comply with all Legal Requirements (hereinafter defined) which shall
impose any duty upon Owner or Tenant with respect to the Demised Premises or the
use or occupation thereof, including, but not limited to, any requirement that
asbestos or other hazardous material installed in the Demised Premises by Tenant
or any person claiming through or under Tenant be removed or dealt with in any
particular manner, except that Tenant shall not be required to make any
Alterations in order so to comply unless such Alterations shall be necessitated
or occasioned, in whole or in part, by the acts, omissions, or negligence of
Tenant or any person claiming through or under Tenant, or any of their servants,
employees, contractors, agents, visitors or licensees, or by the manner of use
or occupancy of the Demised Premises by Tenant or by any such person (in
contradistinction to the mere use or occupancy of the Demised Premises for the
purposes set forth in Section 2.01). For all purposes of this Lease the term
"Legal Requirements" shall mean all present and future laws, codes, ordinances,
statutes, requirements, orders and regulations, ordinary and extraordinary,
foreseen and unforeseen (including, but not limited to, the New York State
Energy Conservation Construction Code, New York City Local Laws #5 of 1973, #16
of 1984 and #58 of 1987 and the Americans with Disabilities Act, and any
successor laws of like import) of any Governmental Authority (hereinafter
defined) and all directions, requirements, orders and notices of violations
thereof. For all purposes of this Lease, the term "Governmental Authority" shall
mean the United States of America, the State of New York, the County of New
York, the Borough of Manhattan, the City of New York, any political subdivision
thereof and any agency, department, commission, board, bureau or instrumentality
of any of the foregoing, now existing or hereafter created, having jurisdiction
over Owner, Tenant, this Lease or the Real Property or any portion thereof. Any
work or installations made or performed by or on behalf of Tenant or any person
claiming through or under Tenant pursuant to the provisions of this Article
shall be made in conformity with, and subject to the provisions of Article 3.
Compliance with any requirement regarding other hazardous material which is
Tenant's obligation to so remove shall be made in conformity with the provisions
of Section 3.06.
SECTION 6.02. TENANT'S COMPLIANCE WITH OWNER'S FIRE INSURANCE: Tenant
shall not do anything, or permit anything to be done, in or about the Demised
Premises which shall (i) invalidate or be in conflict with the provisions of
any fire and/or other insurance policies covering the Building or any property
located therein, or (ii) result in a refusal by fire insurance companies of
good standing to insure the Building or any such property in amounts reasonably
satisfactory to Owner, or (iii) subject Owner to any liability or
responsibility for injury to any person or property by reason of any business
operation being conducted in the Demised Premises, or (iv) cause any increase
in the fire insurance rates applicable to the Building or property located
therein at the beginning of the Demised Term or at any time thereafter. Tenant,
at Tenant's expense, shall comply with all present and future rules, orders,
regulations and/or requirements of the New York Board of Fire Underwriters and
the New York Fire Insurance Rating Organization or any similar body and the
issuer of any insurance obtained by Owner covering the Building and/or the Real
Property, whether ordinary or extraordinary, foreseen or unforeseen, including,
but not limited to, any requirement that asbestos or other hazardous material
be removed or dealt with in any particular manner and any requirement of New
York City Local Law #5 of 1973, #16 of 1984, #58 of 1987 and the Americans With
Disabilities Act or any successor laws of like import.
SECTION 6.03. FIRE INSURANCE RATES: In any action or proceeding wherein
Owner and Tenant are parties, a schedule or "make up" of rates applicable to the
Building or property located therein issued by the New York Fire Insurance
Rating Organization, or other similar body fixing such fire insurance rates,
shall be conclusive evidence of the facts therein stated and of the several
items and charges in the fire insurance rates then applicable to the Building or
property located therein.
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\ ARTICLE 7
SUBORDINATION, ATTORNMENT, ETC.
SECTION 7.01. LEASE SUBORDINATION: This Lease and all rights of Tenant
under this Lease are, and shall remain, unconditionally subject and subordinate
in all respects to all ground and underlying leases now or hereafter in effect
affecting the Real Property or any portion thereof, and to all mortgages which
may now or hereafter affect such leases or the Real Property, of which Tenant
has been given notice and to all advances made or hereafter to be made under
such mortgages, and to all renewals, modifications, consolidations,
correlations, replacements and extensions of, and substitutions for, such leases
and mortgages (such leases as above described are referred to herein
collectively as the "Superior Lease" and such mortgages as above described are
referred to herein collectively as the "Mortgage"). The foregoing provisions of
this Section shall be self-operative and no further instrument of subordination
shall be required. In confirmation of such subordination, Tenant shall execute
and deliver promptly any certificate or other instrument which Owner, or any
lessor under any Superior Lease, or any holder of any Mortgage may request. If,
in connection with obtaining financing with respect to the Building, the Real
Property, or the interest of the lessee under any Superior Lease, any recognized
lending institution shall request reasonable modifications of this Lease as a
condition of such financing, Tenant covenants not unreasonably to withhold or
delay its agreement to such modifications, provided that such modifications do
not materially increase the obligations, or materially and adversely affect the
rights, of Tenant under this Lease. No act or failure to act on the part of
Owner which would entitle Tenant under the terms of this Lease, or by law, to be
relieved of Tenant's obligations hereunder or to terminate this Lease shall
result in a release or termination of such obligations or a termination of this
Lease unless (i) Tenant shall have first given written notice of Owner's act or
failure to act to the holder or holders of any Mortgage and/or the lessor under
any Superior Lease of whom Tenant has been given written notice, specifying the
act or failure to act on the part of Owner which could or would give basis to
Tenant's rights; and (ii) the holder or holders of such Mortgage and/or the
lessors under any Superior Lease, after receipt of such notice, have failed or
refused to correct or cure the condition complained of within a reasonable time
thereafter, but nothing contained in this sentence shall be deemed to impose any
obligation on any such holder or lessor to correct or cure any such condition
but in no event shall Owner be relieved of its obligations hereunder.
"Reasonable time" as used above means and includes a reasonable time to obtain
possession of the Building if any such holder or lessor elects to do so
(provided such holder or lessor institutes proceedings to obtain possession
within a reasonable time after notice from Tenant pursuant to the foregoing
provisions and conducts such proceedings with reasonable diligence) and a
reasonable time after so obtaining possession to correct or cure the condition
if such condition is determined to exist (provided such holder or lessor
commences said cure within ten (10) days after obtaining possession and
prosecutes the work required to cure with reasonable diligence).
SECTION 7.02. TENANT ATTORNMENT: If, at any time prior to the
expiration of the Demised Term, any Superior Lease under which Owner then shall
be the lessee shall terminate or be terminated for any reason, or the holder of
any Mortgage comes into possession of the Real Property or the Building or the
estate created by any Superior Lease by a receiver or otherwise, Tenant agrees,
at the election and upon demand of any owner of the Real Property, or of the
holder of any Mortgage so in possession, or of any lessee under any Superior
Lease covering the premises which include the Demised Premises, to attorn, from
time to time, to any such owner, holder, or lessee, upon the then executory
terms and conditions of this Lease, for the remainder of the term originally
demised in this Lease, provided that such owner, holder or lessee, as the case
may be, shall then be entitled to possession of the Demised Premises. The
provisions of this Section shall enure to the benefit of any such owner, holder,
or lessee, shall apply notwithstanding that, as a matter of law, this Lease may
terminate upon the termination of any Superior Lease, shall be self-operative
upon any such demand, and no further instrument shall be required to give effect
to said provisions. Tenant, however, upon demand of any such owner, holder, or
lessee, agrees to execute, from time to time, instruments in confirmation of the
foregoing provisions of this Section, satisfactory to any such owner, holder, or
lessee, acknowledging such attornment and setting forth the terms and conditions
of its tenancy. Nothing contained in this Section shall be construed to impair
any right otherwise exercisable by any such owner, holder, or lessee.
Notwithstanding anything to the contrary set forth in this Article
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no such owner, holder or lessee shall be bound by (i) any payment of any
instalment of Fixed Rent or increases therein or any additional rent which may
have been made more than thirty (30) days before the due date of such
installment (except prepayments in the nature of security for the performance of
Tenant's obligations under this Lease), or (ii) any amendment or modification to
this Lease which is made without its consent.
SECTION 7.03. TENANT ESTOPPEL CERTIFICATE: From time to time, within seven
(7) days next following Owner's request, Tenant shall deliver to Owner a written
statement executed and acknowledged by Tenant, in form satisfactory to Owner,
(i) stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth the specific nature of all
modifications), and (ii) setting forth the date to which the Fixed Rent has been
paid, and (iii) stating whether or not, to the best knowledge of Tenant, Owner
is in default under this Lease, and, if Owner is in default, setting forth the
specific nature of all such defaults and (iv) stating that Tenant has accepted
and occupied the Demised Premises and all improvements required to be made by
Owner pursuant to the provisions of this Lease, have been made, if such be the
case. Tenant acknowledges that any statement delivered pursuant to this Section
may be relied upon by any purchaser or owner of the Building, or of the Real
Property, or any part thereof, or of Owner's interest in the Building or the
Real Property or any Superior Lease, or by the holder of any Mortgage, or by any
assignee of the holder of any Mortgage, or by any lessor under any Superior
Lease.
SECTION 7.04. OWNER ASSIGNMENT OF LEASE AND RENTS: If Owner assigns its
interest in this Lease, or the rents payable hereunder, to the holder of any
Mortgage or the lessor under any Superior Lease, whether the assignment shall be
conditional in nature or otherwise, Tenant agrees that (a) the execution thereof
by Owner and the acceptance by such holder or lessor shall not be deemed an
assumption by such holder or lessor of any of the obligations of the Owner under
this Lease unless such holder or lessor shall, by written notice sent to Tenant,
specifically otherwise elect; and (b) except as aforesaid, such holder or lessor
shall be treated as having assumed Owner's obligations hereunder only upon the
foreclosure of such holder's Mortgage or the termination of such lessor's
Superior Lease and the taking of possession of the Demised Premises by such
holder or lessor, as the case may be.
SECTION 7.05. Owner agrees within a reasonable time after the execution and
delivery of this Lease to request the then holder or holders of the existing
Mortgage to enter into an agreement substantially to the effect that in the
event of any foreclosure of the existing Mortgage, such holder or holders will
not make Tenant a party-defendant to such foreclosure (unless required by law in
order to obtain jurisdiction, but in such event, no judgment foreclosing this
Lease will be sought) nor disturb its possession under this Lease so long as
there shall be no default by Tenant under this Lease beyond applicable grace
periods (any such agreement, or any agreement of similar import, is referred to
as a "Non-Disturbance Agreement" and any provisions in any Mortgage
substantially to the same effect as those contained in a Non-Disturbance
Agreement are referred to as "Non-Disturbance Provisions"). At or about the time
that Owner executes any future Mortgage, Owner agrees to request the then holder
or holders of such future Mortgage to enter into a Non-Disturbance Agreement or
include Non-Disturbance Provisions in such future Mortgage. At or about the time
that Owner executes any future Superior Lease of the Real Property or the
Building, Owner shall request the lessor thereof to enter into an agreement
substantially to the effect that in the event of the termination of such
Superior Lease by reason of the default or insolvency of the lessee thereunder,
such lessor will permit Tenant to attorn to such lessor and will not disturb its
possession under this Lease so long as there shall be no default by Tenant under
this Lease beyond applicable grace periods (any such agreement, or any agreement
of similar import, is referred to as a "Tenant Recognition Agreement" and any
provisions in any such Superior Lease substantially to the same effect as those
contained in a Tenant Recognition Agreement are referred to as ""Tenant
Recognition Provisions"). If Owner is unable in good faith to obtain any such
Non-Disturbance Agreement, Non-Disturbance Provisions, Tenant Recognition
Agreement or Tenant Recognition Provisions, neither the validity of this Lease
nor the obligations of Tenant under this Lease shall be affected hereby and
Owner shall not be liable to Tenant for its failure to obtain any such
Non-Disturbance Agreement, Non-Disturbance Provisions, Tenant Recognition
Agreement or Tenant Recognition Provisions, it being intended that Owner's sole
obligation with respect to any Non-Disturbance Agreement, Non-Disturbance
Provisions,
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Tenant Recognition Agreement or Tenant Recognition Provisions, shall be to
request, in good faith, (a) within a reasonable time after the execution and
delivery of this Lease (with respect to the existing Mortgage) and (b) at or
about the date of execution of any future Mortgage or Superior Lease (with
respect to any future Mortgage or Superior Lease) the then holders of any
Mortgage or the then lessor under the Superior Lease, as the case may be, to
enter into such Non-Disturbance Agreement (with respect to the existing
Mortgage) or enter into such Non-Disturbance Agreement or include
Non-Disturbance Provisions in any future Mortgage or enter into such Tenant
Recognition Agreement or include Tenant Recognition Provisions in any future
Superior Lease, as the case may be. If required by the holder of any Mortgage
or by the lessor under any Superior Lease, Tenant shall promptly join in any
commercially reasonable Non-Disturbance Agreement or Tenant Recognition
Agreement to indicate its concurrence with the provisions thereof. Owner will
pay any commercially reasonable fee charged by any holder or lessor for
preparing such Agreement or Provisions.
ARTICLE 8
PROPERTY LOSS, ETC.
SECTION 8.01. Any Building employee to whom any property shall be
entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Owner nor Owner's agents shall
be liable for any loss of or damage to any such property by theft or otherwise.
Neither (i) the performance by Owner, Tenant or others of any decorations,
repairs, alterations, additions or improvements in or to the Building or the
Demised Premises, nor (ii) the failure of Owner or others to make any such
decorations, repairs, alterations, additions or improvements, nor (iii) any
damage to the Demised Premises or to the property of Tenant, nor any injury to
any persons, caused by other tenants or persons in the Building, or by
operations in the construction of any private, public or quasi-public work, or
by any other cause, nor (iv) any latent defect in the Building or in the Demised
Premises, nor (v) any temporary or permanent closing, darkening or bricking up
of any windows of the Demised Premises for any reason whatsoever including, but
not limited to, Owner's own acts, nor (vi) any inconvenience or annoyance to
Tenant or injury to or interruption of Tenant's business by reason of any of the
events or occurrences referred to in the foregoing subdivisions (i) through (v),
shall constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner, or
its agents, or any lessor under any Superior Lease, other than such liability as
may be imposed upon Owner by law for Owner's negligence or the negligence of
Owner's agents, servants or employees in the operation or maintenance of the
Building or for the breach by Owner of any express covenant of this Lease on
Owner's part to be performed. Tenant's taking possession of the Demised Premises
shall be conclusive evidence, as against Tenant, that, at the time such
possession was so taken, the Demised Premises and the Building were in good and
satisfactory condition and Owner's Initial Construction was substantially
completed.
ARTICLE 9
DESTRUCTION-FIRE OR OTHER CASUALTY
SECTION 9.01. OWNER'S REPAIR OBLIGATIONS: If the Demised Premises
shall be damaged by fire or other casualty and if Tenant shall give prompt
notice to Owner of such damage, Owner, at Owner's expense, shall repair such
damage. However, Owner shall have no obligation to repair any damage to, or to
replace, Tenant's Personal Property or any other property or effects of Tenant.
Except as otherwise provided in Section 9.03, if the entire Demised Premises
shall be rendered untenantable by reason of any such damage, the Fixed Rent
shall abate for the period from the date of such damage to the earlier of
(x) the date ten (10) days next following the date when such damage shall have
been repaired or (y) the date upon which Tenant shall have completed its
repairs thereto and commenced the conduct of its business therein, and if only
a part of the Demised Premises shall
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be so rendered untenantable, the Fixed Rent shall abate for such period in the
proportion which the area of the part of the Demised Premises so rendered
untenantable bears to the total area of the Demised Premises. However, if,
prior to the date when all of such damage shall have been repaired, any part of
the Demised Premises so damaged shall be rendered tenantable and shall be used
or occupied by Tenant or any person or persons claiming through or under
Tenant, then the amount by which the Fixed Rent shall abate shall be equitably
apportioned for the period from the date of any such use or occupancy to the
date when all such damage shall have been repaired. Tenant hereby expressly
waives the provisions of Section 227 of the New York Real Property Law, and of
any successor law of like import then in force, and Tenant agrees that the
provisions of this Article shall govern and control in lieu thereof.
Notwithstanding the foregoing provisions of this Section, if, prior to or
during the Demised Term, (i) the Demised Premises shall be totally damaged or
rendered wholly untenantable by fire or other casualty, and if Owner shall
decide not to restore the Demised Premises, or (ii) the Building shall be so
damaged by fire or other casualty that, in Owner's opinion, substantial
alteration, demolition, or reconstruction of the Building shall be required
(whether or not the Demised Premises shall have been damaged or rendered
untenantable), then, in any of such events, Owner, at Owner's option, may give
to Tenant, within ninety (90) days after such fire or other casualty, a five
(5) days' notice of termination of this Lease and, in the event such notice is
given, this Lease and the Demised Term shall come to an end and expire (whether
or not said term shall have commenced) upon the expiration of said five (5)
days with the same effect as if the date of expiration of said five (5) days
were the Expiration Date, the Fixed Rent shall be apportioned as of such date
or as of any earlier date upon which the Fixed Rent shall have abated as
hereinabove provided in this Section and any prepaid portion of Fixed Rent for
any period after such date shall be refunded by Owner to Tenant.
Section 9.02. OWNER'S SUBROGATION WAIVER PROVISIONS: Owner now has
and shall attempt to maintain, throughout the Demised Term, in Owner's fire
insurance policies covering the Building, provisions to the effect that such
policies shall not be invalidated should the insured waive, in writing, prior to
a loss, any or all right of recovery against any party for loss occurring to the
Building. In the event that at any time Owner's fire insurance carriers shall
exact an additional premium for the inclusion of such or similar provisions,
Owner shall give Tenant notice thereof. In such event, if Tenant agrees, in
writing, to reimburse Owner for such additional premium for the remainder of the
Demised Term, Owner shall require the inclusion of such or similar provisions by
Owner's fire insurance carriers. As long as such or similar provisions are
included in Owner's fire insurance policies then in force, Owner hereby waives
(i) any obligation on the part of Tenant to make repairs to the Demised Premises
necessitated or occasioned by fire or other casualty that is an insured risk
under such policies, and (ii) any right of recovery against Tenant, any other
permitted occupant of the Demised Premises, and any of their servants,
employees, agents or contractors, for any loss occasioned by fire or other
casualty which is an insured risk under such policies. In the event that at any
time Owner's fire insurance carriers shall not include such or similar
provisions in Owner's fire insurance policies, the waivers set forth in the
foregoing sentence shall, upon notice given by Owner to Tenant, be deemed of no
further force or effect.
Section 9.03. TENANT NEGLIGENCE: Except to the extent expressly
provided in Section 9.02, nothing contained in this Lease shall relieve Tenant
of any liability to Owner or to its insurance carriers which Tenant may have
under law or the provisions of this Lease in connection with any damage to the
Demised Premises or the Building caused by fire or other casualty.
Notwithstanding the provision of Section 9.01, if any such damage, occurring
after any date when the waivers set forth in Section 9.02 are no longer in force
and effect, is due to the fault or neglect of Tenant, any person claiming
through or under Tenant, or any of their servants, employees, agents,
contractors, visitors or licensees, then there shall be no abatement of Fixed
Rent by reason of such damage.
Section 9.04. TENANT SUBROGATION WAIVER PROVISIONS: Tenant
acknowledges that it has been advised that Owner's insurance policies do not
cover Tenant's Personal Property or any other property of Tenant in the Demised
Premises; accordingly, it shall be Tenant's obligation to obtain and maintain
insurance covering its property in the Demised Premises and loss of profits
including, but no limited to, water damage coverage and business interruption
insurance. Tenant shall attempt to obtain and maintain, throughout the Demised
Term, in
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Tenant's fire and other insurance policies covering Tenant's Personal Property
and other property of Tenant in the Demised Premises, and Tenant's use and
occupancy of the Demised Premises, and/or Tenant's profits (and shall cause any
other permitted occupants of the Demised Premises to attempt to obtain and
maintain, in similar policies), provisions to the effect that such policies
shall not be invalidated should the insured waive, in writing, prior to a loss,
any or all right of recovery against any party for loss occasioned by fire or
other casualty which is an insured risk under such policies. In the event that
at any time the fire insurance carriers issuing such policies shall exact an
additional premium for the inclusion of such or similar provisions, Tenant
shall give Owner notice thereof. In such event, if Owner agrees, in writing, to
reimburse Tenant or any person claiming through or under Tenant, as the case
may be, for such additional premium for the remainder of the Demised Term,
Tenant shall require the inclusion of such or similar provisions by such
insurance carriers. As long as such or similar provisions are included in such
insurance policies then in force, Tenant hereby waives (and agrees to cause any
other permitted occupants of the Demised Premises to execute and deliver to
Owner written instruments waiving) any right of recovery against Owner, any
lessors under any Superior Leases, the holders of any Mortgage, and all other
tenants or occupants of the Building, and any servants, employees, agents or
contractors of Owner, or of any such lessor, or holder or any such other
tenants or occupants, for any loss occasioned by fire or other casualty which
is an insured risk under such policies. In the event that at any time such
insurance carriers shall not include such or similar provisions in any such
insurance policy, the waiver set forth in the foregoing sentence (or in any
written instrument executed by any other permitted occupant of the Demised
Premises) shall, upon notice given by Tenant to Owner, be deemed of no further
force or effect with respect to any insured risks under such policy from and
after the giving of such notice. During any period while any such waiver of
right of recovery is in effect, Tenant, or any other permitted occupant of the
Demised Premises, as the case may be, shall look solely to the proceeds of such
policies to compensate Tenant or such other permitted occupant for any loss
occasioned by fire or other casualty which is an insured risk under such
policies.
SECTION 9.05. Supplementing the provisions of Section 9.01, if as a result
of any damage to fifty (50%) percent or more of the Demised Premises by fire or
other casualty, (a) it shall become impractical for Tenant to conduct its
business in any part of the Demised Premises, and (b) no part of the Demised
Premises shall be used or occupied for business purposes by Tenant or any other
person claiming through or under Tenant, the entire Demised Premises shall be
deemed untenantable for the purposes of Section 9.01.
SECTION 9.06. Supplementing the provisions of Section 9.02, if any damage
to the Demised Premises or the Building by fire or other casualty occurring
after any date when the waivers set forth in Section 9.02 are no longer in
force and effect is due to the fault or negligence of Tenant, any person
claiming through or under Tenant, or any of their servants, employees, agents,
contractors, visitors or licensees, and if Owner shall have rent insurance
policies in force at that time covering the loss of Fixed Rent for the Demised
Premises, and if such policies shall not be affected by the provisions of this
Section, then, notwithstanding anything contained in Section 9.03 to the
contrary, the Fixed Rent shall abate in accordance with the provisions of
Section 9.01, but only to the extent of any proceeds received by Owner under
such rent insurance policies with respect to the Demised Premises and the
Demised Term. Owner presently has such rent insurance policies in force and
shall attempt to maintain same during the entire Demised Term.
ARTICLE 10
EMINENT DOMAIN
SECTION 10.01. TAKING OF THE DEMISED PREMISES: If the whole of the
Demised Premises shall be acquired for any public or quasi-public use or
purpose, whether by condemnation or by deed in lieu of condemnation, this Lease
and the Demised Term shall end as of the date of the vesting of title with the
same effect as if said date were the Expiration Date. If only a part of the
Demised Premises shall be so acquired or condemned then, except as otherwise
provided in this Section, this Lease and the Demised Term shall continue in
force and
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effect but, from and after the date of the vesting of title, the Fixed Rent
shall be reduced in the proportion which the area of the part of the Demised
Premises so acquired or condemned bears to the total area of the Demised
Premises immediately prior to such acquisition or condemnation. If only a part
of the Real Property shall be so acquired or condemned, then (i) whether or not
the Demised Premises shall be affected thereby, Owner, at Owner's option, may
give to Tenant, within sixty (60) days next following the date upon which Owner
shall have received notice of vesting of title, a five (5) days' notice of
termination of this Lease, and (ii) if the part of the Real Property so
acquired or condemned shall contain more than ten (10%) percent of the total
area of the Demised Premises immediately prior to such acquisition or
condemnation, or if, by reason of such acquisition or condemnation, Tenant no
longer has reasonable means of access to the Demised Premises, Tenant, at
Tenant's option, may give to Owner, within sixty (60) days next following the
date upon which Tenant shall have received notice of vesting of title, a five
(5) days' notice of termination of this Lease. In the event any such five (5)
days' notice of termination is given, by Owner or Tenant, this Lease and the
Demised Term shall come to an end and expire upon the expiration of said five
(5) days with the same effect as if the date of expiration of said five (5)
days were the Expiration Date. If a part of the Demised Premises shall be so
acquired or condemned and this Lease and the Demised Term shall not be
terminated pursuant to the foregoing provisions of this Section, Owner, at
Owner's expense, shall restore that part of the Demised Premises not so
acquired or condemned to a self-contained rental unit. In the event of any
termination of this Lease and the Demised Term pursuant to the provisions of
this Section, the Fixed Rent shall be apportioned as of the date of such
termination and any prepaid portion of Fixed Rent for any period after such
date shall be refunded by Owner to Tenant.
SECTION 10.02. CONDEMNATION AWARD OR CLAIMS: In the event of any such
acquisition or condemnation of all or any part of the Real Property, Owner
shall be entitled to receive the entire award for any such acquisition or
condemnation, Tenant shall have no claim against Owner or the condemning
authority for the value of any unexpired portion of the Demised Term and Tenant
hereby expressly assigns to Owner all of its right in and to any such award.
Nothing contained in this Section shall be deemed to prevent Tenant from making
a claim in any condemnation proceedings for the value of any items of Tenant's
Personal Property which are compensable, in law, as trade fixtures.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
SECTION 11.01. GENERAL COVENANT: Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, covenants that, without the prior consent of Owner in each instance, it
shall not (i) assign whether by merger, consolidation or otherwise, mortgage or
encumber its interest in this Lease, in whole or in part, except as set forth in
Section 11.05 (ii) sublet, or permit the subletting of, the Demised Premises or
any part thereof, or (iii) permit the Demised Premises or any part thereof to be
occupied, or used for desk space, (other than affiliates), mailing privileges or
otherwise, by any person other than Tenant. The sale, pledge, transfer or other
alienation of (a) any controlling interest of the issued and outstanding capital
stock of any corporate Tenant (unless such stock is publicly traded on a
recognized security exchange or over-the counter market) or (b) any controlling
interest in any partnership or joint venture Tenant, however accomplished, and
whether in a single transaction or in a series of related and/or unrelated
transactions, shall be deemed for the purposes of this Section as an assignment
of this Lease which shall require the prior consent of Owner in each instance.
SECTION 11.02. OWNER'S RIGHTS UPON ASSIGNMENT: If Tenant's interest in
this Lease is assigned, whether or not in violation of the provisions of this
Article, Owner may collect rent from the assignee; if the Demised Premises or
any part thereof are sublet to, or occupied by, or used by, any person other
than Tenant, whether or not in violation of this Article, Owner, after default
by Tenant under this Lease, may collect rent from the subtenant, user or
occupant. In either case, Owner shall apply the net amount collected to the
rents reserved
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in this Lease, but neither any such assignment, subletting, occupancy, or use,
whether with or without Owner's prior consent, nor any such collection or
application, shall be deemed a waiver of any term, covenant or condition of this
Lease or the acceptance by Owner of such assignee, subtenant, occupant or user
as tenant. The consent by Owner to any assignment, subletting, occupancy or use
shall not relieve Tenant from its obligation to obtain the express prior consent
of Owner to any further assignment, subletting, occupancy or use. If this Lease
is assigned to any person or entity pursuant to any proceeding of the type
referred to in Subsections 16.01(c) and 16.01(d), any and all monies or other
consideration payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Owner, shall be and remain the
exclusive property of Owner and shall not constitute property of Tenant or of
the estate of Tenant within the meaning of any proceeding of the type referred
to in Subsections 16.01(c) and 16.01(d). Any and all monies or other
considerations constituting Owner's property under the preceding sentence not
paid or delivered to Owner shall be held in trust for the benefit of Owner and
shall be promptly paid to or turned over to Owner. Any person or entity to which
this Lease is assigned pursuant to any proceeding of the type referred to in
Subsections 16.01(c) and 16.01(d) shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall execute and deliver to Owner
upon demand an instrument confirming such assumption. The listing of any name
other than that of Tenant on any door of the Demised Premises or on any
directory or in any elevator in the Building, or otherwise, shall not operate to
vest in the person so named any right or interest in this Lease or in the
Demised Premises, or the Building, or be deemed to constitute, or serve as a
substitute for, any prior consent of Owner required under this Article, and it
is understood that any such listing shall constitute a privilege extended by
Owner which shall be revocable at Owner's will by notice to Tenant. Tenant
agrees to pay to Owner reasonable counsel fees incurred by Owner in connection
with any proposed assignment of Tenant's interest in this Lease or any proposed
subletting of the Demised Premises or any part thereof. Neither any assignment
of Tenant's interest in this Lease nor any subletting, occupancy or use of the
Demised Premises or any part thereof by any person other than Tenant, nor any
collection of rent by Owner from any person other than Tenant as provided in
this Section, nor any application of any such rent as provided in this Section
shall, in any circumstances, relieve Tenant of its obligation fully to observe
and perform the terms, covenants and conditions of this Lease on Tenant's part
to be observed or performed.
SECTION 11.03 SUBLET RIGHTS. A. (1) As long as Tenant is not in
default under any of the terms, covenants or conditions of this Lease on
Tenant's part to be observed or performed, Owner agrees not to unreasonably
withhold Owner's prior consent to sublettings by Tenant of all or parts of the
Demised Premises to not more than two (2) subtenants. Each such subletting shall
be for undivided occupancy by the subtenant of that part of the Demised Premises
affected thereby, for the use expressly permitted in this Lease, i.e., as
general offices for an information technology business, and at no time shall
there be more than two (2) occupants, including Tenant, in the Demised Premises.
(2) Without Owner's prior consent, Tenant shall not (a)
negotiate or enter into a proposed subletting with any tenant, subtenant or
occupant of any space in the Building or (b) list or otherwise publicly
advertise the Demised Premises or any part thereof for subletting at a rental
lower than the higher of (i) the Fixed Rent then in effect under this Lease,
allocable to the space sought to be sublet or (ii) the rental at which the Owner
is then actively negotiating comparable space in the Building.
(3) At least thirty (30) days prior to any proposed
subletting, Tenant shall submit to Owner a statement (the "Proposed Sublet
Statement") containing the name and address of the proposed subtenant, the
nature of the proposed subtenant's business and its current financial status,
if such status is obtained or obtainable by Tenant, and all of the principal
terms and conditions of the proposed subletting including, but not limited to,
the proposed commencement and expiration dates of the term thereof. Unless the
proposed sublet area shall constitute only an entire floor (or floors), the
Proposed Sublet Statement shall be accompanied by a floor plan delineating the
proposed sublet area.
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(4) Owner may arbitrarily withhold consent to a proposed
subletting if, (a) the occupancy of the proposed subtenant will impair the
character or dignity of the Building or impose any material additional burden
upon Owner in the operation of the Building or (b) the occupancy of the proposed
subtenant will impair the reputation of (i) the Building as an information
technology center or (ii) the floor on which the proposed sublet area is located
as a floor devoted to information technology tenants, or (c) the proposed
subtenant shall be a person or entity with whom Owner is then actively
negotiating to lease space in the Building.
(5) In the event of any dispute between Owner and Tenant
as to the reasonableness of Owner's failure or refusal to consent to any
subletting, such dispute shall be submitted to arbitration in accordance with
the provisions of Article 36.
B. Notwithstanding the foregoing provisions of this Section
11.03, Owner shall have the following rights with respect to each proposed
subletting by Tenant:
(1) In the event Tenant proposes to sublet all or
substantially all of the Demised Premises, Owner, at Owner's option, may give
to Tenant, within thirty (30) days after the submission by Tenant to Owner of
the Proposed Sublet Statement, a notice terminating this Lease on the date
(referred to as the "Earlier Termination Date") immediately prior to the
proposed commencement date of the term of the proposed subletting, as set forth
in such statement, and, in the event such notice is given, this Lease and the
Demised Term shall come to an end and expire on the Earlier Termination Date
with the same effect as if it were the Expiration Date, the Fixed Rent shall be
apportioned as of said Earlier Termination Date and any prepaid portion of
Fixed Rent for any period after such date shall be refunded by Owner to Tenant;
or
(2) In the event Tenant proposes to sublet all or any
portion of the Demised Premises, Owner, at Owner's option, may give to Tenant,
within thirty (30) days after the submission by Tenant to Owner, of the Proposed
Sublet Statement, a notice electing to eliminate such portion of the Demised
Premises (said portion is referred to as the "Eliminated Space") from the
Demised Premises during the period (referred to as the "Elimination Period")
commencing on the date (referred to as "Elimination Date") immediately prior to
the proposed commencement date of the term of the proposed subletting, as set
forth in the Proposed Sublet Statement, and ending on the proposed expiration
date of the term of the proposed subletting, as set forth in the Proposed Sublet
Statement, and in the event such notice is given the following shall apply:
(a) The Eliminated Space shall be eliminated from the Demised
Premises during the Elimination Period;
(b) Tenant shall surrender the Eliminated Space to Owner on or prior
to the Elimination Date in the same manner as if said Date were the
Expiration Date;
(c) If the Eliminated Space shall constitute less than an entire
floor, (i) Owner, at Owner's expense, shall have the right to make any
alterations and installations in the Demised Premises required, in Owner's
judgment, reasonably exercised, to make the Eliminated Space a
self-contained rental unit with access through corridors to the elevators
and core toilets serving the Eliminated Space, and if the Demised Premises
shall contain any core toilets (for the purposes of this Article core
toilets shall be deemed to include any unisex toilets) or any corridors
(including any corridors proposed to be constructed by Owner pursuant to
this subdivision (c), providing access from the Eliminated Space to the
core area), (ii) Owner and any tenant or other occupant of the Eliminated
Space shall have the right to use such toilets and corridors in common with
Tenant and any other permitted occupants of the Demised Premises, and the
right to install signs and directional indicators in or about such
corridors indicating the name and location of such tenant or other
occupant;
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(d) During the Elimination Period, the Fixed Rent, the Demised Premises
Area (as defined in Article 23), and Tenant's Electrical Share (as defined in
Section 29.05) shall each be reduced in the proportion which the area of the
Eliminated Space bears to the total area of the Demised Premises immediately
prior to the Elimination Date (including an equitable portion of the area of any
corridors referred to in subdivision (c) of this Subsection 11.03.B.(2) as part
of the area of the Eliminated Space for the purpose of computing such
reduction), and in the event that the Eliminated Space shall be the entire
Demised Premises, during the Elimination Period, Tenant shall have no rights
with respect to the Demised Premises nor any obligations with respect to the
Demised Premises, including, but not limited to, any obligations to pay Fixed
Rent or any increases therein or any additional rent, and any prepaid portion of
Fixed Rent for any period after the Elimination Date allocable to the
Elimination Space shall be refunded by Owner to Tenant;
(e) There shall be an equitable apportionment of any increase in the Fixed
Rent pursuant to Article 23 for the Escalation Year and Tax Escalation Year (as
defined in Article 23) in which said Elimination Date shall occur;
(f) If the Elimination Period shall end prior to the Expiration Date, the
Eliminated Space, in its then existing condition (provided it is usable for
general offices as an information technology business or is put in such
condition by Owner at Owner's expense prior to the Restoration Period), shall be
deemed restored to and once again a part of the Demised Premises during the
period (referred to as the "Restoration Period") commencing on the date next
following the expiration of the Elimination Period and ending on the Expiration
Date;
(g) During the Restoration Period, if any, the Fixed Rent, the Demised
Premises Area and Tenant's Electrical Share shall each be increased in the
proportion which the area of the Eliminated Space bears to the total area of the
Demised Premises immediately prior to the commencement of the Restoration Period
(including an equitable portion of the area of any corridors referred to in
subdivision (c) of this Subsection 11.03.B.(2) as part of the area of the
Eliminated Space for the purpose of computing such increase) and in the event
that the Eliminated Space shall be the entire Demised Premises, during the
Restoration Period, the Demised Premises, in its then existing condition,
(provided it is usable for general offices as an information technology business
or is put in such condition by Owner at Owner's expense prior to the Restoration
Period) shall be deemed restored to Tenant and Tenant shall have all rights with
respect to the Demised Premises which are set forth in this Lease and all
obligations with respect to the Demised Premises which are set forth in this
Lease, including, but not limited to, the obligations for the payment of Fixed
Rent and any increases therein (as it would have been adjusted if Tenant
occupied the Demised Premises during the Elimination Period) and any additional
rent; and
(h) There shall be an equitable apportionment of any increase in the Fixed
Rent pursuant to Article 23 for the Escalation Year and Tax Escalation Year in
which the Restoration Period, if any, shall commence.
However, notwithstanding the foregoing, Owner and Tenant acknowledge the
possibility that all or any of the tenants or occupants of the Eliminated Space
may not have vacated and surrendered all or any portions of the Eliminated Space
to Owner by the commencement of the Restoration Period; accordingly,
notwithstanding anything to the contrary contained in the foregoing provisions
of this Subsection B, the following shall apply:
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(x) The Restoration Period applicable to the Eliminated Space shall
commence on the commencement date of the Restoration Period with respect to
those portions, if any, of the Eliminated Space which are vacant on the
commencement of the Restoration Period and with respect to these portions,
if any, of the Eliminated Space which are not vacant on the commencement of
the Restoration Period on the respective later date or dates upon which
such portions of the Eliminated Space become vacant and Owner gives notice
to Tenant of such vacancy but the Expiration Date shall not be affected
thereby, the increases in the Fixed Rent, the Demised Premises Area and
Tenant's Electrical Share shall be equitably adjusted to reflect the fact
that all or any portions of the Eliminated Space have not been restored to
Tenant on the commencement of the Restoration Period but are restored to
Tenant and included back in the Demised Premises on a date or dates after
the commencement of the Restoration Period;
(y) except as expressly set forth in this Subsection 11.03.B. to the
contrary, neither the validity of this Lease nor the obligations of Tenant
under this Lease shall be affected thereby; and
(z) Tenant waives any rights to rescind this Lease and to recover any
damages which may result from the failure of Owner to deliver possession of
all or any portions of the Eliminated Space on the commencement of the
Restoration Period; Owner agrees to institute within ten (10) business days
after the commencement of the Restoration Period, possession proceedings
against any tenants and occupants who have not so vacated and surrendered
all or any portions of the Eliminated Space, and agrees to prosecute such
proceedings with reasonable diligence.
At the request of Owner, Tenant shall execute and deliver an instrument or
instruments, in form satisfactory to Owner, setting forth any modifications to
this Lease contemplated in or resulting from the operation of the foregoing
provisions of this Subsection 11.03; however, neither Owner's failure to request
any such instrument nor Tenant's failure to execute or deliver any such
instrument shall vitiate the effect of the foregoing provisions of this Section.
The failure by Owner to exercise any option under this Section 11.03 with
respect to any subletting shall not be deemed a waiver of such option with
respect to any extension of such subletting or any subsequent subletting of the
premises affected thereby or any other portion of the Demised Premises. Tenant
agrees to indemnify Owner from all loss, cost, liability, damage and expense,
including, but not limited to, reasonable counsel fees and disbursements,
arising from any claims against Owner by any broker or other person, for a
brokerage commission or other similar compensation in connection with any such
proposed subletting, in the event (a) Owner shall (i) fail or refuse to consent
to any proposed subletting, or (ii) exercise any of its options under this
Section 11.03, or (b) any proposed subletting shall fail to be consummated for
any reason whatsoever.
C. Tenant agrees that (1) one-half (1/2) of any increase in the
rental value of the Demised Premises over and above the Fixed Rent payable
pursuant to the provisions of this Lease, as such Fixed Rent may be increased
from time to time pursuant to the provisions of this Lease, and (2) any
consideration paid to Tenant or any subtenant or other person claiming through
or under Tenant in connection with an assignment of Tenant's interest in this
Lease or the interest of any subtenant or other person claiming through or under
Tenant under any sublease whether or not such assignment shall be effected with
court approval in a proceeding of the types described in Subsection 16.01(c) or
(d), or in any similar proceeding, or otherwise, shall accrue to the benefit of
Owner and not to the benefit of Tenant, or of any subtenant or other person
claiming through or under Tenant, or of the creditors of Tenant or of any such
subtenant or other person claiming through or under Tenant. Accordingly, Tenant
agrees that if Owner shall fail to exercise its option to sooner terminate this
Lease in connection with any proposed subletting by Tenant of all or
substantially all of the Demised Premises, or its option to eliminate the
Demised Premises or to eliminate from the Demised Premises any portion thereof,
in connection with any proposed subletting by Tenant of the entire Demised
Premises or any portion thereof, or if any subtenant or other person claiming
through or under Tenant shall sublet all or any portion of the Demised Premises,
Tenant shall pay to Owner a sum equal to one-half (1/2) to any Subletting
Profit, as such term is hereinafter defined. All rentals and
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other sums (including, but not limited to, sums payable for the sale or rental
of any fixtures, leasehold improvements, equipment, furniture or other personal
property, less, in the case of the sale thereof, the then net unamortized [on a
straight-line basis over the term of this Lease or, in the event of a further
subletting, over the term of the initial sublease, as the case may be] cost
thereof, which were provided and installed in the sublet premises at the sole
cost and expense of the Tenant or such subtenant or other person claiming
through or under Tenant and for which no allowance or other credit has been
given by Owner) payable by any subtenant to Tenant or to any subtenant or other
person claiming through or under Tenant in connection with (i) any subletting
of the entire Demised Premises in excess of the Fixed Rent then payable by
Tenant to Owner under this Lease, or (ii) any subletting of a portion of the
Demised Premises in excess of that proportion of the Fixed Rent applicable to
the floor on which the portion of the Demised Premises so sublet is located
payable by the Tenant to Owner under this Lease which the area of the portion
of the Demised Premises so sublet bears to the total area of the Demised
Premises on said floor on which the portion of the Demised Premises so sublet
is located, are referred to, in the aggregate, as "Subletting Profit"; in
computing any Subletting Profit it shall be deemed that the rental reserved
under any such subletting shall commence to accrue as of the commencement of
the term of such subletting even if such rental actually commences to accrue as
of a date subsequent to such commencement, and there shall be deducted a
reasonable single brokerage commission, if any such commission shall be
incurred by Tenant or any such subtenant or other person claiming through or
under Tenant in connection with such subletting which deduction for such
reasonable single brokerage commission shall be amortized on a straight-line
basis over the entire term of such subletting. Tenant agrees that if Tenant, or
any subtenant or other person claiming through or under Tenant, shall assign or
have assigned its interest as Tenant under this Lease or its interest as
subtenant under any sublease, as the case may be, whether or not such
assignment shall be effected with court approval in a proceeding of the types
described in Subsections 16.01(c) or (d), or in any similar proceeding, or
otherwise, Tenant shall pay to Owner a sum equal to any consideration payable
to Tenant or any subtenant or other person claiming through or under Tenant for
such assignment. All sums payable hereunder to Tenant shall be paid to Owner as
additional rent immediately upon such sums becoming payable to Tenant or to any
subtenant or other person claiming through or under Tenant and, if requested by
Owner, Tenant shall promptly enter into a written agreement with Owner setting
forth the amount of such sums to be paid to Owner, however, neither Owner's
failure to request the execution of such agreement nor Tenant's failure to
execute such agreement shall vitiate the provisions of this Section. For the
purposes of this Article, a trustee, receiver or other representative of the
Tenant's or any subtenant's estate under any federal or state bankruptcy act
shall be deemed a person claiming through or under Tenant.
D. Neither Owner's consent to any subletting nor anything contained in this
Section shall be deemed to grant to any subtenant or other person claiming
through or under Tenant the right to sublet all or any portion of the Demised
Premises or to permit the occupancy of all or any portion of the Demised
Premises by others. Neither any subtenant referred to in this Section nor its
heirs, distributees, executors, administrators, legal representatives,
successors nor assigns, without the prior consent of Owner in each instance,
shall (i) assign, whether by merger, consolidation or otherwise, mortgage or
encumber its interest in any sublease, in whole or in part, or (ii) sublet, or
permit the subletting of, that part of the Demised Premises affected by such
subletting or any portion thereof, or (iii) permit such part of the Demised
Premises affected by such subletting or any portion thereof to be occupied or
used for desk space, mailing privileges or otherwise, by any person other than
such subtenant and any sublease shall provide that any violation of the
foregoing provisions of this sentence shall be an event of default thereunder.
Except as otherwise set forth in this Article 11, the sale, pledge, transfer or
other alienation of (a) any of the issued and outstanding capital stock of any
corporate subtenant (unless such stock is publicly traded on any recognized
security exchange or over-the-counter market) or (b) any interest in any
partnership or joint venture subtenant, however accomplished, and whether in a
single transaction or in a series of related or unrelated transactions, shall be
deemed for the purposes of this Section to be an assignment of such sublease
which shall require the prior consent of Owner in each instance and any sublease
shall so provide.
Section 11.04. OWNER'S RIGHTS UPON LEASE DISAFFIRMANCE: A. In the event
that, at any time after Tenant may have assigned Tenant's interest in this
Lease, this Lease shall be disaffirmed or rejected in any proceeding of the
types described in Subsections 16.01(c) and (d), or in any similar proceeding,
or in the event of
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termination of this Lease by reason of any such proceeding or by reason of lapse
of time following notice of termination given pursuant to Section 16.01 based
upon any of the Events of Default set forth in said Subsections, Tenant, upon
request of Owner given within thirty (30) days next following any such
disaffirmance, rejection or termination (and actual notice thereof to Owner in
the event of a disaffirmance or rejection or in the event of termination other
than by act of Owner), shall (i) pay to Owner all Fixed Rent, additional rent
and other charges due and owing by the assignee to Owner under this Lease to and
including the date of such disaffirmance, rejection or termination, and (ii) as
"tenant", enter into a new lease with Owner of the Demised Premises for a term
commencing on the effective date of such disaffirmance, rejection or termination
and ending on the Expiration Date unless sooner terminated as in such lease
provided, at the same Fixed Rent and then executory terms, covenants and
conditions as are contained in this Lease, except that (a) Tenant's rights under
the new lease shall be subject to the possessory rights of the assignee under
this Lease and the possessory rights of any person claiming through or under
such assignee or by virtue of any statute or of any order of any court, and (b)
such new lease shall require all defaults existing under this Lease to be cured
by Tenant with due diligence, and (c) such new lease shall require Tenant to pay
all increases in the Fixed Rent reserved in this Lease which, had this Lease not
been so disaffirmed, rejected or terminated, would have accrued under the
provisions of Article 23 of this Lease after the date of such disaffirmance,
rejection or termination with respect to any period prior thereto. In the event
Tenant shall default in its obligation to enter into said new lease for a period
of ten (10) days next following Owner's request therefor, then, in addition to
all other rights and remedies by reason of such default, either at law or in
equity, Owner shall have the same rights and remedies against Tenant as if
Tenant had entered into such new lease and such new lease had thereafter been
terminated as at the commencement date thereof by reason of Tenant's default
thereunder. Nothing contained in this Section shall be deemed to grant to Tenant
any right to assign Tenant's interest in this Lease.
SECTION 11.05. As long as Tenant is not then in default under any of the
terms, covenants or conditions of this Lease on Tenant's part to be observed or
performed, Owner's consent shall not be required to an assignment of Tenant's
interest in this Lease to any person, corporation, partnership, or other
business entity which is a successor of Tenant, either by merger or
consolidation or the purchase of all or substantially all of the assets,
business and goodwill of NYSERNet, Inc., Tenant named herein, provided that said
person, corporation, partnership or other business entity shall have a net
worth, as determined in accordance with generally accepted accounting principles
consistently applied, at least equal to that of Tenant named herein as of the
date of this Lease, and provided further that such successor, person,
corporation, partnership or other business entity shall continue to operate
Tenant's present business in the Demised Premises and the interest of Tenant
named herein in this Lease is not the sole or principal asset of Tenant named
herein and such assignment is made for a good business purpose. At the time of
said proposed assignment, Tenant shall deliver to Owner a reasonably detailed
statement of the financial condition of the aforesaid proposed assignee,
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, sworn to by an executive officer of Tenant and the proposed
Assignee, which statement shall reflect the financial condition of the aforesaid
proposed assignee at that time. Notwithstanding anything contained in this
Section to the contrary, such assignment shall not be valid if the aforesaid
proposed assignee shall not have a net worth, at least equal to that of Tenant
as of the date of this Lease or the interest of Tenant named herein in this
Lease is the sole or principal asset of Tenant named herein or such assignment
is not made for a good business purpose. In the event of any dispute between
Owner and Tenant as to the validity of any such assignment such dispute shall be
determined by arbitration in the City of New York in accordance with the
provisions of Article 36. Any such determination shall be final and binding upon
the parties whether or not a judgment shall be entered in any court. If the
determination of any such arbitration shall be adverse to Owner, Owner,
nevertheless, shall not be liable to Tenant and Tenant's sole remedy in such
event shall be to have the proposed assignment deemed valid. No such assignment
shall be valid, unless, within ten (10) days after the execution thereof, Tenant
shall deliver to Owner (1) a duplicate original instrument of assignment in form
and substance reasonably satisfactory to Owner duly executed by Tenant,
acknowledged before a notary public, in customary and reasonable form and
substance in which Tenant shall (a) waive all notices of default given to the
assignee and all other notices of every kind or description, now or hereafter
provided in this Lease, by statute or by rule of law; (b) acknowledge that
Tenant's obligations with respect to this Lease shall not be discharged,
released
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or impaired by (i) such assignment; (ii) any amendment or modification of this
Lease (whether or not the obligations of Tenant are increased thereby); (iii)
any further assignment or transfer of Tenant's interest in this Lease; (iv) any
exercise, non-exercise or waiver by Owner of any right, remedy, power or
privilege under or with respect to this Lease; (v) any waiver, consent,
extension, indulgence or other act or omission with respect to any of the
obligations of Tenant under this Lease; (vi) any act or thing which, but for the
provisions of such assignment, might be deemed a legal or equitable discharge of
a surety or assignor, to all of which Tenant shall consent in advance; it being
the purpose and intent of Owner and Tenant that the obligations of Tenant
hereunder as assignor shall be absolute and unconditional under any and all
circumstances; and (II) an instrument in form and substance reasonably
satisfactory to Owner, duly executed by the proposed assignee, acknowledged
before a notary public, in which such proposed assignee shall assume observance
and performance of, and agree to be bound by, all of the terms, covenants and
conditions of this Lease on Tenant's part to be performed.
SECTION 11.06. A. Supplementing the provisions of Article 11, as long as
Tenant is not in default under any of the terms, covenants or conditions of this
Lease on Tenant's part to be observed and performed, after notice and expiration
of applicable cure periods, NYSERNet, Inc., Tenant named herein, shall have the
right, without the prior consent of Owner, to assign its interest in this Lease,
for the use permitted in this Lease to Netcast Communications Corp. or to any
subsidiary or affiliate of Tenant named herein, which is in the same general
line of business as Tenant named herein and only for such period as it shall
remain such subsidiary or affiliate. For the purposes of this Article: (a) a
"subsidiary" of Tenant named herein shall mean any corporation not less than
fifty-one (51%) percent of whose outstanding voting stock at the time shall be
owned by Tenant named herein, and (b) an "affiliate" of Tenant named herein
shall mean any corporation, partnership or other business entity which controls
or is controlled by, or is under common control with Tenant. For the purpose of
the definition of "affiliate" the word "control" (including, "controlled by" and
"under common control with") as used with respect to any corporation,
partnership or other business entity, shall mean the possession of the power to
direct or cause the direction of the management and policies of such
corporation, partnership or other business entity, whether through the ownership
of voting securities or contract. No such assignment shall be valid or effective
unless, within ten (10) days after the execution thereof, Tenant shall deliver
to Owner all of the following: (I) a duplicate original instrument of
assignment, in form and substance reasonably satisfactory to Owner, duly
executed by Tenant, in customary and reasonable form and substance in which
Tenant shall (a) waive all notices of default given to the assignee, and all
other notices of every kind or description now or hereafter provided in this
Lease, by statute or rule of law, and (b) acknowledge that Tenant's obligations
with respect to this Lease shall not be discharged, released or impaired by (i)
such assignment, (ii) any amendment or modification of this Lease, whether or
not the obligations of Tenant are increased thereby, (iii) any further
assignment or transfer of Tenant's interest in this Lease, (iv) any exercise,
non-exercise or waiver by Owner of any right, remedy, power or privilege under
or with respect to this Lease, (v) any waiver, consent, extension, indulgence or
other act or omission with respect to any other obligations of Tenant under this
Lease, (vi) any act or thing which, but for the provisions of such assignment,
might be deemed a legal or equitable discharge of a surety or assignor, to all
of which Tenant shall consent in advance, it being the purpose and intent of
Owner and Tenant that the obligations of Tenant hereunder as assignor shall be
absolute and unconditional under any and all circumstances, and (II) an
instrument, in form and substance reasonably satisfactory to Owner, duly
executed by the assignee, in which such assignee shall assume the observance and
performance of, and agree to be bound by, all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed.
B. Further supplementing the provisions of Article 11, as
long as Tenant is not in default under any of the terms, covenants or conditions
of this Lease on Tenant's part to be observed and performed, after notice and
the expiration of applicable cure periods NYSERNet, Inc., Tenant named herein,
shall have the right without the prior consent of Owner, to sublet to, or permit
the use or occupancy of, all or any part of the Demised Premises to Netcast
Communications Corp. or by any subsidiary or affiliate (as said terms are
defined in Section 11.06A.) of Tenant named herein for the use permitted in this
Lease provided that such subsidiary or affiliate is in the same general line of
business as the Tenant named herein and only for such period as it shall remain
such subsidiary or affiliate and in the same general line of business as the
Tenant named herein. However,
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no such subletting shall be valid unless, prior to the execution thereof, Tenant
shall give notice to Owner of the proposed subletting, and within ten (10) days
prior to the commencement of said subletting, Tenant shall deliver to Owner an
agreement, in form and substance reasonably satisfactory to Owner, duly executed
by Tenant and said subtenant, in which said subtenant shall assume performance
of and agree to be bound by, all of the terms, covenants and conditions of this
Lease which are applicable to said subtenant and such subletting. Tenant shall
give prompt notice to Owner of any such use or occupancy of all or any part of
the Demised Premises and such use or occupancy shall be subject and subordinate
to all of the terms, covenants and conditions of this Lease. No such use or
occupancy shall operate to vest in the user or occupant any right or interest in
this Lease or the Demised Premises. For the purposes of determining the number
of subtenants or occupants in the Demised Premises, the occupancy of any such
permitted subsidiary or affiliate of Tenant shall be deemed the occupancy of
Tenant and such subsidiary or affiliate shall not be counted as a subtenant or
occupant for the purposes of Section 11.03 and the provisions of Section 11.03
relating to Owner's option to terminate this Lease and the provisions of Section
11.03 relating to Subletting Profits shall not be applicable to any proposed
subletting to any such subsidiary or affiliate of Tenant pursuant to the
provisions of this Section.
SECTION 11.07. TENANT'S DIRECTORY LISTINGS: Supplementing the provisions
of Section 11.02, (i) so long as Owner shall maintain a directory in the lobby
of the Building, Owner shall make available to Tenant space for the listing of
Tenant's name and the names of any of the officers or employees of Tenant and
any permitted occupants of the Demised Premises provided that the names so
listed shall not require more than Tenant's Proportionate Share of the space of
said directory, and (ii) so long as Owner shall maintain the names of occupants
of the Building and the floors on which they are located in the elevators
serving the Demised Premises, Owner shall list the names of Tenant and any
permitted occupants of the Demised Premises (not to exceed the number of names
which can reasonably be placed in the space proportionately allocated to Tenant
in such elevators using Building standard size lettering) for the sixteenth
(16th) floor in such elevators.
SECTION 11.08. Notwithstanding anything to the contrary contained in the
foregoing provisions of this Lease, including, but not limited to, the
provisions of this Article, a public offering of the stock or interest of Tenant
named herein on a recognized security exchange or over-the-counter market shall
not be considered an assignment of this Lease requiring the prior approval of
Owner.
ARTICLE 12
TENANT'S INITIAL INSTALLATION AND OWNER'S WORK CONTRIBUTION
SECTION 12.01. "AS IS": Tenant acknowledges that Owner has made no
representations to Tenant with respect to the condition of the Demised Premises
and Tenant agrees to accept possession of the Demised Premises in the condition
which shall exist on the Commencement Date "as is" and further agrees that Owner
shall have no obligation to perform any work or make any installations in order
to prepare the Demised Premises for Tenant's occupancy.
SECTION 12.02. TENANT'S INITIAL INSTALLATION. A. Promptly after the
Commencement Date, Tenant shall, at Tenant's cost and expense, perform various
Alterations in the Demised Premises required for Tenant's occupancy and use of
the Demised Premises and conduct of its business therein. Such Alterations
(referred to as "Tenant's Initial Installation") shall be made and performed in
accordance with the provisions of this Lease, including, without limitation, the
provisions of Articles 3 and 6 hereof. Tenant shall prosecute Tenant's Initial
Installation to completion with all reasonable diligence.
SECTION 12.03. OWNER'S CONTRIBUTION. A. Subject to the provisions and
requirements of this Article 12, and provided that Tenant is not then in default
under any of the terms, covenants or conditions of this Lease on the part of
Tenant to be observed or performed, Owner shall contribute the sum of not more
than ONE
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HUNDRED EIGHTY-THREE THOUSAND SEVEN HUNDRED FIFTY AND 00/100 ($183,750.00)
DOLLARS in the aggregate toward the cost and expense actually incurred by
Tenant with respect to Tenant's Initial Installation including the cost of all
architectural, engineering and designers fees and, if there is any portion of
such sum remaining thereafter, for the purchase of furniture, fixtures and
telephone equipment incurred by Tenant in connection therewith. Owner's
contribution on account of Tenant's Initial Installation is referred to as
"Owner's Work Contribution". Irrespective of the actual cost and expense of
Tenant's Initial Installation, in no event shall Owner's Work Contribution
exceed the aggregate sum of ONE HUNDRED EIGHTY-THREE THOUSAND SEVEN HUNDRED
FIFTY AND 00/100 ($183,750.00) DOLLARS.
B. (1) Subject to the provisions of the following Paragraph (2) of this
Subsection B, and provided that Tenant is not then in default under any of the
terms, covenants or conditions of this Lease on Tenant's part to be observed and
performed after notice and the expiration of applicable cure periods, Owner
shall distribute Owner's Work Contribution on account of Tenant's Initial
Installation as the work with respect thereto progresses, upon Tenant's
submission to Owner of (i) vouchers or bills, in form reasonably acceptable to
Owner, for the cost and expense of Tenant's Initial Installation, and (ii)
partial waivers of mechanic's liens from all contractors, subcontractors,
materialmen and laborers who performed any services or delivered any materials
in connection with Tenant's Initial Installation and which services or materials
were the subject of the previous month's distribution by Owner to Tenant of
Owner's Work Contribution, provided however, that at no time shall Owner be
required to pay more than the value of the work in place, and provided further
that any such work shall comply with any plans and specifications previously
approved by Owner and shall otherwise comply with the requirements of this Lease
and Tenant's request for distribution shall be accompanied by a certification of
Tenant's architect or designer to that effect. Distributions of Owner's Work
Contribution shall be made not more than monthly.
(2) Notwithstanding the aforesaid, Owner shall not be required to
disburse the last fifteen (15%) percent of Owner's Work Contribution until
occurrence of all of the following: (i) completion of Tenant's Initial
Installation in accordance with the plans and specifications approved by Owner
and otherwise in accordance with the provisions of this Lease and a
certification by Tenant's architect or designer to that effect, (ii) proof in
form reasonably satisfactory to Owner of complete payment by Tenant of the cost
and expense of such Tenant's Initial Installation (including receipt of waivers
of mechanics liens from all contractors, subcontractors, materialmen and
laborers who performed any services or delivered any materials in connection
with such Tenant's Initial Installation; (upon request Tenant shall furnish the
Owner such documentation as Owner shall reasonably request to confirm such
complete payment), and (iii) proof that all consents, approvals or signoffs to
be obtained by Tenant under any Legal Requirements or as required by any
Governmental Authority have been obtained; upon compliance of the aforesaid,
then, provided that Tenant is not then in default under any of the terms,
covenants or conditions of this Lease on the part of Tenant to be observed or
performed, the balance of Owner's Work Contribution shall thereafter be
distributed to Tenant in accordance with provisions of this Section 12.03.
C. The making of the Owner's Work Contribution by Owner shall
constitute a single nonrecurring obligation on the part of Owner. In the event
this Lease is renewed or extended for a further term by agreement or operation
of law, Owner's obligation to give Owner's Work Contribution or any part thereof
shall not apply to any such renewal or extension.
D. Tenant acknowledges and agrees that Owner is merely acting on behalf of
Tenant in connection with the disbursement of the Owner's Work Contribution in
accordance with the provisions of this Section 12.03 to the contractors,
suppliers and materialmen employed in connection with Tenant's Initial
Installation, and that Owner shall have no obligation, liability or
responsibility to any of the contractors, suppliers or materialmen seeking any
of the Owner's Work Contribution pursuant to any of the aforesaid contracts or
agreements with such contractors, suppliers or materialmen or otherwise,
provided that Owner shall be obligated to disburse such Owner's Work
Contribution only as expressly provided by the provisions of this Section
12.03. Nothing contained in this Section 12.03 shall relieve Tenant of any
obligations or liabilities to such contractors, suppliers
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or materialmen under such contracts, agreements or otherwise. Nothing contained
in this Article 12 shall relieve any obligations of Tenant under Section 3.02.
or 3.03. of this Lease. Tenant shall indemnify Owner and Owner's Indemnitees
from all loss, cost, liability and expense, including but not limited to
reasonable counsel fees, incurred in connection with, or arising from, any
claims or actions by any contractors, suppliers or materialmen employed in
connection with Tenant's Initial Installation.
ARTICLE 13
ACCESS TO DEMISED PREMISES
SECTION 13.01. OWNER'S RIGHT TO ENTER: Owner and its agents shall have the
following rights in and about the Demised Premises: (i) to enter the Demised
Premises at all times to examine the Demised Premises or for any of the purposes
set forth in this Article or for the purpose of performing any obligation of
Owner under this Lease or exercising any right or remedy reserved to Owner in
this Lease, or complying with any Legal Requirement which Owner is obligated to
comply with hereunder, and if Tenant, its officers, partners, agents or
employees shall not be personally present or shall not open and permit any entry
into the Demised Premises at any time when such entry shall be necessary or
permissible, to use a master key or to forcibly enter the Demised Premises; (ii)
to erect, install, use and maintain pipes, ducts and conduits in and through the
Demised Premises; (iii) to exhibit the Demised Premises to others; (iv) to make
such decorations, repairs, alterations, improvements or additions, or to perform
such maintenance, including, but not limited to, the maintenance of all heating,
air conditioning, ventilating, elevator, plumbing, electrical, telecommunication
and other mechanical facilities, as Owner may deem necessary or desirable; (v)
to take all materials into and upon the Demised Premises that may be required in
connection with any such decorations, repairs, alterations, improvements,
additions or maintenance; and (vi) to alter, renovate and decorate the Demised
Premises at any time during the Demised Term if Tenant shall have removed all or
substantially all of Tenant's property from the Demised Premises. The lessors
under any Superior Lease and the holders of any Mortgage shall have the right to
enter the Demised Premises from time to time through their respective employees,
agents, representatives and architects to inspect the same or to cure any
default of Owner or Tenant relating thereto. Owner shall have the right, from
time to time, to change the name, number or designation by which the Building is
commonly known which right shall include, without limitation, the right to name
the Building after any tenant of the Building.
SECTION 13.02. OWNER'S RESERVATION OF RIGHTS TO PORTIONS OF THE BUILDING:
All parts (except surfaces facing the interior of the Demised Premises) of all
walls, windows and doors bounding the Demised Premises (including exterior
Building walls, core corridor walls, doors and entrances), all balconies,
terraces and roofs adjacent to the Demised Premises, all space in or adjacent to
the Demised Premises used for shafts, stacks, stairways, chutes, pipes,
conduits, ducts, fan rooms, heating, air conditioning, ventilating, plumbing,
electrical, telecommunication and other mechanical facilities, closets, service
closets and other Building facilities, and the use thereof, as well as access
thereto through the Demised Premises for the purposes of operation, maintenance,
alteration and repair, are hereby reserved to Owner. Owner also reserves the
right at any time to change the arrangement or location of entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets and other
public parts of the Building, provided any such change does not permanently and
unreasonably obstruct Tenant's access to the Demised Premises. Nothing contained
in this Article shall (i) impose any obligation upon Owner with respect to the
operation, maintenance, alteration or repair of the Demised Premises or the
Building or (ii) permit Owner to reduce the Building services provided to the
Demised Premises.
SECTION 13.03. ACCESS TO THIRD PARTIES: Owner and its agents shall have
the right to permit access to the Demised Premises, whether or not Tenant shall
be present, to any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal or court officer entitled to, or reasonably purporting to be
entitled to, such access for the purpose of taking possession of, or removing,
any property of Tenant or any other occupant of the Demised Premises, or for
any other lawful purpose, or by any representative of the fire, police,
building, sanitation
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or other department of the City, State or Federal Governments. Neither anything
contained in this Section, nor any action taken by Owner under this Section,
shall be deemed to constitute recognition by Owner that any person other than
Tenant has any right or interest in this Lease or the Demised Premises.
SECTION 13.04. NO ACTUAL OR CONSTRUCTIVE EVICTION: The exercise by Owner
or its agents or by the lessor under any Superior Lease or by the holder of any
Mortgage of any right reserved to Owner in this Article shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Owner, or its agents, or upon
any lessor under any Superior Lease or upon the holder of any Mortgage, by
reason of inconvenience or annoyance to Tenant, or injury to or interruption of
Tenant's business, or otherwise.
SECTION 13.05. Supplementing the provisions of Sections 13.01, 13.02 and
13.03, Owner agrees that except in cases of emergency, any entry upon the
Demised Premises pursuant to the provisions of said Sections shall be made at
reasonable times, and only after reasonable advance notice (which may be mailed,
delivered or left at the Demised Premises, notwithstanding any contrary
provisions of Article 27), and any work performed or installation made pursuant
to said Section shall be made with reasonable diligence and any such entry, work
or installations shall be made in a manner designed to minimize interference
with Tenant's normal business operations (however, nothing contained in this
Section shall be deemed to impose upon Owner any obligation to employ
contractors or labor at so-called overtime or other premium pay rates).
SECTION 13.06. Further supplementing the provisions of Sections 13.01
and 13.03. Owner's right to exhibit the Demised Premises to others shall be
limited to insurance carriers and representatives thereof, prospective
purchasers of the Real Property or the Building, holders or prospective holders
of any mortgage affecting the Real Property or the Building or any ground or
underlying lease, and other legitimate business visitors, and, during the last
eighteen (18) months of the Demised Term, any prospective tenant of the Demised
Premises.
SECTION 13.07. Further supplementing the provisions of Section 13.01,
Owner agrees that any pipes, ducts or conduits installed in or through the
Demised Premises during the Demised Term pursuant to the provisions of Section
13.01, shall either be concealed behind, beneath or within partitioning,
columns, ceilings or floors, or completely furred at points immediately
adjacent to partitioning, columns or ceilings, and that when the installation
of such pipes, ducts or conduits shall be completed, such pipes, ducts or
conduits shall not materially reduce the usable area of the Demised Premises.
SECTION 13.08. In the event that all or part of the Demised Premises are
rendered untenantable by reason of interruption or reduction of services,
Tenant may give to Owner written notice thereof. Owner agrees that if after the
expiration of twenty (20) consecutive business days following receipt of such
notice, in which the Demised Premises are so untenantable as hereinabove
provided the Demised Premises or the applicable portion thereof shall continue
to be untenantable by reason of such interruption or reduction of services,
(but excluding any interruption caused by, or repair necessitated by, a
casualty, a taking by exercise of the right of eminent domain or the wrongful
acts, wrongful omissions or negligence of Tenant or anyone claiming by, through
or under Tenant, or their respective employees, agents, contractors or
invitees), then, commencing on the day after the expiration of such consecutive
twenty (20) day period, in which the Demised Premises are so untenantable as
hereinabove provided, Fixed Rent under Article 1 and increases thereof under
Article 23 shall abate until the Demised Premises, or such portion thereof as
has been rendered untenantable, are rendered tenantable, provided, (i) Tenant
shall not have been using or occupying all or such portion of the Demised
Premises for the conduct of its business; and (ii) if less than substantially
all of the Demised Premises are untenantable, Tenant shall continue to pay
Fixed Rent under Article 1 and increases thereof under Article 23 with respect
to the tenantable portion of the Demised Premises which is satisfactory for the
conduct of Tenant's normal business based on the proportion that the rentable
square feet of the tenantable portion of the Demised Premises bears to the
total rentable square feet of the Demised Premises.
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ARTICLE 14
VAULT SPACE
SECTION 14.01. The Demised Premises do not contain any vaults,
vault space or other space outside the boundaries of the Real Property,
notwithstanding anything contained in this Lease or indicated on any sketch,
blueprint or plan. Owner makes no representation as to the location of the
boundaries of the Real Property. All vaults and vault space and all other space
outside the boundaries of the Real Property which Tenant may be permitted to
use or occupy are to be used or occupied under a revocable license, and if any
such license shall be revoked, or if the amount of such space shall be
diminished or required by any Federal, State or Municipal Authority or by any
public utility company, such revocation, diminution or requisition shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of rent, or relieve Tenant from any of
its obligations under this Lease, or impose any liability upon Owner. Any fee,
tax or charge imposed by any governmental authority for any such vault, vault
space or other space shall be paid by Tenant.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.01. Tenant will not at any time use or occupy, or permit
the use or occupancy of, the Demised Premises in violation of any Certificate(s)
of Occupancy covering the Demised Premises. Owner agrees that a temporary or
permanent Certificate(s) of Occupancy covering the Demised Premises will be in
force on the Commencement Date permitting the Demised Premises to be used as
"offices". However, neither such agreement, nor any other provision of this
Lease, nor any act or omission of Owner, its agents or contractors, shall be
deemed to constitute a representation or warranty that the Demised Premises, or
any part thereof, may be lawfully used or occupied for any particular purpose or
in any particular manner, in contradistinction to mere "office" use. A true copy
of the existing Certificate of Occupancy is annexed hereto as Exhibit 3.
ARTICLE 16
DEFAULT
SECTION 16.01. EVENT OF DEFAULT: Upon the occurrence, at any time
prior to or during the Demised Term, of any one or more of the following events
(referred to herein, singly, as an "Event of Default" and collectively as
"Events of Default"):
(a) if Tenant shall default in the payment when due of any
installment of Fixed Rent or any increase in the Fixed Rent or in
the payment when due of any additional rent and such default shall
continue for a period of ten (10) days after notice by Owner to
Tenant of such default; or
(b) if Tenant shall default in the observance or performance of
any term, covenant or condition of this Lease on Tenant's part to be
observed or performed (other than the covenants for the payment of
Fixed Rent, any increase in the Fixed Rent and additional rent) and
Tenant shall fail to remedy such default within thirty (30) days after
notice by Owner to Tenant of such default, or if such default is of
such a nature that it cannot be completely remedied within said period
of thirty (30) days and Tenant shall not commence, promptly after
receipt of such notice, or shall not thereafter diligently prosecute
to completion, all steps necessary to remedy such default; or
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(c) if Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file
any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
the present or any future federal bankruptcy act or any other present or
future applicable federal, state or other statute or law, or shall make an
assignment for the benefit of creditors, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of
Tenant or of all or any part of Tenant's property; or
(d) if, within ninety (90) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or
otherwise, seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the present
or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law, such proceeding shall
not have been dismissed, or if, within thirty (30) days after the
appointment of any trustee, receiver or liquidator of Tenant, or of all or
any part of Tenant's property, without the consent or acquiescence of
Tenant, such appointment shall not have been vacated or otherwise
discharged, or if any execution or attachment shall be issued against
Tenant or any of Tenant's property pursuant to which the Demised Premises
shall be taken or occupied or attempted to be taken or occupied; or
(e) if Tenant shall default in the observance or performance of any
term, covenant or condition on Tenant's part to be observed or performed
under any other lease with Owner of space in the Building and such default
shall continue beyond any grace period set forth in such other lease for
the remedying of such default; or
(f) if the Demised Premises shall become deserted or abandoned for a
period of ninety (90) consecutive days or more; or
(g) if (i) Tenant's interest in this Lease shall devolve upon or pass
to any person, whether by operation of law or otherwise, or (ii) there
shall be any sale, pledge, transfer or other alienation described in
Section 11.01 of this Lease which is deemed an assignment of this Lease for
purposes of said Section 11.01, except as expressly permitted under Article
11;
then, during such time as such Event(s) of Default is/are continuing, Owner may
at any time, at Owner's option, give to Tenant a five (5) days' notice of
termination of this Lease and, in the event such notice is given, this Lease
and the Demised Term shall come to an end and expire (whether or not said term
shall have commenced) upon the expiration of said five (5) days with the same
effect as if the date of expiration of said five (5) days were the Expiration
Date, but Tenant shall remain liable for damages and all other sums payable
pursuant to the provisions of Article 18.
SECTION 16.02. "TENANT"/MONEYS RECEIVED: If, at any time (i) Tenant
shall be comprised of two (2) or more persons, or (ii) Tenant's obligations
under this Lease shall have been guaranteed by any person other than Tenant, or
(iii) Tenant's interest in this Lease shall have been assigned, the word
"Tenant", as used in Subsections (c) and (d) of Section 16.01, shall be deemed
to mean any one or more of the persons primarily or secondarily liable for
Tenant's obligations under this Lease. Any monies received by Owner from or on
behalf of Tenant during the pendency of any proceeding of the types referred to
in said Subsections (c) and (d) shall be deemed paid as compensation for the
use and occupation of the Demised Premises and the acceptance of any such
compensation by Owner shall not be deemed an acceptance of rent or a waiver on
the part of Owner of any rights under Section 16.01.
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ARTICLE 17
REMEDIES
SECTION 17.01. OWNER'S RIGHT OF RE-ENTRY AND RIGHT TO RELET: If Tenant
shall default in the payment when due of any installment of Fixed Rent or in the
payment when due of any increase in the Fixed Rent or any additional rent, after
notice and the expiration of applicable cure periods or if this Lease and the
Demised Term shall expire and come to an end as provided in Article 16:
(a) Owner and its agents and servants may immediately, or at any
time after such default or after the date upon which this Lease and
the Demised Term shall expire and come to an end, re-enter the Demised
Premises or any part thereof, after notice, either by summary
proceedings or by any other applicable action or proceeding, or
otherwise which is specifically permitted by law (without being liable
to indictment, prosecution or damages therefor), and may repossess the
Demised Premises and dispossess Tenant and any other persons from the
Demised Premises and remove any and all of their property and effects
from the Demised Premises; and
(b) Owner, at Owner's option, may relet the whole or any part or
parts of the Demised Premises, from time to time, either in the name
of Owner or otherwise, to such tenant or tenants, for such term or
terms ending before, on or after the Expiration Date, at such rental
or rentals and upon such other conditions, which may include
concessions and free rent periods, as Owner, in its sole discretion,
may determine. Owner shall have no obligation to relet the Demised
Premises or any part thereof and shall in no event be liable for
refusal or failure to relet the Demised Premises or any part thereof,
or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or
failure shall operate to relieve Tenant of any liability under this
Lease or otherwise to affect any such liability; Owner, at Owner's
option, may make such repairs, replacements, alterations, additions,
improvements, decorations and other physical changes in and to the
Demised Premises as Owner, in its sole discretion, considers advisable
or necessary in connection with any such reletting or proposed
reletting, without relieving Tenant of any liability under this Lease
or otherwise affecting any such liability.
SECTION 17.02. WAIVER OF RIGHT TO REDEEM, ETC.: Tenant hereby waives
the service of any notice of intention to re-enter or to institute legal
proceedings to that end which may otherwise be required to be given under any
present or future law. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does further hereby
waive any and all rights which Tenant and all such persons might otherwise have
under any present or future law to redeem the Demised Premises, or to re-enter
or repossess the Demised Premises, or to restore the operation of this Lease,
after (i) Tenant shall have been dispossessed by a judgment or by warrant of any
court or judge, or (ii) any re-entry by Owner, or (iii) any expiration or
termination of this Lease and the Demised Term, whether such dispossess,
re-entry, expiration or termination shall be by operation of law or pursuant to
the provisions of this Lease. The words "re-enter", "re-entry" and "re-entered"
as used in this Lease shall not be deemed to be restricted to their technical
legal meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease on Tenant's part to be observed or performed, Owner shall have the
right to enjoin such breach and the right to invoke any other remedy allowed by
law or in equity as if re-entry, summary proceedings and other special remedies
were not provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth in this Lease is cumulative and shall not
preclude Owner from invoking any other remedy allowed by law or in equity.
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SECTION 17.03. Owner agrees that the first sentence of Section 17.02 shall
not be deemed a waiver of Tenant's right to be served with any notice of
petition and petition in any summary proceedings under the provisions of the
Real Property Actions and Proceedings Law of the State of New York and of any
successor law of like import then in force.
SECTION 17.04. The right of Tenant to invoke remedies set forth in this
Lease is cumulative and shall not preclude Tenant from invoking any other
remedy allowed by law or in equity, unless otherwise specifically provided in
this Lease.
ARTICLE 18
DAMAGES
SECTION 18.01. AMOUNT OF OWNER'S DAMAGES: If this Lease and the Demised
Term shall expire and come to an end as provided in Article 16, or by or under
any summary proceeding or any other action or proceeding, or if Owner shall
re-enter the Demised Premises as provided in Article 17, or by or under any
summary proceeding or any other action or proceeding, then, in any of said
events:
(a) Tenant shall pay to Owner all Fixed Rent, additional rent and
other charges payable under this Lease by Tenant to Owner to the date upon
which this Lease and the Demised Term shall have expired and come to an end
or to the date of re-entry upon the Demised Premises by Owner, as the case
may be; and
(b) Tenant shall also be liable for and shall pay to Owner, as
damages, any deficiency (referred to as a "Deficiency") between the Fixed
Rent reserved in this Lease for the period which otherwise would have
constituted the unexpired portion of the Demised Term and the net amount,
if any, of rents collected under any reletting effected pursuant to the
provisions of Section 17.01 for any part of such period (first deducting
from the rents collected under any such reletting all of Owner's expenses
in connection with the termination of this Lease or Owner's re-entry upon
the Demised Premises and with such reletting including, but not limited to,
all repossession costs, brokerage commissions, legal expenses, attorneys'
fees, alteration costs and other expenses of preparing the Demised Premises
for such reletting). Any such Deficiency shall be paid in monthly
installments by Tenant on the days specified in this Lease for payment of
installments of Fixed Rent, Owner shall be entitled to recover from Tenant
each monthly Deficiency as the same shall arise, and no suit to collect the
amount of the Deficiency for any month shall prejudice Owner's right to
collect the Deficiency for any subsequent month by a similar proceeding.
Solely for the purposes of this Subsection (b), the term "Fixed Rent" shall
mean the Fixed Rent in effect immediately prior to the date upon which this
Lease and the Demised Term shall have expired and come to an end, or the
date of re-entry upon the Demised Premises by Owner, as the case may be,
adjusted, from time to time, to reflect any increases which would have been
payable pursuant to any of the provisions of this Lease including, but not
limited to, the provisions of Article 23 of this Lease if the term hereof
had not been terminated; and
(c) At any time after the Demised Term shall have expired and come to
an end or Owner shall have re-entered upon the Demised Premises, as the
case may be, whether or not Owner shall have collected any monthly
Deficiencies as aforesaid, Owner shall be entitled to recover from Tenant,
and Tenant shall pay to Owner, on demand, as and for liquidated and agreed
final damages, a sum equal to the amount by which the Fixed Rent reserved
in this Lease for the period which otherwise would have constituted the
unexpired portion of the Demised Term exceeds the then fair and reasonable
rental value of the Demised Premises for the same period,
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both discounted to present worth at the rate of seven and one-half (7 1/2%)
percent per annum. If, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the Demised Premises, or any
part thereof, shall have been relet by Owner for the period which otherwise
would have constituted the unexpired portion of the Demised Term, or any
part thereof, the amount of rent reserved upon such reletting shall be
deemed, prima facie, to be the fair and reasonable rental value for the
part or the whole of the Demised Premises so relet during the term of the
reletting. Solely for the purposes of this Subsection (c), the term "Fixed
Rent" shall mean the Fixed Rent in effect immediately prior to the date
upon which this Lease and the Demised Term shall have expired and come to
an end, or the date of re-entry upon the Demised Premises by Owner, as the
case may be, adjusted to reflect any increases pursuant to the provisions
of Article 23 for the Escalation Year and Tax Escalation Year immediately
preceding such event.
SECTION 18.02. RENTS UNDER RELETTING: If the Demised Premises, or any
part thereof, shall be relet together with other space in the Building, the
rents collected or reserved under any such reletting and the expenses of any
such reletting shall be equitably apportioned for the purposes of this Article
18. Tenant shall in no event be entitled to any rents collected or payable
under any reletting, whether or not such rents shall exceed the Fixed Rent
reserved in this Lease. Nothing contained in Articles 16, 17 or this Article
shall be deemed to limit or preclude the recovery by Owner from Tenant of the
maximum amount allowed to be obtained as damages by any statute or rule of law,
or of any sums or damages to which Owner may be entitled in addition to the
damages set forth in Section 18.01.
ARTICLE 19
FEES AND EXPENSES; INDEMNITY
SECTION 19.01. OWNER'S RIGHT TO CURE TENANT'S DEFAULT: If Tenant shall
default in the observance or performance of any term, covenant or condition of
this Lease on Tenant's part to be observed or performed after notice and the
expiration of applicable cure periods, Owner, at any time thereafter and
without notice in cases of emergency and in other cases after the expiration of
thirty (30) days after notice by Owner to Tenant thereof, may remedy such
default for Tenant's account and at Tenant's expense, without thereby waiving
any other rights or remedies of Owner with respect to such default.
SECTION 19.02. TENANT'S INDEMNITY AND LIABILITY INSURANCE OBLIGATIONS: A.
Tenant agrees to indemnify and save Owner and "Owner's Indemnitees" (as
hereinafter defined) harmless of and from all loss, cost, liability, damage and
expense including, but not limited to, reasonable counsel fees, penalties and
fines, incurred in connection with or arising from (i) any default by Tenant in
the observance or performance of any of the terms, covenants or conditions of
this Lease on Tenant's part to be observed or performed, or (ii) the breach or
failure of any representation or warranty made by Tenant in this Lease, or
(iii) the use or occupancy or manner of use or occupancy of the Demised
Premises by Tenant or any person claiming through or under Tenant, or (iv) any
improper acts, improper omissions or negligence of Tenant or any such person,
or the contractors, agents, servants, employees, visitors or licensees of
Tenant or any such person, in or about the Demised Premises or the Building
either prior to, during, or after the expiration of, the Demised Term,
including, but not limited to, any improper acts, improper omissions or
negligence in the making or performing of any Alterations. Tenant further
agrees to indemnify and save harmless Owner and Owner's Indemnitees of and from
all loss, cost, liability, damage and expense, including, but not limited to,
reasonable counsel fees and disbursements incurred in connection with or
arising from any claims by any persons by reason of injury to persons or damage
to property occasioned by any use, occupancy, act, omission or negligence
referred to in the preceding sentence, except with respect to the performance
of the Core Work by Owner or its agents. "Owner's Indemnitees" shall mean the
Owner, the shareholders or the partners comprising Owner and its and their
partners and shareholders, officers, directors, employees, agents (including
without limitation, any leasing and managing agents) and contractors together
with the
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lessor under any Superior Lease and the holder of any Mortgage. If any action or
proceeding shall be brought against Owner or Owner's Indemnitees based upon any
such claim and if Tenant, upon notice from Owner, shall cause such action or
proceeding to be defended at Tenant's expense by counsel acting for Tenant's
insurance carriers in connection with such defense or by other counsel
reasonably satisfactory to Owner, without any disclaimer of liability by Tenant
or such insurance carriers in connection with such claim, Tenant shall not be
required to indemnify Owner and Owner's Indemnitees for counsel fees in
connection with such action or proceeding.
B. Throughout the Demised Term Tenant shall maintain
comprehensive public liability and water legal liability insurance against any
claims by reason of personal injury, death and property damage occurring in or
about the Demised Premises covering, without limitation, the operation of any
private air conditioning equipment and any private elevators, escalators or
conveyors in or serving the Demised Premises or any part thereof, whether
installed by Owner, Tenant or others, and shall furnish to Owner duplicate
original policies of such insurance at least ten (10) days prior to the
Commencement Date and at least ten (10) days prior to the expiration of the term
of any such policy previously furnished by Tenant, in which policies Owner, and
Owner's Indemnitees shall be named as parties insured, which policies shall be
issued by companies, and shall be in form and amounts, satisfactory to Owner.
SECTION 19.03. PAYMENTS: Tenant shall pay to Owner, within fifteen
(15) days next following rendition by Owner to Tenant of bills or statements
therefor: (i) sums equal to all expenditures made and monetary obligations
incurred by Owner including, but not limited to, expenditures made and
obligations incurred for reasonable counsel fees and disbursements, in
connection with the remedying by Owner, for Tenant's account pursuant to the
provisions of Section 19.01, of any default of Tenant, and (ii) sums equal to
all losses, costs, liabilities, damages and expenses referred to in Section
19.02, and (iii) sums equal to all expenditures made and monetary obligations
incurred by Owner including, but not limited to, expenditures made and
obligations incurred for reasonable counsel fees and disbursements, in
collecting or attempting to collect the Fixed Rent, any additional rent or any
other sum of money accruing under this Lease or in enforcing or attempting to
enforce any rights of Owner under this Lease or pursuant to law, whether by the
institution and prosecution of summary proceedings or otherwise; and (iv) all
other sums of money (other than Fixed Rent) accruing from Tenant to Owner under
the provisions of this Lease. Any sum of money (other than Fixed Rent) accruing
from Tenant to Owner pursuant to any provision of this Lease whether prior to or
after the Commencement Date, may, at Owner's option, be deemed additional rent,
and Owner shall have the same remedies for Tenant's failure to pay any item of
additional rent when due as for Tenant's failure to pay any installment of Fixed
Rent when due. Tenant's obligations under this Article shall survive the
expiration or sooner termination of the Demised Term. The foregoing shall not
apply to the performance of the Core Work by Owner or the payment by Owner of
legal fees to counsel for Owner with respect to the preparation and negotiation
of this Lease.
SECTION 19.04. TENANT'S LATE PAYMENTS--LATE CHARGES: If Tenant shall fail
to make payment of any installment of Fixed Rent or any increase in the Fixed
Rent or any additional rent within ten (10) days after the date when such
payment is due including applicable grace periods, Tenant shall pay to Owner, in
addition to such installment of Fixed Rent or such increase in the Fixed Rent
or such additional rent, as the case may be, as a late charge and as additional
rent, a sum equal to two (2%) percent per annum above the then current prime
rate (as the term "prime rate" is defined in Section 31.03) charged by Chemical
Bank or its successor of the amount unpaid computed from the date such payment
was due to and including the date of payment.
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ARTICLE 20
ENTIRE AGREEMENT
SECTION 20.01. ENTIRE AGREEMENT: This Lease contains the entire
agreement between the parties and all prior negotiations and agreements are
merged in this Lease. Neither Owner nor Owner's agents have made any
representations or warranties with respect to the Demised Premises, the
Building, the Real Property or this Lease except as expressly set forth in this
Lease and no rights, easements or licenses are or shall be acquired by Tenant
by implication or otherwise unless expressly set forth in this Lease. This
Lease may not be changed, modified or discharged, in whole or in part, orally
and no executory agreement shall be effective to change, modify or discharge,
in whole or in part, this Lease or any provisions of this Lease, unless such
agreement is set forth in a written instrument executed by the party against
whom enforcement of the change, modification or discharge is sought. All
references in this Lease to the consent or approval of Owner shall be deemed to
mean the written consent of Owner, or the written approval of Owner, as the
case may be, and no consent or approval of Owner shall be effective for any
purpose unless such consent or approval is set forth in a written instrument
executed by Owner.
ARTICLE 21
END OF TERM
SECTION 21.01. END OF TERM: On the date upon which the Demised Term
shall expire and come to an end, whether pursuant to any of the provisions of
this Lease or by operation of law, and whether on or prior to the Expiration
Date, Tenant, at Tenant's sole cost and expense, (i) shall quit and surrender
the Demised Premises to Owner, broom clean and in good order and condition,
ordinary wear excepted, and (ii) shall remove all of Tenant's Personal Property
and all other property and effects of Tenant and all persons claiming through or
under Tenant (including, but not limited to, all telecommunications (facilities)
from the Demised Premises and the Building, and (iii) shall repair all damage to
the Demised Premises and the Building occasioned by such removal and (iv) shall,
at Owner's election, exercisable within six (6) months following the expiration
or earlier termination of the Demised Term, remove any private interior
staircases in the Demised Premises or connecting the Demised Premises or any
part thereof with any other space (referred to herein as the "Other Space") in
the Building occupied by Tenant, and restore those portions of the Demised
Premises, the Other Space and the Building affected by any such staircases
(including, but not limited to, the slabbing over of any openings) to the
condition of each which existed prior to the installation of any such
staircases, and repair any damage to the Demised Premises, Other Space and the
Building occasioned by such removal. Notwithstanding the provisions of
subdivision (iv) of the foregoing sentence, in the event Owner does not elect to
have removed any such staircase referred to therein, any such staircase shall be
and remain the property of Owner at no cost or expense to Owner. Owner shall
have the right to retain any property and effects which shall remain in the
Demised Premises after the expiration or sooner termination of the Demised Term,
and any net proceeds from the sale thereof, without waiving Owner's rights with
respect to any default by Tenant under the foregoing provisions of this Section.
Tenant expressly waives, for itself and for any person claiming through or under
Tenant, any rights which Tenant or any such person may have under the provisions
of Section 2201 of the New York Civil Practice Law and Rules and of any
successor law of like import then in force, in connection with any holdover
summary proceedings which Owner may institute to enforce the foregoing
provisions of this Article. If said date upon which the Demised Term shall
expire and come to an end shall fall on a Sunday or holiday, then Tenant's
obligations under the first sentence of this Section shall be performed on or
prior to the Saturday or business day immediately preceding such Sunday or
holiday. Tenant's obligations under this Section shall survive the expiration or
sooner termination of the Demised Term.
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ARTICLE 22
QUIET ENJOYMENT
SECTION 22.01. QUIET ENJOYMENT: Owner covenants and agrees with Tenant
that upon Tenant paying the Fixed Rent and additional rent reserved in this
Lease and observing and performing all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Demised Premises during the Demised Term, subject,
however, to the terms, covenants and conditions of this Lease including, but not
limited to, the provisions of Section 37.01, and subject to the Superior Lease
and the Mortgage referred to in Section 7.01.
ARTICLE 23
TAX PAYMENTS AND OPERATING ESCALATION
SECTION 23.01. DEFINITIONS: In the determination of any increase in
the Fixed Rent under the provisions of this Article, Owner and Tenant agree that
the following terms shall have the following meanings:
A. The term "Tax Escalation Year" shall mean each fiscal
year commencing July 1st and ending on the following June 30th which shall
include any part of the Demised Term.
B. The term "Escalation Year" shall mean each calendar year
which shall include any part of the Demised Term.
C. The term "Taxes" shall be deemed to mean a sum equal to
the aggregate of: (i) the product determined by multiplying (a) the then
applicable full New York City real estate tax rate in effect with respect to the
Borough of Manhattan by (b) the then applicable assessed valuation of the Real
Property plus (ii) amounts assessed by any business improvement district in
which the Real Property is located plus (iii) any other assessments, special or
otherwise, upon or with respect to the Real Property imposed by the City or
County of New York or any other taxing authority. If, due to any change in the
method of taxation, any franchise, income, profit, sales, rental, use and
occupancy or other tax or payments in lieu of any such taxes shall be
substituted for, or levied against Owner or any owner of the Building or the
Real Property, in lieu of any real estate taxes or assessments upon or with
respect to the Real Property, such tax or payments in lieu of any such taxes
shall be included in the term Taxes for the purposes of this Article.
D. The term "Demised Premises Area" shall mean 5,250 square
feet.
E. The term "Building Area" shall mean 398,537 square feet.
F. The term "Tenant's Proportionate Share" shall mean the
fraction, the denominator of which is the Building Area and the numerator of
which is the Demised Premises Area.
G. (1) The term "Operating Expenses" shall, subject to the
provisions of Paragraph (2) of this Subsection 23.01.G, mean the aggregate cost
and expense actually incurred by Owner in the operation, maintenance, management
and security of the Real Property and any plazas, sidewalks and curbs adjacent
thereto including, without limitation, the cost and expense of the following:
(a) salaries, wages, medical, surgical and general welfare
and other so-called "fringe" benefits (including group insurance and retirement
benefits) for employees (including, but not limited to, employees who provide
twenty four (24) hour services,
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seven (7) days per week throughout the year) of Owner or any contractor of
Owner engaged in the cleaning, operation, maintenance or management of the Real
Property, or engaged for security purposes and/or for receiving or transmitting
deliveries to and from the Building, and payroll taxes and workmen's
compensation insurance premiums relating thereto,
(b) gas, steam, water and sewer rental,
(c) thirty five (35%) percent of all electrical costs
incurred in the operation of the Building, provided, however, in the event that
Owner discontinues the redistribution or furnishing of electrical energy to the
tenants and occupants of the Building, then the cost and expense incurred by
Owner for electricity shall thereafter be deemed to be one hundred (100%)
percent of (i) the total cost and expense to Owner of purchasing electricity
for the Building less (ii) any reimbursement to Owner by the tenants in the
Building for the payment for the Floor HVAC Units and the Floor Public Light
and Power (as said terms are defined in Section 29.05).
(d) utility taxes,
(e) rubbish removal,
(f) fire, casualty, liability, rent and other insurance
carried by Owner,
(g) repairs, repainting, replacement, maintenance of
grounds, and Included Improvements (as provided in Paragraph (2) of this
Subsection 23.01.G),
(h) Building supplies,
(i) uniforms and cleaning thereof,
(j) snow removal,
(k) window cleaning,
(l) service contracts with independent contractors for any
of the foregoing (including, but not limited to, elevator, heating, air
conditioning, ventilation, sprinkler system, fire alarm and telecommunication
equipment maintenance),
(m) management fees (whether or not paid to any person,
firm or corporation having an interest in or under common ownership with Owner
or any of the persons, firms or corporations comprising Owner) in the amount of
one ($1.00) dollar per rentable square foot of the Building Area in the first
Escalation Year which amount for management fees shall increase in each
Escalation Year subsequent to the first Escalation Year by the same percentage
of increase as the percentage of increase in the aggregate of all other
Operating Expenses,
(n) reasonable legal fees and disbursements and other
reasonable expenses (excluding, however, legal fees and expenses incurred in
connection with any application or proceeding brought for reduction of the
assessed valuation of the Real Property or any part thereof or legal fees and
expenses incurred in Landlord/Tenant matters),
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(o) auditing fees,
(p) deleted prior to execution,
(q) all costs of compliance under the provisions of any present or
future Superior Lease other than the payment of rental and impositions
thereunder and increases in the basic rent under such leases as a result of
adjustments in such basic rent, and
(r) all other costs and expenses incurred in connection with the
operation, maintenance, and security of the Real Property, and any plazas,
sidewalks and curbs adjacent thereto.
(2) The cost and expense of the following shall be excluded from the
calculation of operating expenses:
(a) leasing commissions;
(b) executives' salaries above the grade of building manager and
superintendent;
(c) capital improvements and replacements which under generally
accepted accounting principles and practice would be classified as
capital expenditures, except the cost and expense of any improvement,
alteration, replacement or installation which is either (i) required
by any Legal Requirement, or (ii) designed, in Owner's reasonable
judgment, to result in savings or reductions in Operating Expenses or
(iii) designed, in Owner's reasonable judgment, to benefit the tenants
of the Building (such improvements, alterations, replacements and
installations are referred to as "Included Improvements"); the cost
and expense of Included Improvements whenever made shall be included
in Operating Expenses for any Escalation Year subsequent to the Base
Escalation Year to the extent of (x) the annual amortization or
depreciation of the cost and expense to Owner of such Included
Improvements, as amortized on a straight line basis over fifteen (15)
years allocable to such Escalation Year plus (y) an annual charge for
interest upon the unamortized or undepreciated portions of such cost
and expense at the average prime rate during the Escalation Year in
question (provided, however, with respect to the Included Improvements
referred to in (ii), the amount of such Included Improvements included
in Operating Expenses for any such Escalation Year, inclusive of such
charge for interest for such Year allocable to such Included
Improvement, shall not exceed the amount of such savings or reductions
for such Escalation Year unless such savings or reductions in
Operating Expenses for prior Escalation Years exceeded, in the
aggregate, the amounts, inclusive of interest, paid by Tenant to Owner
with respect to such Included Improvements for such prior Escalation
Years (any such excess is referred to as a "Shortfall"), in which
event the amount of such Included Improvements inclusive of interest
included in Operating Expenses for such Escalation Year shall not
exceed the total of the amount of such savings or reductions in
Operating Expenses for such Escalation Year plus such Shortfall as
aforesaid;
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(d) any other item which under generally accepted accounting
principles and practice would not be regarded as an operating,
maintenance or management expense;
(e) any item for which Owner is compensated through proceeds of
insurance;
(f) any specific compensation which Owner receives from any
tenant for services rendered to such tenant by Owner above and beyond
those services generally rendered by Owner to tenants in the Building
without specific compensation therefor;
(g) sixty-five (65%) percent of all electrical costs incurred in the
operation of the Building, provided however, in the event that Owner
discontinues the redistribution or furnishing of electrical energy to
the tenants and occupants of the Building, then the aforesaid
exclusion of sixty-five (65%) percent of such electrical costs shall
not apply; and
(h) the cost of maintaining and staffing Owner's office in the
Building.
H. The term "Base Operating Expenses" shall mean the sum of $2,391,222.00.
I. The term "Owner's Tax Statement" shall mean an instrument containing a
computation of any increase in the Fixed Rent in reasonable detail pursuant to
the provisions of Section 23.02 A. of this Article.
J. The term "Owner's Operating Expense Statement" shall mean an
instrument in reasonable detail containing a computation of any increase in the
Fixed Rent in reasonable detail pursuant to the provisions of Section 23.04 of
this Article.
K. The term "Monthly Escalation Installment" shall mean a sum equal to
one-twelfth (1/12th) of the increase in the Fixed Rent payable pursuant to the
provisions of Subsection 23.04 A for the Escalation Year with respect to which
Owner has most recently rendered an Owner's Operating Expense Statement,
appropriately adjusted to reflect (i) in the event such Escalation Year is a
partial calendar year, the increase in the Fixed Rent which would have been
payable for such Escalation Year if it had been a full calendar year, and (ii)
the amount by which current Operating Expenses as reasonably estimated by Owner
exceed Operating Expenses as reflected in such Owner's Operating Expense
Statement; and (iii) any net credit balance to which Tenant may be entitled
pursuant to the provisions of Subsection 23.05 C.
L. The term "Monthly Escalation Installment Notice" shall mean a notice
given by Owner to Tenant which sets forth the current Monthly Escalation
Installment; such Notice may be contained in a regular monthly rent bill, in an
Owner's Operating Expense Statement, or otherwise, and may be given from time
to time, at Owner's election.
M. Owner has applied for a certificate of eligibility from the Department
of Finance of the City of New York determining that Owner is eligible to apply
for exemption from tax payments for the Real Property pursuant to the
provisions of Section 11-256 through 11-267 (the "ICIP Program") of the
Administrative Code of the City of New York and the regulations promulgated
pursuant to the ICIP Program. Any such tax exemption for the Real Property is
referred to as "Tax Exemption" and the period of such Tax Exemption is referred
to as the "Tax Exemption Period". Owner agrees that Tenant shall not be
required to (a) pay Taxes or charges which become due because of the willful
neglect or fraud by Owner in connection with the ICIP Program
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or (b) otherwise relieve or indemnify Owner from any personal liability arising
under the ICIP Program, except where imposition of such Taxes, charges or
liability is occasioned by actions of Tenant in violation of this Lease. Tenant
agrees to report to Owner, as often as is necessary under such regulations, the
number of workers engaged in employment in the Demised Premises, the nature of
each worker's employment and the residency of each worker and to provide access
to the Demised Premises by employees and agents of the Department of Finance of
the City of New York at all reasonable times at the request of Owner. Tenant
represents to the Owner that, within the seven (7) years immediately preceding
the date of this Lease, Tenant has not been adjudged by a court of competent
jurisdiction to have been guilty of (x) an act, with respect to a building,
which is made a crime under the provisions of Article 150 of the Penal Law of
the State of New York or any similar law of another state, or (y) any act made a
crime or violation by the provisions of Section 235 of the Real Property Law of
the State of New York, nor is any charge for a violation of such laws presently
pending against Tenant. Upon request of Owner, from time to time, Tenant agrees
to update said representation when required because of the ICIP Program and
regulations thereunder. Tenant further agrees to cooperate with Owner in
compliance with such ICIP Program and regulations to aid Owner in obtaining and
maintaining the Tax Exemption and, if requested by Owner, to post a notice in a
conspicuous place in the Demised Premises and to publish a notice in a newspaper
of general circulation in the City of New York, in such form as shall be
prescribed by the Department of Finance stating that persons having information
concerning any violation by Tenant of Section 235 of the Real Property Law or
any Section of Article 150 of the Penal Law or any similar law of another
jurisdiction may submit such information to the Department of Finance to be
considered in determining Owner's eligibility for benefits. Tenant acknowledges
that its obligations under the provisions of Subsection 23.02. A may be greater
if Owner fails to obtain a Tax Exemption, and agrees that Owner shall have no
liability to Tenant nor shall Tenant be entitled to any abatement or diminution
of rent if Owner fails to obtain a Tax Exemption.
N. Owner and Tenant acknowledge that Tenant may apply for a certificate of
abatement from the Department of Finance of the City of New York pursuant to the
provisions of Title 4 of the Real Property Law of the State of New York (the
"Tax Abatement Program"). Owner agrees, at no cost or expense to Owner, to
cooperate with Tenant in its efforts to procure a certificate of abatement
including, if necessary, and if Owner approves of its contents, co-signing
Tenant's application for a certificate of abatement. Pursuant to the Tax
Abatement Program, Owner hereby informs Tenant that:
"(1) an application for abatement of real property taxes pursuant to
this title will be made for the premises;
(2) the rent, including amount payable by the tenant for real property
taxes, will accurately reflect any abatement of real property taxes granted
pursuant to this title for the premises;
(3) at least ten dollars per square foot or thirty-five dollars per
square foot must be spent on improvements to the premises and the common areas,
the amount being dependent upon the length of the lease and whether it is a new
or a renewal lease; and
(4) all abatements granted with respect to a building pursuant to this
title will be revoked if, during the benefit period, real estate taxes or water
or sewer charges are unpaid for more than one year, unless such delinquent
amounts are paid as provided in subdivision four of section four hundred
ninety-nine-f of this title."
Tenant agrees that Owner shall have no liability to Tenant nor shall Tenant
be entitled to any abatement or diminution of rent if Tenant fails to obtain a
certificate of abatement under the Tax Abatement Program.
SECTION 23.02. Taxes: A. The Fixed Rent for each Tax Escalation Year shall
be increased by a sum equal to Tenant's Proportionate Share of Taxes for such
Tax Escalation Year.
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B. Unless the Commencement Date shall occur on a July 1st, any
increase in the Fixed Rent pursuant to the provisions of Subsection A of this
Section 23.02 for the Tax Escalation Year in which the Commencement Date shall
occur shall be apportioned in that percentage which the number of days in the
period from the Commencement Date to June 30th of such Tax Escalation Year, both
inclusive, bears to the total number of days in such Tax Escalation Year. Unless
the Demised Term shall expire on a June 30th, any increase in the Fixed Rent
pursuant to the provisions of said Subsection A for the Tax Escalation Year in
which the date of the expiration of the Demised Term shall occur shall be
apportioned in that percentage which the number of days in the period from July
1st of such Tax Escalation Year to such date of expiration, both inclusive,
bears to the total number of days in such Tax Escalation Year.
SECTION 23.03. CALCULATION AND PAYMENT OF TAXES: A. Owner shall render to
Tenant, either in accordance with the provisions of Article 27 or by personal
delivery at the Demised Premises, an Owner's Tax Statement or Statements with
respect to each Tax Escalation Year, either prior to or during such Tax
Escalation Year. Owner's failure to render an Owner's Tax Statement with respect
to any Tax Escalation Year shall not prejudice Owner's right to recover any sums
due to Owner hereunder with respect to such Tax Escalation Year nor shall it
deprive Tenant of any credit to which it otherwise might be entitled to for any
Tax Escalation Year pursuant to the provisions of subsection B of this Section
23.03. Tenant acknowledges that under present law, Taxes are payable by Owner
(i) with respect to a fiscal year commencing July 1st and ending on the
following June 30th, and (ii) in two (2) installments, in advance, the first of
which is payable on July 1st, and the second and final payment of which is
payable on the following January 1st. Within ten (10) days next following
rendition of the first Owner's Tax Statement which shows an increase in the
Fixed Rent for any Tax Escalation Year, Tenant shall pay to Owner one-half of
the amount of the increase shown upon such Owner's Tax Statement for such Tax
Escalation Year (including any apportionment pursuant to the provisions of
subsection B of Section 23.02); and, subsequently, provided Owner shall have
rendered to Tenant an Owner's Tax Statement, Tenant shall pay to Owner not later
than thirty (30) days prior to the date on which the installment of Taxes is
required to be paid by Owner a sum equal to one half (1/2) of Tenant's
Proportionate Share of Taxes payable with respect to such Tax Escalation Year as
shown on such Owner's Tax Statement. Tenant further acknowledges that it is the
purpose and intent of this Section 23.03 to provide Owner with Tenant's
Proportionate Share of Taxes thirty (30) days prior to the time such installment
of Taxes is required to be paid by Owner without penalty or interest.
Accordingly, Tenant agrees if the number of such installments and/or the date of
payment thereof and/or the fiscal year used for the purpose of Taxes shall
change then (a) at the time that any such revised installment is payable by
Owner, Tenant shall pay to Owner the amount which shall provide Owner with
Tenant's Proportionate Share of Taxes applicable to the revised installment of
Taxes then required to be paid by Owner, and (b) this Article shall be
appropriately adjusted to reflect such change and the time for payment to Owner
of Tenant's Proportionate Share of Taxes as provided in this Article shall be
appropriately revised so that Owner shall always be provided with Tenant's
Proportionate Share of Taxes thirty (30) days prior to the installment of Taxes
required to be paid by Owner. Notwithstanding the foregoing provisions of this
subsection A to the contrary, in the event the holder of any mortgage affecting
the Real Property shall require Owner to make monthly deposits on account of
real estate taxes, then this Article shall be appropriately adjusted to reflect
the requirement that Owner make monthly deposits on account of real estate taxes
so that Owner shall always be provided with one-twelfth (1/12th) of Tenant's
Proportionate Share of Taxes with respect to any Tax Escalation Year thirty (30)
days prior to the payment by Owner of such monthly deposits on account of real
estate taxes.
B. If, as a result of any application or proceeding brought by or on
behalf of Owner for reduction of the assessed valuation of the Real Property
there shall be a decrease in Taxes for any Tax Escalation Year with respect to
which Owner shall have previously rendered an Owner's Tax Statement, the next
monthly installment or installments of Fixed Rent following such decrease shall
include an adjustment of the Fixed Rent for such Tax Escalation Year reflecting
a credit to Tenant equal to the amount by which (i) the Fixed Rent actually paid
by Tenant with respect to such Tax Escalation Year (as increased pursuant to the
operation of the provisions of subsection A of Section 23.02), shall exceed (ii)
the Fixed Rent payable with respect to such Tax Escalation Year (as increased
pursuant to the operation of the provisions of subsection A of Section 23.02)
based
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upon such reduction of the assessed valuation. Tenant shall pay to Owner within
thirty (30) days after demand, as additional rent under this Lease, a sum equal
to Tenant's Proportionate Share of all reasonable costs and expenses, including,
without limitation, reasonable counsel fees, actually paid or incurred by Owner
in connection with any application or proceeding brought for reduction of the
assessed valuation of the Real Property or any other contest of Taxes upon the
Real Property for any Tax Escalation Year, whether or not such application,
proceeding or other contest was commenced and/or settled and/or determined prior
to the Tax Escalation Year in question, which counsel fees shall be consistent
with counsel fees incurred for similar proceedings affecting First-Class
buildings for the same period.
SECTION 23.04. OPERATING EXPENSES: A. If Operating Expenses in any
Escalation Year shall be in such an amount as shall constitute an increase above
Base Operating Expenses, the Fixed Rent for such Escalation Year shall be
increased by a sum equal to Tenant's Proportionate Share of any such increase.
In the event that Base Operating Expenses shall be in excess of Operating
Expenses in any Escalation Year, in no event shall Tenant be entitled to any
such excess and the Fixed Rent shall not be reduced in any way.
B. Unless the Commencement Date shall occur on a January 1st, any
increase in the Fixed Rent pursuant to the provisions of Subsection A of this
Section 23.04 for the Escalation Year in which the Commencement Date shall occur
shall be apportioned in that percentage which the number of days in the period
from the Commencement Date to December 31st of such Escalation Year, both dates
inclusive, bears to the total number of days in such Escalation Year. Unless the
Demised Term shall expire on December 31st any increase in the Fixed Rent
pursuant to the provisions of Subsection A of this Section 23.04 for the
Escalation Year in which the date of the expiration of the Demised Term shall
occur shall be apportioned in that percentage which the number of days in the
period from January 1st of such Escalation Year to such date of expiration, both
dates inclusive, bears to the total number of days in such Escalation Year.
C. In the determination of any increase in the Fixed Rent pursuant to
the foregoing provisions of this Section 23.04, if the Building shall not have
been fully occupied during any Escalation Year, Operating Expenses for such
Escalation Year shall be equitably adjusted (by including such additional
expenses as Owner would have incurred) to the extent, if any, required to
reflect full occupancy.
SECTION 23.05. CALCULATION AND PAYMENT OF OPERATING EXPENSES: A. Owner
shall render to Tenant, either in accordance with the provisions of Article 27
or by personal delivery at the Demised Premises, an Owner's Operating Expense
Statement with respect to each Escalation Year on or before the next succeeding
October 1st. Owner's failure to render an Owner's Operating Expense Statement
with respect to any Escalation Year shall not prejudice Owner's right to recover
any sums due to Owner hereunder with respect to such Escalation Year.
B. Within twenty (20) days next following rendition of the first
Owner's Operating Expense Statement which shows an increase in the Fixed Rent
for any Escalation Year, Tenant shall pay to Owner the entire amount of such
increase. In order to provide for current payments on account of future
potential increases in the Fixed Rent which may be payable by Tenant pursuant to
the provisions of Subsection 23.04.A, Tenant shall also pay to Owner at such
time, provided Owner has given to Tenant a Monthly Escalation Installment
Notice, a sum equal to the product of (i) the Monthly Escalation Installment set
forth in such Notice multiplied by (ii) the number of months or partial months
which shall have elapsed between January 1st of the Escalation Year in which
such payment is made and the date of such payment, less any amounts theretofore
paid by Tenant to Owner on account of increases in the Fixed Rent for such
Escalation Year pursuant to the provisions of the penultimate sentence of this
Subsection 23.05.B; thereafter Tenant shall make payment of a Monthly Escalation
Installment throughout each month of the Demised Term, Monthly Escalation
Installments shall be added to and payable as part of each monthly installment
of Fixed Rent. Notwithstanding anything to the contrary contained in the
foregoing provisions of this Article, prior to the rendition of the first
Owner's Operating Expense Statement which shows an increase in the Fixed Rent
for any Escalation Year, Owner may render to Tenant a pro-
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forma Owner's Operating Expense Statement containing a bona fide estimate of the
increase in the Fixed Rent for the Escalation Year in which the Commencement
Date shall occur and/or the subsequent Escalation Year. Following the rendition
of such pro-forma Owner's Operating Expense Statement, Tenant shall pay to Owner
a sum equal to one twelfth (1/12th) of the estimated increase in the Fixed Rent
shown thereon for such Escalation Year or Years multiplied by the number of
months which may have elapsed between the Commencement Date and the month in
which such payment is made and thereafter pay to Owner, on the first day of each
month of the Demised Term (until the rendition by Owner of the first Owner's
Operating Expense Statement) a sum equal to one twelfth (1/12th) of the increase
in the Fixed Rent shown on such pro-forma Owner's Operating Expense Statement.
Any sums paid pursuant to the provisions of the immediately preceding sentence
shall be credited against the sums required to be paid by Tenant to Owner
pursuant to the Owner's Operating Expense Statement for the first Escalation
Year for which there is an increase in the Fixed Rent pursuant to the provisions
of Subsection A.
C. Following rendition of the first Owner's Operating Expense
Statement and each subsequent Owner's Operating Expense Statement a
reconciliation shall be made as follows: Tenant shall be debited with any
increase in the Fixed Rent shown on such Owner's Operating Expense Statement and
credited with the aggregate amount, if any, paid by Tenant in accordance with
the provisions of Subsection B of this Section on account of future increases in
the Fixed Rent pursuant to Subsection 23.04. A, which has not previously been
credited against increases in the Fixed Rent shown on Owner's Operating Expense
Statements. Tenant shall pay any net debit balance to Owner within twenty (20)
days next following rendition by Owner, either in accordance with the provisions
of Article 27 or by personal delivery at the Demised Premises of an invoice for
such net debit balance; any net credit balance shall be applied as an adjustment
against the next accruing monthly installments of Fixed Rent.
SECTION 23.06. DISPUTE RESOLUTION: A. In the event of any dispute between
Owner and Tenant arising out of the application of the Operating Expense
provisions of this Article, such dispute shall be determined by arbitration in
New York City in accordance with the provisions of Article 36. Notwithstanding
any such dispute and submission to arbitration, or any dispute with respect to
the Tax Escalation provisions of this Article (which dispute shall not be
subject to arbitration but which can only be prosecuted by the institution of
legal proceedings by Tenant), any increase in the Fixed Rent shown upon any
Owner's Operating Expense Statement or any Monthly Escalation Installment Notice
or any Owner's Tax Statement shall be payable by Tenant within the time
limitation set forth in this Article. If the determination in such arbitration
or legal proceedings shall be adverse to Owner, any amount paid by Tenant to
Owner in excess of the amount determined to be properly payable shall be
credited against the next accruing installments of Fixed Rent due under this
Lease. However, if there are no such installments, such amounts shall be paid by
Owner to Tenant within thirty (30) days following such determination.
B. In the event Tenant disagrees with any computation or other matter
contained in any Owner's Operating Expense Statement or any Monthly Escalation
Installment Notice, Tenant shall have the right to give notice to Owner within
one hundred twenty (120) days next following rendition of such Statement or
Notice setting forth the particulars of such disagreement. If the matter is not
resolved within ninety (90) days next following the giving of such notice by
Tenant, it shall be deemed a dispute which either party may submit to
arbitration pursuant to the provisions of Subsection A of this Section. If (i)
Tenant does not give a timely notice to Owner in accordance with the foregoing
provisions of this Subsection disagreeing with any computation or other matter
contained in any Owner's Operating Expense Statement or any Monthly Escalation
Installment Notice and setting forth the particulars of such disagreement, or
(ii) if any such timely notice shall have been given by Tenant, the matter shall
not have been resolved and neither party shall have submitted the dispute to
arbitration within ninety (90) days next following the giving of such notice by
Tenant, Tenant shall be deemed conclusively to have accepted such Owner's
Operating Expense Statement or Monthly Escalation Installment Notice, as the
case may be, and shall have no further right to dispute the same.
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C. (1) Tenant or its usual auditors of its normal books and records
(provided same are public accountants) in each case at Tenant's expense, shall
have the right to examine those portions of Owner's records which are reasonably
required to verify the accuracy of any amounts shown on any Owner's Operating
Expense Statement provided Tenant shall notify Owner of its desire to so examine
such records within sixty (60) days next following rendition of such Owner's
Operating Expense Statement. Owner shall maintain such records for a period of
three (3) years following the expiration of the Escalation Year to which they
relate. Upon Tenant's timely request, Owner shall make such records available
and any such examination shall be conducted at the office of Owner's accountants
or at such other reasonable place designated by Owner during normal office
hours.
(2) Tenant acknowledges and agrees that not more than three (3) of
its employees or three (3) persons employed by such auditors shall be entitled
to entry to the offices of Owner at any one time for the purposes of such review
and inspection. Tenant hereby recognizes the confidential, privileged and
proprietary nature of such records and the information and data contained
therein, as well as any compromise, settlement or adjustment reached between
Owner and Tenant relating to the results of such examination, and Tenant
covenants and agrees for itself, and its employees, agents and representatives
(including, but not limited to, such auditors, and any attorneys or consultants
retained by Tenant as hereinafter provided), that such books, records,
information, data, compromise, settlement and adjustment will be held in the
strictest confidence and not be divulged, disclosed or revealed to any other
person except (x) to the extent required by law, court order or directive of any
Governmental Authority or (y) to such auditors or any attorneys retained by
Tenant or consultants retained by Tenant in connection with any action or
proceeding between Owner and Tenant as to Operating Expenses or Owner's
Operating Expense Statement and no examination of any such records shall be
permitted unless and until such auditors, attorneys and consultants
affirmatively agree and consent to be bound by the provisions of this Section
23.06C.
(3) Tenant agrees that this Section 23.06C is of material importance
to Owner and that any violation thereof shall result in immediate harm to Owner
and Owner shall have all rights allowed by law or equity if Tenant, its
employees, agents, and representatives (including, but not limited to,
such auditors, attorneys or consultants) violate the terms of this Section
23.06, including, but not limited to, the right to terminate Tenant's right to
audit Owner's records in the future pursuant to this Section 23.06C, and Tenant
shall indemnify and hold Owner harmless of and from all loss, cost, damage,
liability and expense (including, but not limited to counsel fees and
disbursements) arising from a breach of the foregoing obligations of Tenant or
any of its employees, agents and representatives, (including but not limited to,
such auditors, attorneys or consultants). This obligation of Tenant and its
employees, agents and representatives (including, but not limited to, any such
auditors, attorneys or consultants) shall survive the expiration or sooner term
of the Demised Term.
SECTION 23.07. COLLECTION OF INCREASES IN FIXED RENT: The obligations of
Owner and Tenant under the provisions of this Article with respect to any
increase in the Fixed Rent, or any credit to which Tenant may be entitled, shall
survive the expiration or any sooner termination of the Demised Term. All sums
payable by Tenant under this Article shall be collectible by Owner in the same
manner as Fixed Rent.
ARTICLE 24
NO WAIVER
SECTION 24.01 OWNER'S TERMINATION NOT PREVENTED: Neither any option granted
to Tenant in this Lease or in any collateral instrument to renew or extend the
Demised Term, nor the exercise of any such option by Tenant, shall prevent Owner
from exercising any option or right granted or reserved to Owner in this Lease
or in any collateral instrument or which Owner may have by virtue of any law, to
terminate this Lease and the Demised Term or any renewal or extension of the
Demised Term either during the original Demised Term or
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during the renewed or extended term. Any termination of this Lease and the
Demised Term shall serve to terminate any such renewal or extension of the
Demised Term and any right of Tenant to any such renewal or extension, whether
or not Tenant shall have exercised any such option to renew or extend the
Demised Term. Any such option or right on the part of Owner to terminate this
Lease shall continue during any extension or renewal of the Demised Term. No
option granted to Tenant to renew or extend the Demised Term shall be deemed to
give Tenant any further option to renew or extend.
SECTION 24.02. NO TERMINATION BY TENANT/NO WAIVER: No act or thing done by
Owner or Owner's agents during the Demised Term shall constitute a valid
acceptance of a surrender of the Demised Premises or any remaining portion of
the Demised Term except a written instrument accepting such surrender, executed
by Owner. No employee of Owner or of Owner's agents shall have any authority to
accept the keys of the Demised Premises prior to the termination of this Lease
and the Demised Term, and the delivery of such keys to any such employee shall
not operate as a termination of this Lease or a surrender of the Demised
Premises; however, if Tenant desires to have Owner sublet the Demised Premises
for Tenant's account, Owner or Owner's agents are authorized to receive said
keys for such purposes without releasing Tenant from any of its obligations
under this Lease, and Tenant hereby relieves Owner of any liability for loss
of, or damage to, any of Tenant's property or other effects in connection with
such subletting. The failure by Owner to seek redress for breach or violation
of, or to insist upon the strict performance of, any term, covenant or
condition of this Lease on Tenant's part to be observed or performed, shall not
prevent a subsequent act or omission which would have originally constituted a
breach or violation of any such term, covenant or condition from having all the
force and effect of an original breach or violation. The receipt by Owner of
rent with knowledge of the breach or violation by Tenant of any term, covenant
or condition of this Lease on Tenant's part to be observed or performed shall
not be deemed a waiver of such breach or violation. Owner's failure to enforce
any Building Rule against Tenant or against any other tenant or occupant of the
Building shall not be deemed a waiver of any such Building Rule. No provision
of this Lease shall be deemed to have been waived by Owner unless such waiver
shall be set forth in a written instrument executed by Owner. No payment by
Tenant or receipt by Owner of a lesser amount than the aggregate of all Fixed
Rent and additional rent then due under this Lease shall be deemed to be other
than on account of the first accruing of all such items of Fixed Rent and
additional rent then due, no endorsement or statement on any check and no
letter accompanying any check or other rent payment in any such lesser amount
and no acceptance of any such check or other such payment by Owner shall
constitute an accord and satisfaction, and Owner may accept any such check or
payment without prejudice to Owner's right to recover the balance of such rent
or to pursue any other legal remedy.
ARTICLE 25
MUTUAL WAIVER OF TRIAL BY JURY
SECTION 25.01. Owner and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by Owner or Tenant against the other on any
matter whatsoever arising out of or in any way connected with this Lease, the
relationship of landlord and tenant, the use or occupancy of the Demised
Premises by Tenant or any person claiming through or under Tenant, any claim of
injury or damage, and any emergency or other statutory remedy; however, the
foregoing waiver shall not apply to any action for personal injury or property
damage. The provisions of the foregoing sentence shall survive the expiration
or any sooner termination of the Demised Term. If Owner commences any summary
proceeding, or any other proceeding of like import, Tenant agrees: (i) not to
interpose any counterclaim based upon personal injury or property damage in any
such summary proceeding, or any other proceeding of like import, unless failure
to interpose such counterclaim would preclude Tenant from asserting such claim
in a separate action or proceeding; and (ii) not to seek to remove to another
court or jurisdiction or consolidate any such summary proceeding, or other
proceeding of like import, with any action or proceeding which may have been,
or will be, brought by Tenant. In the event the Tenant shall breach any of its
obligations set forth in the immediately preceding sentence, Tenant agrees (a)
to pay all of Owner's attorneys'
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fees and disbursements in connection with Owner's successful enforcement of
such obligations of Tenant and (b) in all events, to pay all accrued, present
and future Fixed Rent and increases therein and additional rent payable
pursuant to the provisions of this Lease when and as same become due and
payable hereunder.
ARTICLE 26
INABILITY TO PERFORM
SECTION 26.01. If, by reason of strikes or other labor disputes, fire or
other casualty (or reasonable delays in adjustment of insurance), accidents, any
Legal Requirements, any orders of any Governmental Authority or any other cause
beyond Owner's reasonable control, whether or not such other cause shall be
similar in nature to those hereinbefore enumerated, Owner is unable to furnish
or is delayed in furnishing any utility or service required to be furnished by
Owner under the provisions of Article 29 or any other Article of this Lease or
any collateral instrument, or is unable to perform or make or is delayed in
performing or making any installations, decorations, repairs, alterations,
additions or improvements, whether or not required to be performed or made under
this Lease or under any collateral instrument, or is unable to fulfill or is
delayed in fulfilling any of Owners other obligations under this Lease or any
collateral instrument, no such inability or delay shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Owner or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
SECTION 26.02. If by reason of strikes or other labor disputes, fire or
other casualty (or reasonable delays in adjustment of insurance) accidents,
orders or regulations of any Federal, State, County or Municipal authority, or
any other cause beyond Tenant's reasonable control, Tenant is unable to fulfill
any of Tenant's obligations under this Lease or any collateral instrument (with
the exception of any obligations on Tenant's part to pay any sum of money due
Owner, including, without limitation, the payment of Fixed Rent or increases
thereof, or any additional rent, which monetary obligation shall remain
unaffected by the provisions of this Section 26.02), Tenant shall not be
required to fulfill such non-monetary obligations during the period that Tenant
is so unable to fulfill them by reason of the above, provided however, that
Tenant shall employ reasonable diligence to attempt to eliminate the cause of
such inability referred to in this Section 26.02.
ARTICLE 27
NOTICES
SECTION 27.01. Except as otherwise expressly provided in this Lease, any
bills, statements, notices, demands, requests or other communications given or
required to be given under this Lease shall be effective only if rendered or
given in writing, sent by registered or certified mail (return receipt
requested optional), addressed as follows:
(a) To Tenant (i) at Tenant's address set forth in this
Lease if mailed prior to Tenant's taking possession of the Demised Premises, or
(ii) at the Building if mailed subsequent to Tenant's taking possession of the
Demised Premises, or (iii) at any place where Tenant or any agent or employee
of Tenant may be found if mailed subsequent to Tenant's vacating, deserting,
abandoning or surrendering the Demised Premises, or
(b) To Owner at Owner's address set forth in this Lease,
with a copy to Goldfarb & Fleece, 345 Park Avenue, New York, New York 10154,
Attention: Partner-in-Charge, Rudin Management, or
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(c) addressed to such other address as either Owner or
Tenant may designate as its new address for such purpose by notice given to the
other in accordance with the provisions of this Section. Any such bill,
statement, notice, demand, request or other communication shall be deemed to
have been rendered or given on the date when it shall have been mailed as
provided in this Section.
Nothing contained in this Section 27.01 shall preclude, limit or modify Owner's
service of any notice, statement, demand or other communication in the manner
required by law, including, but not limited to, any demand for rent under
Article 7 of the New York Real Property Actions and Proceedings Law or any
successor law of like import.
ARTICLE 28
PARTNERSHIP TENANT
SECTION 28.01. If Tenant is a partnership or professional corporation or
limited liability company (or is comprised of two (2) or more persons,
individually and as co-partners of a partnership or shareholders of a
professional corporation or members of a limited liability company) or if
Tenant's interest in this Lease shall be assigned to a partnership or
professional corporation or limited liability company (or to two (2) or more
persons, individually and as co-partners of a partnership or shareholders of a
professional corporation or members of a limited liability company) pursuant to
Article 11 (any such partnership, professional corporation, limited liability
company and such persons are referred to in this Section as "Partnership
Tenant"), the following provisions of this Section shall apply to such
Partnership Tenant: (i) the liability of each of the persons comprising
Partnership Tenant shall be joint and several, individually and as a partner or
shareholder or member, with respect to all obligations of the Tenant under this
Lease whether or not such obligations arose prior to, during, or after any
period when any party comprising Partnership Tenant was a member or shareholder
of Partnership Tenant, and (ii) each of the persons comprising Partnership
Tenant, whether or not such person shall be one of the persons comprising Tenant
at the time in question, hereby consents in advance to, and agrees to be bound
by, any written instrument which may hereafter be executed, changing, modifying
or discharging this Lease, in whole or in part, or surrendering all or any part
of the Demised Premises to Owner, and by any notices, demands, requests or other
communications which may hereafter be given by Partnership Tenant or by any of
the persons comprising Partnership Tenant, and (iii) any bills, statements,
notices, demands, requests or other communications given or rendered to
Partnership Tenant or to any of the persons comprising Partnership Tenant shall
be deemed given or rendered to Partnership Tenant and to all such persons and
shall be binding upon Partnership Tenant and all such persons, and (iv) if
Partnership Tenant shall admit new partners or shareholders or members, all of
such new partners or shareholders or members, as the case may be, shall, by
their admission to Partnership Tenant, be deemed to have assumed performance of
all of the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed, and shall be liable for such performance, together with
all other parties, jointly or severally, individually and as a partner or
shareholder or member, whether or not the obligation to comply with such terms,
covenants or conditions arose prior to, during or after any period when any
party comprising Partnership Tenant was a member or shareholder of Partnership
Tenant and (v) Partnership Tenant shall give prompt notice to Owner of the
admission of any such new partners, or shareholders, or members, as the case may
be, and, upon demand of Owner, shall cause each such new partner or shareholder
or member to execute and deliver to Owner an agreement, in form satisfactory to
Owner, wherein each such new partner or shareholder or member shall so assume
performance of all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed whether or not the obligation to
comply with such terms, covenants or conditions arose prior to, during or after
any period when any party comprising Partnership Tenant was a member or
shareholder of Partnership Tenant (but neither Owner's failure to request any
such agreement nor the failure of any such new partner, shareholder or member to
execute or deliver any such agreement to Owner shall vitiate the provisions of
subdivision (iv) or any other provision of this Section).
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ARTICLE 29
UTILITIES AND SERVICES
SECTION 29.01. ELEVATORS: Owner, at Owner's expense, shall furnish
necessary passenger elevator facilities twenty-four (24) hours per day on
business days (as defined in Section 31.01) and on Saturdays from 8:00 A.M. to
6:00 P.M. and shall have a passenger elevator subject to call at all other times
twenty-four (24) hours per day, seven (7) days per week. Tenant shall be
entitled to the non-exclusive use of the freight elevator in common with other
tenants and occupants of the Building from 8:00 A.M. to 6:00 P.M. on business
days, subject to such reasonable rules as Owner may adopt for the use of the
freight elevator. At any time or times all or any of the elevators in the
Building may, at Owner's option, be automatic elevators, and Owner shall not be
required to furnish any operator service for automatic elevators. If Owner
shall, at any time, elect to furnish operator service for any automatic
elevators, Owner shall have the right to discontinue furnishing such service
with the same effect as if Owner had never elected to furnish such service.
SECTION 29.02. HEAT: Owner, at Owner's expense, shall furnish heat
to the Demised Premises, as and when required by law, twenty-four (24) hours
per day.
SECTION 29.03. AIR CONDITIONING AND VENTILATION: Owner, at Owner's
expense, shall furnish and distribute to the Demised Premises (i) conditioned
air at reasonable temperatures, pressures and degrees of humidity and in
reasonable volumes and velocities, twenty-four (24) hours per day during the
months of May, June, July, August, September and October when required for the
comfortable occupancy of the Demised Premises; and (ii) mechanical ventilation
through the Building air conditioning system twenty-four (24) hours per day
throughout the year, except when conditioned air or heat is being furnished.
Notwithstanding the foregoing provisions of this Section, Owner shall not be
responsible if the normal operation of the Building air conditioning system
shall fail to provide conditioned air at reasonable temperatures, pressures or
degrees of humidity or in reasonable volumes or velocities in any portions of
the Demised Premises (a) which, by reason of any machinery or equipment
installed by or on behalf of Tenant or any person claiming through or under
Tenant, shall have an electrical load in excess of four (4) watts per square
foot of usable area for all purposes (including lighting and power), or which
shall have a human occupancy factor in excess of one person per 100 square feet
of usable area (the average electrical load and human occupancy factors for
which the Building air conditioning system is designed) or (b) because of any
rearrangement of partitioning or other Alterations made or performed by or on
behalf of Tenant or any person claiming through or under Tenant. Whenever said
air conditioning system is in operation, Tenant agrees to cause all the windows
in the Demised Premises to be kept closed and to cause the venetian blinds in
the Demised Premises to be kept closed if necessary because of the position of
the sun. Tenant agrees to cause all the windows in the Demised Premises to be
closed whenever the Demised Premises are not occupied. Tenant shall cooperate
fully with Owner at all times and abide by all regulations and requirements
which Owner may reasonably prescribe for the proper functioning and protection
of the air conditioning and ventilating system. In addition to any and all other
rights and remedies which Owner may invoke for a violation or breach of any of
the foregoing provisions of this Section, Owner may discontinue heating, air
conditioning and ventilating service during the period of such violation or
breach, and such discontinuance shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Owner, or its agents, by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business, or
otherwise.
SECTION 29.04. CLEANING: A. Tenant, at Tenant's expense, shall keep the
Demised Premises in order, shall cause the Demised Premises to be cleaned and
shall cause Tenant's refuse and rubbish to be removed, all at regular intervals
in accordance with standards and practices adopted by Owner for the Building.
Tenant shall cooperate with any waste and garbage recycling program of the
Building and shall comply with all reasonable rules and regulations of Owner
with respect thereto. Tenant, at Tenant's expense, shall cause all portions of
the Demised
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Premises used for the storage, preparation, service or consumption of food or
beverages to be cleaned daily in a manner satisfactory to Owner, and to be
exterminated against infestation by vermin, roaches or rodents regularly and,
in addition, whenever there shall be evidence of any infestation.
B. Owner, at Owner's expense, shall clean the public portions of
the Building at regular intervals in accordance with practices and standards
adopted by Owner for the Building which shall be consistent with similar
building in downtown Manhattan.
C. The removal of refuse and rubbish and the furnishing of
office cleaning services to Tenant by persons other than Owner and its
contractors shall be performed in accordance with such regulations and
requirements as, in Owner's judgment, are necessary for the proper operation of
the Building, and Tenant agrees that Tenant will not permit any person to enter
the Demised Premises or the Building for such purposes, or for the purpose of
providing extermination services required to be performed by Tenant pursuant to
Subsection A of this Section, other than persons first approved by Owner, such
approval not unreasonably to be withheld.
SECTION 29.05. ELECTRICITY: A. Owner shall redistribute or furnish
electrical energy to or for the use of Tenant in the Demised Premises for the
operation of the lighting fixtures and the electrical receptacles installed in
the Demised Premises on the Commencement Date and the operation of the Building
heating, ventilating and air conditioning system unit serving the floor of the
Building on which the Demised Premises are located. If either the quantity or
character of electrical service is changed by the public utility corporation
supplying electrical service to the Building or is no longer available or
suitable for Tenant's requirements, or if any equipment supplementing or
ancillary to such electrical service which is installed in the Building by or
on behalf of said public utility corporation malfunctions or fails to operate
for any reason while Tenant has made any connection to said equipment, no such
change, unavailability, unsuitability, malfunction or failure to operate shall
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of rent, or relieve Tenant from any of
its obligations under this Lease, or impose any liability upon Owner, or its
agents, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise.
B. Owner represents that the electrical feeder or riser capacity
serving the Demised Premises on the Commencement Date shall be adequate to
serve the lighting fixtures and electrical receptacles installed in the Demised
Premises on the Commencement Date. Any additional feeders or risers to supply
Tenant's additional electrical requirements, and all other equipment proper and
necessary in connection with such feeders or risers shall be installed by Owner
upon Tenant's request, at the sole cost and expense of Tenant, provided, that,
in Owner's judgment, such additional feeders or risers are necessary and are
permissible under applicable laws and insurance regulations and the
installation of such feeders or riders will not cause permanent damage or
injury to the Building or the Demised Premises or cause or create a dangerous
or hazardous condition or entail excessive or unreasonable alterations or
repairs to or interfere with or disturb other tenants or occupants of the
Building. Tenant covenants that at no time shall the use of electrical energy
in the Demised Premises exceed the capacity of the existing feeders or risers
or wiring installations then serving the Demised Premises.
C. Prior to the Commencement Date Owner, at Owner's expense,
shall have installed a submeter or submeters in the Demised Premises to measure
Tenant's actual consumption of electricity in the entire Demised Premises.
Tenant shall pay to Owner, from time to time, upon demand, for the electricity
consumed in the Demised Premises, as determined by such submeter or submeters,
the actual cost to Owner of purchasing electricity for the Demised Premises (as
such actual cost is hereinafter defined) plus all applicable taxes thereon.
Owner's actual cost for Tenant's KW and KWH shall be determined by the
application of the Building's electric rate schedule per month to Tenant's
usage. With respect to any period when any such submeter is not in good working
order, Tenant shall pay Owner for electricity consumed in the portion of the
Demised Premises served by such submeter at the rate paid by Tenant to Owner
during the most recent comparable period when such submeter was in good working
order. Tenant shall take good care of any such submeter and all submetering
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installation equipment, at Tenant's sole cost and expense, and make all repairs
thereto occasioned by any acts, omissions or negligence of Tenant or any person
claiming through or under Tenant as and when necessary to insure that any such
submeter is, at all times during the Demised Term, in good working order. With
respect to the period (referred to as the "Interim Period"), if any, from the
Commencement Date through the date immediately prior to the date upon which the
submeter or submeters shall be operable, Tenant shall pay to Owner monthly on
demand of Owner, for the electricity consumed in the Demised Premises, a sum
equal to one-twelfth (1/12th) of the product of (x) $2.00 multiplied by (y) the
Demised Premises Area. With respect to any period during the Interim Period
constituting less than a full calendar month, the monthly payment referred to in
the preceding sentence shall be appropriately prorated.
D. (1) Owner may, at any time, elect to discontinue the
redistribution or furnishing of electrical energy. In the event of any such
election by Owner, (i) Owner agrees to give reasonable advance notice of any
such discontinuance to Tenant, (ii) Owner agrees to permit Tenant to receive
electrical service directly from the public utility corporation supplying
electrical service to the Building and to permit the existing feeders, risers,
wiring and other electrical facilities serving the Demised Premises to be used
by Tenant for such purpose to the extent they are suitable and safely capable,
(iii) Owner agrees to pay such charges and costs, if any, as such public utility
corporation may impose in connection with the installation of Tenant's meters,
(iv) the provisions of Subsection C of this Section 29.05 shall be deemed
deleted from this Lease, and (v) this Lease shall remain in full force and
effect and such discontinuance shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Owner or its agents by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business, or
otherwise.
(2) Notwithstanding anything to the contrary
contained in subsection D(1) of this Section 29.05, Owner agrees that Owner
shall not voluntarily discontinue the redistribution or furnishing of electrical
energy until Owner shall have made or paid for all installations required to
provide Tenant with electrical service similar to the electrical service which
Tenant had in the Demised Premises immediately prior to such discontinuance and
the public utility corporation supplying electrical service to the Building has
agreed to furnish such service so that Tenant shall immediately upon such
discontinuance be able to receive electrical service directly from such public
utility corporation. Unless a shorter time is required by the public utility
corporation supplying electrical service to the Building, Owner shall give
Tenant at least sixty (60) days prior notice of any such discontinuance.
E. Notwithstanding anything to the contrary set forth
in this Lease, any sums payable or granted in any way by the public utility
corporation supplying electricity to the Building resulting from the
installation in the Demised Premises of energy efficient lighting fixtures,
lamps, special supplemental heating, ventilation and air conditioning systems or
any other Alterations, which sums are paid or given by way of rebate, direct
payment, credit or otherwise, shall be and remain the property of Owner, and
Tenant shall not be entitled to any portion thereof, unless such lighting
fixtures, lamps, supplemental heating, ventilation and air conditioning systems
or other Alterations were installed by Tenant, solely at Tenant's expense,
without any contribution, credit or allowance by Owner, in accordance with all
of the provisions of this Lease. Nothing contained in the foregoing sentence,
however, shall be deemed to obligate Owner to supply or install in the Demised
Premises any such lighting fixtures, lamps, supplemental heating, ventilation
and air conditioning systems or other Alterations.
F. Tenant acknowledges that the Building heating,
ventilating and air conditioning system unit serving the floor of the Building
on which the Demised Premises are located (referred to herein as the "Floor HVAC
Unit") shall not be connected to the submeter(s) serving the Demised Premises,
but, instead, shall be connected to a separate meter(s) measuring the electrical
energy consumed by such Floor HVAC Unit. Accordingly, Tenant agrees that during
the Demised Term, Tenant shall pay to Owner, from time to time upon demand of
Owner and submission by Owner to Tenant of invoices or bills therefor, fifty-two
and 50/100
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(52.50%) percent (hereinafter "Tenant's Electrical Share") of all amounts shown
on said separate meter(s) for such Floor HVAC Unit.
G. Tenant acknowledges that the light and power
systems serving the public areas of the floor of the Building on which the
Demised Premises are located (referred to herein as the "Floor Public Light and
Power") shall not be connected to the submeter(s) serving the Demised Premises
but, instead, shall be connected to a separate meter(s) measuring the electrical
energy consumed by such Floor Public Light and Power. Accordingly, Tenant agrees
that during the Demised Term, Tenant shall pay to Owner, from time to time upon
demand of Owner and submission by Owner to Tenant of invoices or bills therefor,
Tenant's Electrical Share of all amounts shown on said separate meter(s) for
such Floor Public Light and Power.
SECTION 29.06. WATER: If Tenant requires, uses or consumes water for
any purpose in addition to ordinary lavatory and drinking purposes, Owner may
install a hot water meter and a cold water meter and thereby measure Tenant's
consumption of water for all purposes. Tenant shall pay to Owner the cost of any
such meters and their installation, and Tenant shall keep any such meters and
any such installation equipment in good working order and repair, at Tenant's
cost and expense. Tenant agrees to pay for water consumed as shown on said
meters, and sewer charges, taxes and any other governmental charges thereon, as
and when bills are rendered. In addition to any sums required to be paid by
Tenant for hot water consumed and sewer charges, taxes and any other
governmental charges thereon under the foregoing provisions of this Section.
Tenant agrees to pay to Owner, for the heating of said hot water, an amount
equal to three (3X) times the total of said sums required to be paid by Tenant
for hot water and sewer charges thereon. For the purposes of determining the
amount of any sums required to be paid by Tenant under this Section, all hot and
cold water consumed during any period when said meters are not in good working
order shall be deemed to have been consumed at the rate of consumption of such
water during the most comparable period when such meters were in good working
order.
SECTION 29.07. OVERTIME PERIODS: The Fixed Rent does not reflect or
include any charge to Tenant for the furnishing or distributing of any necessary
elevator facilities, (other than an elevator subject to call at all times) to
the Demised Premises during periods (referred to as "Overtime Periods") other
than the hours and days set forth above in this Article for the furnishing and
distributing of such services. Accordingly, if Owner shall furnish any such
elevator facilities to the Demised Premises at the request of Tenant during
Overtime Periods, Tenant shall pay Owner for such services at the following
rates as of the date of this Lease: $60.00 Dollars per hour for freight elevator
service. Any increases above such rates shall be in an amount equal to the
actual increases after the date of this Lease in the cost to Owner of furnishing
such services. Owner shall not be required to furnish any such services during
Overtime Periods, unless Owner has received reasonable advance notice from
Tenant requesting such services. If Tenant fails to give Owner reasonable
advance notice requesting such services during any Overtime Periods, then,
failure by Owner to furnish any such services during such Overtime Periods shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner or
its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. If other tenants on the
applicable floor of the Demised Premises where overtime heat, conditioned air or
mechanical ventilation are requested by Tenant also request the same service for
the same period, then the hourly charge shall be apportioned among the tenants
requesting the same services during the same periods.
SECTION 29.08. OWNER'S RIGHT TO STOP SERVICE: Owner reserves the
right to stop the service of the heating, air conditioning, ventilating,
elevator, plumbing, electrical or other mechanical systems or facilities in the
Building when necessary by reason of accident or emergency, or for repairs,
alterations, replacements or improvements, which, in the reasonable judgment of
Owner are desirable or necessary, until said repairs, alterations, replacements
or improvements shall have been completed. The exercise of such right by Owner
shall not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner or
its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's
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business, or otherwise. Owner shall employ reasonable diligence in attempting to
restore the operation of any such system or facilities without any obligation,
however, to employ labor at overtime or other premium pay rates, except that in
cases where there is a material interference with Tenant's business or the
health or safety of the occupants of the Demised Premises is adversely affected,
Owner shall employ contractors or labor at overtime or other premium pay rates.
SECTION 29.09. A. Tenant's Supplemental A/C Unit/Cooling Tower:
Supplementing the provisions of Section 29.05, in the event (a) a separate air
conditioning system to serve the Demised Premises is installed by or on behalf
of Tenant in accordance with the provisions of this Lease (referred to herein as
"Tenant's Supplemental A/C Unit"), (b) Tenant requests that such Unit be hooked
up to any Building cooling tower and associated piping (referred to herein as
the "Cooling Tower") and (c) Owner consents to such hookup, then, in those
events, Owner agrees, subject to the provisions of Article 26 and Section 29.08,
to supply condenser water to Tenant's Supplemental A/C Unit and Tenant agrees
that (i) Tenant shall pay to Owner, upon demand, all costs and expenses incurred
by Owner in connection with the hookup of such Unite to the Cooling Tower,
including, but not limited to, the present Building standard hookup fee of
$345.00 per ton for such Unit, and (ii) from and after the date the hookup is
completed, which hookup shall be performed by Owner, at Owner's cost, the Fixed
Rent reserved in this Lease shall be increased by a sum (referred to herein as
the "Tenant's Cooling Tower Use Charge") equal to (x) the standard per ton
charge then in effect in the Building, multiplied by (xx) the number of tons of
Tenant's Supplemental A/C Unit. Such standard per ton charge is $75.00 per ton
per annum as of the date hereof.
B. If the regular hourly wage rate of operating engineers
employed in the Building shall be increased in any Escalation Year (as defined
in Article 23) over the rate in effect on the January 1st immediately preceding
such hookup, the Fixed Rent for such Escalation Year shall be increased by a sum
equal to that proportion of Tenant's Cooling Tower Use Charge which such
increase in said hourly wage rate bears to the hourly wage rate in effect on the
January 1st immediately preceding such hookup. The increase in Fixed Rent for
any Escalation Year pursuant to the provisions of the immediately preceding
sentence shall be shown on the Owner's Operating Expense Statement with respect
to such Escalation Year rendered by Owner pursuant to the provisions of said
Article 23, and shall be payable by Tenant as if it were an increase in the
Fixed Rent pursuant to the provisions of said Article 23.
C. Any increase in Fixed Rent for Tenant's Cooling Tower Use
Charge shall be effective as of the date Tenant's Supplemental A/C Unit is
hooked up to the Cooling Tower and shall be retroactive to such date if
necessary.
D. Tenant's Supplemental A/C Unit shall be repaired and
maintained by Tenant at Tenant's cost and expense, pursuant to a service
contract.
SECTION 29.10 Tenant acknowledges that Owner has advised Tenant that it is
Owner's intention to maintain at least the following services in the Building
and, accordingly, Owner shall use reasonable diligence to supply and install all
work and installations in the Building necessary to provide and maintain at
least such services (referred to collectively as "Communication Facilities"):
Telecommunications Infrastructure
The base building network is comprised of:
Voice Grade Services: Voice grade services are available on NEC Article
800, Type CMR, 24 AWG, twisted pair copper cable, terminated on a column mounted
RJ21 block. Technical parameters of this Category 3 cable are:
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Mutual Capacitance 15.8 pF/ft.
DC Resistance 25.7 ohms per 1000 ft.
Characteristic Impedance 650 ohms @ 1 Khz
Characteristic Impedance 105 ohms @ 1 MHz
Attenuation @ 1 MHz 0.45 db/1000 ft..
Attenuation @ 1 MHz 6.8 db/100 ft.
High Speed Copper Services: TI.5 service is available on individually shielded
transmit and receive, 22 AWG cables for high reliability. These cables are
terminated on wire-wrap blocks. Technical parameters of this Category 4 cable
are:
Mutual Capacitance 15.6 pF/ft.
DC Resistance 17.6 ohms per 1000 ft.
Characteristic impedance 600 ohms @ 1 Khz
Characteristic impedance 110 ohms @ 1 MHz
Attenuation @ 1 KHz 0.35 db/1000 ft..
Attenuation @ 1 MHz 5.0 db/100 ft.
High Speed Internet Access: Available via hypergrade, Category 5, 24 AWG,
Twisted Pair, Type CMR/MPR, with extended distance/extended frequency of 100
Mbps. Technical parameters of this Category 5 cable are:
Mutual Capacitance 14 pF/ft.
DC Resistance 27 ohms per 1000 ft.
Characteristic Impedance 100 ohms +/- 15% from 1-100MHZ
NVP: 72%
Meets EIA/TIA-568 Category 5 and NEMA Extended Frequency Low Loss
Requirements.
Single Mode Ring Configured, Fiber Optic/cable: Fiber optic cable is MIC
(Multifiber Indoor Cable) 10/125 micron OFNR (Riser) with a PVC jacket,
manufactured by Siecor. Technical parameters of this Fiber Optic cable are:
Attenuation @ 1310 nanometers: 1.0 dB/km
Attenuation @ 1550 nanometers: 0.75 dB/km
Maximum tensile load: 600 lb. Short Term
Maximum tensile load: 225 lb. Long Term
Multi-Mode Fiber Optic Cable: For use as intrabuilding, interfloor LAN
connection, Internet access, and interLAN connections between diverse
businesses. This stranded Multifiber building (MFB) cable may be as a backbone
for fiber based data systems, or to connect different fiber based systems
together. Fiber optic cable is MIC (Multifiber Indoor Cable) 62.5/125 micron,
graded index, OFNR (Riser) with a PVC jacket manufactured by Siecor. Technical
parameters of this Fiber Optic cable are:
Attenuation @ 850 nanometers: 3.75 db/km
Attenuation @ 1300 nanometers: 1.5 db/km
Minimum Bandwith @ 850 nanometers: 160 MHz/Km
Minimum Bandwith @ 1300 nanometers: 500 MHz/Km
Maximum tensile load: 125 lb. Short Term
Maximum tensile load: 560 lb. Long Term
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ARTICLE 30
TABLE OF CONTENTS, ETC.
SECTION 30.01. TABLE OF CONTENTS/CAPTIONS: The Table of Contents and the
captions following the Articles and Sections of this Lease have been inserted
solely as a matter of convenience and in no way define or limit the scope or
intent of any provision of this Lease.
ARTICLE 31
MISCELLANEOUS DEFINITIONS, SEVERABILITY AND INTERPRETATION PROVISIONS
SECTION 31.01. The term "business days" as used in this Lease shall exclude
Saturdays, Sundays and holidays, the term "Saturdays" as used in this Lease
shall exclude holidays and the term "holidays" as used in this Lease shall mean
all days observed as legal holidays by either the New York State Government or
the Federal Government.
SECTION 31.02. The terms "person" and "persons" as used in this Lease shall
be deemed to include natural persons, firms, corporations, associations and any
other private or public entities, whether any of the foregoing are acting on
their own behalf or in a representative capacity.
SECTION 31.03. The term "prime rate" shall mean the rate of interest
announced publicly by Chemical Bank, or its successor, from time to time, as
Chemical Bank's or such successor's base rate, or if there is no such base rate,
then the rate of interest charged by Chemical Bank or its successor to its most
credit worthy customers on commercial loans having a ninety (90) day duration.
SECTION 31.04. If any term, covenant or condition of this Lease or any
application thereof shall be invalid or unenforceable, the remainder of this
Lease and any other application of such term, covenant or condition shall not be
affected thereby.
SECTION 31.05. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted. In the event of any action, suit, dispute or proceeding
affecting the terms of this Lease, no weight shall be given to any deletions or
striking out of any of the terms of this Lease contained in any draft of this
Lease and no such deletion or strike out shall be entered into evidence in any
such action, suit or dispute or proceeding given any weight therein.
SECTION 31.06. The term "First-Class Building" shall mean a first-class
office building in the vicinity of the Building used principally as an
information technology center and if none exists, then a first-class office
building in the downtown area of the Borough of Manhattan shall be the criteria.
SECTION 31.07. Any financial information of Tenant given to Owner certified
by a principal of Tenant as confidential shall be held by Owner in confidence.
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ARTICLE 32
ADJACENT EXCAVATION
SECTION 32.01. If an excavation shall be made upon land adjacent to the
Real Property, or shall be authorized to be made, Tenant shall afford to the
person causing or authorized to cause such excavation license to enter upon the
Demised Premises for the purpose of doing such work as said person shall deem
necessary to preserve the walls and other portions of the Building from injury
or damage and to support the same by proper foundations and no such entry shall
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Owner or said person.
ARTICLE 33
BUILDING RULES
SECTION 33.01. Tenant shall observe faithfully, and comply strictly with,
and shall not permit the violation of, the Building Rules set forth in Schedule
A annexed to and made a part of this Lease and such additional reasonable
Building Rules as Owner may, from time to time, adopt. All of the terms,
covenants and conditions of Schedule A are incorporated in this Lease by
reference and shall be deemed part of this Lease as though fully set forth in
the body of this Lease. The term "Building Rules" as used in this Lease shall
include those set forth in Schedule A and those hereafter made or adopted as
provided in this Section. In case Tenant disputes the reasonableness of any
additional Building Rule hereafter adopted by Owner, the parties hereto agree to
submit the question of the reasonableness of such Building Rule for decision to
the Chairman of the Board of Directors of the Management Division of the Real
Estate Board of New York, Inc., or its successor (the "Chairman"), or to such
impartial person or persons as the Chairman may designate, whose determination
shall be final and conclusive upon Owner and Tenant. Tenant's right to dispute
the reasonableness of any additional Building Rule shall be deemed waived unless
asserted by service of a notice upon Owner within ten (10) days after the date
upon which Owner shall give notice to Tenant of the adoption of any such
additional Building Rule. Owner shall have no duty or obligation to enforce any
Building Rule, or any term, covenant or condition of any other lease, against
any other tenant or occupant of the Building, and Owner's failure or refusal to
enforce any Building Rule or any term, covenant or condition of any other lease
against any other tenant or occupant of the Building shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Owner or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
SECTION 33.02. Any Building Rule not enforced generally against other
tenants of the Building shall not be enforced against Tenant. Wherever the
Building Rules provide for a matter to be determined by Owner or its agents,
Owner or its agents shall exercise their reasonable judgment with respect
thereto and any determination to be made by Owner or its agents thereunder shall
not be unreasonably withheld or delayed.
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ARTICLE 34
BROKER
SECTION 34.01. Tenant represents and warrants to Owner that with the
exception of Rudes Realty Company, Owner's consultant, Daren Hornig of The
Galbreath Company is the sole broker with whom Tenant has negotiated or
otherwise dealt with in connection with the Demised Premises or in bringing
about this Lease. Tenant shall indemnify Owner from all loss, cost, liability,
damage and expenses, including, but not limited to, reasonable counsel fees and
disbursements, arising from any breach of the foregoing representation and
warranty.
ARTICLE 35
SECURITY
SECTION 35.01. The sum of TWENTY THOUSAND FIVE HUNDRED SIXTY-TWO and
50/100 ($20,562.50) DOLLARS representing security (referred to as "Security")
for the faithful performance and observance by Tenant of the terms, covenants
and conditions of this Lease on Tenant's part to be observed and performed is
due and payable at the time of the execution and delivery of this Lease. In the
event of any default by Tenant in the observance or performance of any of the
terms, covenants or conditions of this Lease on the part of Tenant to be
observed or performed including, but not limited to, any default in the payment
when due of any monthly installment of the Fixed Rent or increase in the Fixed
Rent payable pursuant to the provisions of Articles 23 or 29 or of any
additional rent, Owner may use or apply all or any part of the Security for the
payment to Owner for Tenant's account of any sum or sums due under this Lease,
without thereby waiving any other rights or remedies of Owner with respect to
such default. Tenant agrees to replenish all or any part of the Security so used
or applied during the Demised Term. After (i) the Expiration Date or any other
date upon which the Demised Term shall expire and come to an end, and (ii) the
full observance and performance by Tenant of all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed,
including, but not limited to, the provisions of Article 21, Owner shall return
to Tenant the balance of the Security then held or retained by Owner. Owner
agrees that, unless prohibited by law or by the general policies of lending
institutions in New York City, Owner shall deposit the Security in an
interest-bearing savings account with a bank selected by Owner, in which event
all interest accruing thereon shall be added to and become part of the Security
and shall be retained by Owner under the same conditions as the sum originally
deposited as Security. Tenant agrees that Tenant shall not assign or encumber
any part of the Security, and no assignment or encumbrance by Tenant of all or
any part of the Security shall be binding upon Owner, whether made prior to,
during, or after the Demised Term. Owner shall not be required to exhaust its
remedies against Tenant or against the Security before having recourse to any
other form of security held by Owner and recourse by Owner to any form of
security shall not affect any remedies of Owner which are provided in this Lease
or which are available to Owner in law or equity. In the event of any sale,
assignment or transfer by Owner named herein (or by any subsequent Owner) of its
interest in the Building as owner or lessee, Owner (or such subsequent owner)
shall have the right to assign or transfer the Security to its grantee, assignee
or transferee and, in the event of such assignment or transfer, Owner named
herein, (or such subsequent Owner) shall have no liability to Tenant for the
return of the Security and Tenant shall look solely to the grantee, assignee or
transferee for such return. A lease of the entire Building shall be deemed a
transfer within the meaning of the foregoing sentence. Notwithstanding anything
to the contrary set forth in the foregoing provisions of this Article, Owner
shall be entitled to retain the one (1%) percent administrative fee permitted by
law to be retained by landlords with respect to security deposits.
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ARTICLE 36
ARBITRATION, ETC.
SECTION 36.01. Any dispute (i) with respect to the reasonability of
any failure or refusal of Owner to grant its consent or approval to any request
for such consent or approval pursuant to the provisions of Sections 3.01 or
11.03 with respect to which request Owner has agreed, in such Sections, not
unreasonably to withhold such consent or approval, or (ii) arising out of the
application of the Operating Expenses provisions of Article 23, which is
submitted to arbitration shall be finally determined by arbitration in the City
of New York in accordance with the rules and regulations then obtaining of the
American Arbitration Association or its successor. Any such determination shall
be final and binding upon the parties, whether or not a judgment shall be
entered in any court. In making their determination, the arbitrators shall not
subtract from, add to, or otherwise modify any of the provisions of this Lease.
Owner and Tenant may, at their own expense, be represented by counsel and employ
expert witnesses in any such arbitration. Any dispute with respect to the
reasonability of any failure or refusal of Owner to grant its consent or
approval to any request for such consent or approval pursuant to any of the
provisions of this Lease (other than Sections 3.01 and 11.03) with respect to
which Owner has covenanted not unreasonably to withhold such consent or
approval, and any dispute arising with respect to the increases in Fixed Rent
due to the provisions of Section 23.02 shall be determined by applicable legal
proceedings. If the determination of any such legal proceedings, or of any
arbitration held pursuant to the provisions of this Section with respect to
disputes arising under Sections 3.01 and 11.03 or the Operating Expense
provisions of Article 23, shall be adverse to Owner, Owner shall be deemed to
have granted the requested consent or approval, or be bound by any determination
as to Taxes and Operating Expenses and the increases in Fixed Rent relating
thereto, but that shall be Tenant's sole remedy in such event and Owner shall
not be liable to Tenant for a breach of Owner's covenant not unreasonably to
withhold such consent or approval, or otherwise. Each party shall pay its own
counsel and expert witness fees and expenses, if any, in connection with any
arbitration held pursuant to the provisions of this Section and the parties will
share all other expenses and fees of any such arbitration.
ARTICLE 37
PARTIES BOUND
SECTION 37.01. The terms, covenants and conditions contained in this
Lease shall bind and inure to the benefit of Owner and Tenant and, except as
otherwise provided in this Lease, their respective heirs, distributees,
executors, administrators, successors and assigns. However, the obligations of
Owner under this Lease shall no longer be binding upon Owner named herein after
the sale, assignment or transfer by Owner named herein (or upon any subsequent
Owner after the sale, assignment or transfer by such subsequent Owner) of its
interest in the Building as owner or lessee, and in the event of any such sale,
assignment or transfer, such obligations shall thereafter be binding upon the
grantee, assignee or other transferee of such interest, and any such grantee,
assignee or transferee, by accepting such interest, shall be deemed to have
assumed such obligations. A lease of the entire Building shall be deemed a
transfer within the meaning of the foregoing sentence. Neither the partners
(direct or indirect) comprising Owner, nor the shareholders (nor any of the
partners comprising same), partners, directors or officers of any of the
foregoing (collectively, the "Owner's Parties") shall be liable for the
performance of Owner's obligations under this Lease. Tenant shall look solely to
Owner to enforce Owner's obligations hereunder and shall not seek any damages
against any of the Owner's Parties. Notwithstanding anything contained in this
Lease to the contrary, Tenant shall look solely to the estate and interest of
Owner, its successors and assigns, in the Real Property and Building for the
collection or satisfaction of any judgment recovered against Owner based upon
the breach by Owner of any of the terms, conditions or covenants of this Lease
on the part of Owner to be performed, and no other property or assets of Owner
or any of Owner's Parties shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to either this Lease, the relationship of landlord and tenant hereunder,
or Tenant's use and occupancy of the Demised Premises.
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ARTICLE 38
SINGLE RIGHTS FOR ADDITIONAL OPTION SPACES
SECTION 38.01. Commencing on the first (1st) day of the fourth (4th)
anniversary of the Commencement Date and expiring on the day which is the date
immediately the sixth (6th) anniversary of the Commencement Date and provided
(a) Tenant is not then in default under any of the terms, covenants or
conditions of this Lease on Tenant's part to be observed and performed after
notice and the expiration of applicable cure periods, and (b) Tenant, in
contradistinction to any subtenants or other occupants, shall then be in
occupancy of at least eighty (80%) percent of the space leased to Tenant under
this Lease (for the purposes of this Article 38, any space leased to Tenant
under this Lease which has been eliminated from the Demised Premises pursuant to
the provisions of Section 11.03 shall be deemed space leased to Tenant under
this Lease), and subject to the rights of any other then tenant or occupant of
the Building Tenant shall have the single option, subject to the provisions of
this Article, exercisable in accordance with the provisions of Section 38.02, to
lease and add to the Demised Premises any space on the entire seventeenth (17th)
or parts of the fifteenth (15th) and fourteenth (14th) floors of the Building
containing from 4,000 to 6,000 rentable square feet (measured in the same manner
as the Demised Premises were measured) which, after the initial leasing by Owner
of such space, becomes, or is about to become, available for leasing during the
Demised Term. Tenant agrees that Owner may initially lease any space on the
fifteenth (15th) or seventeenth (17th) floors of the Building for whatever term,
and upon all other terms, covenants and conditions, and to whomever it desires
in Owner's sole judgment. No such space shall be deemed "available for leasing"
if (a) the then tenant of such space, or any assignee, successor, subtenant or
other occupant holding through or under such tenant, shall enter into (i) any
agreement with Owner extending the letting agreement affecting such space, or
(ii) any new lease with Owner affecting such space, or (b) any other tenant in
the Building, including, but not limited to Netcast Communications, Corp.
(referred to as "Netcast") or any assignee or successor of such other tenant,
shall exercise any contractual option or right which it has to lease such space.
Accordingly, in amplification and not in limitation of the provisions of the
preceding sentence, Tenant acknowledges and agrees that any options granted to
Tenant pursuant to the provisions of this Article are subordinate to the
options granted to Netcast, pursuant to its lease of space on the sixteenth
(16th) floor of the Building, and that Tenant shall not have any option to lease
any space on the fifteenth (15th) or seventeenth (17th) floors of the Building
if Netcast exercises its option to lease such space in question.
SECTION 38.02. In the event that any such space shall become or about to
become available for leasing in accordance with the provisions of Section 38.01,
Owner shall give notice thereof to Tenant (any such notice is referred to as an
"Availability Notice"), which Notice may be given not earlier than eighteen (18)
months prior to the date set forth in such Notice on which such space is
expected to become vacant and available for leasing and, in such event, Tenant
shall have the option, exercisable only by notice given to Owner within twenty
(20) days next following the date of the giving of such Availability Notice to
lease and add such space to the Demised Premises; (any such space is referred to
as an "Additional Option Space"; any such date set forth in an Availability
Notice is referred to as an "Applicable Expected Vacancy Date"; and any notice
given by Tenant to Owner exercising any such option is referred to as an
"Additional Option Notice"). In the event that any Additional Option Space shall
become available for leasing sooner than the Applicable Expected Vacancy Date
because of the termination of the term of the lease affecting such space, or a
voluntary agreement to surrender resulting from the imminent bankruptcy of the
tenant thereof, as opposed to the expiration of said lease prior to its original
expiration date, Owner shall have the right to accelerate the Applicable
Expected Vacancy Date by not less than thirty (30) days' prior notice to Tenant.
Owner shall accompany any Availability Notice with a plan designating the
location and size of the Additional Option Space. Any such space shall be leased
and added to the Demised Premises at an annual rental rate equal to the fair
market annual rental value of the applicable Additional Option Space on the
commencement date of the term applicable thereto, as determined by agreement
between Owner and Tenant or by arbitration in accordance with the provisions of
Section 38.07 (but in no event shall the Fixed Rent per rentable square foot,
from time to time, applicable to the Additional Option Space be less than the
Fixed Rent per rentable
<PAGE> 60
square foot in effect, from time to time, applicable to the original portion of
the Demised Premises [before giving effect to any abatement or apportionment of
such Fixed Rent]), and such Additional Option Space shall otherwise be leased
and added to the Demised Premises upon the same executory terms, covenants and
conditions as are contained in this Lease (including, but not limited to, the
provisions of Article 23 and the definition of Base Operating Expenses set forth
therein) except as otherwise provided in this Article, adjusted to reflect (x)
the number of rentable square feet contained in the applicable Additional Option
Space, (determined in the same manner as the rentable square feet were
determined in the original portion of the Demised Premises), and (y) that the
term shall commence on the Applicable Expected Vacancy Date, as the same may
have been accelerated by Owner pursuant to the provisions of this Section 38.02,
subject, however, to the provisions of Section 38.03.
SECTION 38.03. Owner and Tenant acknowledge the possibility that all or any
of the tenants or occupants of the Additional Option Space may not have vacated
and surrendered all or any portions of the Additional Option Space to Owner by
the Applicable Expected Vacancy Date. Accordingly, notwithstanding anything to
the contrary contained in Sections 38.01 to 38.02 or in any Availability Notice,
(a) the term of this Lease applicable to the Additional Option Space in question
shall commence (i) on the Applicable Expected Vacancy Date with respect to those
portions, if any, of the Additional Option Space which are vacant on the
Applicable Expected Vacancy Date, and (ii) with respect to those portions, if
any, of the Additional Option Space which are not vacant on the Applicable
Expected Vacancy Date, on the respective later date or dates upon which such
portions of the Additional Option Space become vacant and Owner gives notice to
Tenant of such vacancy; (b) the Expiration Date shall not be affected thereby;
(c) the increases in the Fixed Rent, the Demised Premises Area, Tenant's
Electrical Share and all other modifications of this Lease resulting from the
application of the provisions of this Article shall be equitably adjusted to
reflect the fact that all or any portions of the Additional Option Space have
not been leased and added to the Demised Premises on the Applicable Expected
Vacancy Date; (d) except as set forth in this sentence, neither the validity of
this Lease nor the obligations of Tenant under this Lease shall be affected
thereby; (e) Tenant waives any rights under Section 223-a of the Real Property
Law of New York or any successor statute of similar import to rescind this Lease
and further waives the right to recover any damages against Owner which may
result from the failure of Owner to deliver possession of all or any portions of
the Additional Option Space on the Applicable Expected Vacancy Date; and (f)
Owner shall institute, within twenty (20) days after the Applicable Expected
Vacancy Date, possession proceedings against any tenants or occupants who have
not vacated and surrendered all or any portion of the Additional Option Space,
and shall prosecute such proceedings to completion with reasonable diligence.
SECTION 38.04. It is understood and agreed that time is of the essence with
respect to the exercise of any option pursuant to this Article and that if
Tenant does not exercise such option within the time limitation set forth in
Section 38.02, any notice purporting to exercise such option given after the
expiration of such time limitation shall be void and of no force and effect and
the provisions of this Article shall be of no further force and effect to the
end that Tenant shall have no right to lease any additional space pursuant to
the provisions of this Article.
SECTION 38.05. In the event that Tenant shall timely exercise the option
set forth in this Article then Tenant shall have no further rights to lease any
further additional space pursuant to the provisions of this Article and on the
effective commencement date of the term applicable to such additional Option
Space, this Lease shall be deemed modified as follows:
A. The Demised Premises shall include the Additional Option
Space (together with all appurtenances, fixtures, improvements, additions and
other property attached thereto or installed therein upon the commencement of
the term applicable to the Additional Option Space or at any time during said
term, other than Tenant's Personal Property) for all purposes of this Lease.
<PAGE> 61
B. The Fixed Rent shall be increased by the fair market annual
rental value for the Additional Option Space as of the effective commencement
date of the term applicable thereto as determined by agreement between Owner and
Tenant or by arbitration as provided in Section 38.07; (but in no event shall
such increase in the Fixed Rent per rentable square foot, from time to time, be
less than the Fixed Rent per rentable square foot in effect, from time to time,
applicable to the original portion of the Demised Premises [before giving effect
to any abatement or apportionment of such Fixed Rent]) with respect to the
period from the effective commencement date of the term applicable to the
Additional Option Space to the Expiration Date, both dates inclusive, and the
monthly installments of the Fixed Rent shall each be increased accordingly to
conform with such increase in the Fixed Rent. In the event that the term
applicable to the Additional Option Space shall commence on a date other than
the first day of any month, the monthly installment of the Fixed Rent for the
month during which the term applicable to the Additional Option Space shall
commence shall be equitably apportioned to reflect such increase in the Fixed
Rent;
C. The Demised Premises Area, as defined in Section 23.01, shall
be increased by the number of rentable square feet contained in the Additional
Option Space (computed in the same manner as the number of rentable square feet
contained in the original portion of the Demised Premises).
D. The Tenant's Electrical Share for the Additional Option Space
shall be the percentage obtained by dividing the number of rentable square feet
contained in the Additional Option Space by 10,000 square feet;
E. If, by the effective commencement date of the term applicable
to the Additional Option Space, the Fixed Rent applicable thereto has not yet
been determined, Tenant shall, until such determination, pay for the Additional
Option Space the same Fixed Rent per rentable square foot then allocable to the
original portion of the Demised Premises, and following any such determination,
any additional sums shall be payable by Tenant to Owner.
SECTION 38.06. Tenant agrees to accept the Additional Option Space in
the condition which shall exist on the commencement date of the term applicable
thereto "as is" and further agrees that Owner shall have no obligation to
perform any work or make any installations in order to prepare such space for
Tenant's occupancy except that Owner shall perform all work necessary so that
Tenant's consumption of electricity therein shall be submetered. Owner may enter
the Additional Option Space to perform such work and such entry shall be in
accordance with the provisions of Article 13.
SECTION 38.07. In the event Owner and Tenant are unable to agree as
to the fair market annual rental value of the Additional Option Space, then,
upon the demand of either Owner or Tenant, such fair market annual rental value
shall be determined by arbitration as follows;
(a) Owner and Tenant shall each appoint an arbitrator
within thirty (30) days after notice by either party requesting arbitration of
the issue. If either Owner or Tenant shall have failed to appoint an arbitrator
within such period of time, then such arbitrator shall be appointed by the
American Arbitration Association, or its successor, or if at such time such
association is not in existence and has no successor, then by the presiding
Justice of the Appellate Division, First Department, of the Supreme Court of the
State of New York, or any successor court, upon request of either Owner or
Tenant, as the case may be.
(b) The two arbitrators appointed, as above provided, shall
select a third arbitrator and if they fail to do so within thirty (30) days
after their appointment, such third arbitrator shall be appointed as above
provided for the appointment of an arbitrator in the event either party fails to
do so.
(c) All of such arbitrators shall be real estate appraisers
or brokers having at least fifteen (15) years of experience in such field in the
Borough of Manhattan, City of New York.
-59-
<PAGE> 62
(d) The three arbitrators, selected as aforesaid, forthwith
shall convene and render their decision as promptly as practicable after the
appointment of the third arbitrator. The decision of such arbitrators shall be
in writing and the vote of the majority of them (or, if there be no majority
decision, then the decision of the last appointed arbitrator) shall be the
decision of all and binding upon Owner and Tenant whether or not a judgment
shall be entered in any court. Duplicate original counterparts of such decision
shall be sent by the arbitrators to both Owner and Tenant.
(e) The arbitrators, in arriving at their decision, shall
be entitled to consider all testimony and documentary evidence which may be
presented at any hearing as well as facts and data which the arbitrators may
discover by investigation and inquiry outside of such hearings. The arbitrators
shall be bound by the provisions of this Lease, and shall not add to, subtract
from, or otherwise modify such provisions. The cost and expense of such
arbitration shall be borne equally by Owner and Tenant, except that each party
shall pay its own counsel fees and expenses.
(f) Notwithstanding any findings of the arbitrators, such
fair market annual rental value from time to time per rentable square foot, and
accordingly, the Fixed Rent applicable to the Additional Option Space, from time
to time per rentable square foot, shall not be less than the Fixed Rent per
rentable square foot in effect, from time to time, applicable to the original
portion of the Demised Premises (before giving effect to any abatement or
apportionment of such Fixed Rent).
SECTION 38.08.A. Upon request of Owner or Tenant, the parties from
time to time, shall execute and deliver to the other, instruments, in form
reasonably satisfactory to the parties, stating whether or not Tenant has
exercised any right to lease any Additional Option Space pursuant to the
provisions of this Article.
B. Upon the request of Owner or Tenant, the parties from time to
time, shall execute and deliver to the other, instruments, in form reasonably
satisfactory to the parties, setting forth all of the modifications to this
Lease resulting from the exercise of any such option, including, but not limited
to, the increases in the Fixed Rent resulting therefrom.
C. Neither the failure of Owner or Tenant to request the
execution of any such instrument nor Owner's or Tenant's failure to execute and
deliver such instrument shall vitiate any of the provisions of this Article.
D. Tenant acknowledges and agrees that it is the intention of
the parties that Tenant shall have the single option, as set forth in this
Article, to lease and add to the Demised Premises only one (1) piece of
Additional Option Space and once Tenant so exercises such option in accordance
with the provisions of this Article or fails to so exercise such option in
accordance with the provisions of this Article, as the case may be. Tenant shall
have no further right to lease any further additional space pursuant to the
provisions of this Article.
-60-
<PAGE> 63
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and
sealed this Lease as of the day and year first above written.
55 BROAD STREET COMPANY
Witness:
/s/ illegible By: /s/ illegible
- -------------------------------- --------------------------------
Owner
Name:
Title: Partner
NYSERNet, INC.
Witness:
/s/ illegible By: /s/ Richard Mandelbaum
- -------------------------------- --------------------------------
Tenant
Name:
Title:
-61-
<PAGE> 64
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this 2nd day of May, 1996, before me personally came Richard
Mandelbaum, to me known, who being by me duly sworn, did depose and say that he
resides in Queens, City of New York, State of New York, that he is the
President of the corporation described in and which executed the foregoing
Lease, as Tenant; and that he signed his name thereto by authority of the Board
of Directors of said corporation.
JEANNE S. CHU /s/ Jeanne S. Chu
Notary Public, State of New York ---------------------------
No. 41-4968211 Qualified in Queens County Notary Public
Cert. Filed in Nassau County
Commission Expires June 18, 1996
-62-
<PAGE> 65
ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT
--------------------------------------------
AGREEMENT made as of the 30 day of January, 1997, among 55 BROAD STREET
COMPANY, a New York partnership having its principal office at 345 Park Avenue,
New York, New York 10154, as landlord (referred to herein as "OWNER");
NYSERNet.ORG, INC. (formerly-known-as NYSERNet, Inc.), a New York corporation
having an office at 200 Elwood Davis Road, Suite 1013, Liverpool, New York, as
tenant (referred to herein as "TENANT-ASSIGNOR"). and APPLIEDTHEORY
COMMUNICATIONS, INC., a New York corporation having an office at 55 Broad
Street, New York, New York (referred to herein as "ASSIGNEE").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS:
1. Under date of May 1, 1996, OWNER entered into a lease with
TENANT-ASSIGNOR for a portion of the sixteenth (16th) floor in the building
known as 55 Broad Street, New York, New York; and
2. The term demised in said lease is fixed to expire on September 30,
2006 unless sooner terminated pursuant to any of the terms, covenants or
conditions of said lease or pursuant to law (the aforesaid lease, as modified
by various written agreements, including, but not limited to an agreement dated
January 10, 1997, is referred to as the "Lease"; and the premises demised
therein, together with all appurtenances, fixtures, additions and other
property attached thereto or installed therein are referred to herein as the
"Demised Premises"); and
<PAGE> 66
3. TENANT-ASSIGNOR now desires to assign its interest as Tenant under the
Lease to ASSIGNEE and ASSIGNEE desires to succeed to the interest of
TENANT-ASSIGNOR as Tenant under the Lease and is willing to assume the
observance and performance of the obligations of Tenant under the Lease; and
4. OWNER is willing to consent to the proposed assignment, subject to the
terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
FIRST: A. TENANT-ASSIGNOR and ASSIGNEE represent and warrant to Owner
that both TENANT-ASSIGNOR and ASSIGNEE are affiliated companies under common
control.
B. TENANT-ASSIGNOR hereby assigns, transfers and sets over unto
ASSIGNEE all of TENANT-ASSIGNOR'S right, title and interest as Tenant under the
Lease as of the date of this Agreement. In addition, TENANT-ASSIGNOR hereby
transfers and sets over to ASSIGNEE all of TENANT-ASSIGNOR's right, title and
interest to all monies held by OWNER, if any, as security under Section 35.01
of the Lease.
SECOND: ASSIGNEE, for the benefit of OWNER and TENANT-ASSIGNOR, hereby
agrees to assume, keep, observe and perform each and every one of the terms,
covenants and conditions of the Lease on Tenant's part to be observed or
performed including, but not limited to, all obligations of the Tenant under
the Lease originating or accruing before the date of this Agreement, all with
the same force and effect as if ASSIGNEE had executed the Lease as the Tenant
originally named therein. ASSIGNEE hereby agrees that the Demised Premises will
be used solely for the purpose set forth in Article 2 of the Lease and for no
other purpose and use.
<PAGE> 67
THIRD: TENANT-ASSIGNOR and ASSIGNEE represent and warrant to OWNER that
the Lease and Demised Premises are not encumbered by any prior transfer,
assignment, mortgage, lien, assessment or encumbrance of whatever nature, and
TENANT-ASSIGNOR and ASSIGNEE represent and warrant to OWNER that no broker is
responsible for bringing about this Agreement.
FOURTH: Subject to the provisions of this Agreement, OWNER hereby consents
to the foregoing assignment. OWNER's consent shall not in any way be construed
to relieve ASSIGNEE from obtaining the express consent, in writing, of OWNER to
any further assignment of the Tenant's interest in the Lease.
FIFTH: TENANT-ASSIGNOR, for the benefit of OWNER, (a) waives all notices
of default which may be given to ASSIGNEE and all other notices of every kind or
description now or hereafter provided in the Lease by statute or rule of law,
and (b) agrees that, notwithstanding the foregoing assignment and OWNER's
consent thereto, TENANT-ASSIGNOR's obligations with respect to the Lease shall
not be discharged, released or impaired by (i) this assignment, (ii) any
amendment or modification of the Lease, whether or not the obligations of Tenant
are increased thereby, (iii) any further assignment or transfer of Tenant's
interest in the Lease, (iv) any exercise, non-exercise or waiver by OWNER of any
right, remedy, power or privilege under or with respect to the Lease, (v) any
waiver, consent, extension, indulgence or other act or omission with respect to
any other obligations of Tenant, under the Lease, (vi) any insolvency,
bankruptcy, liquidation, reorganization, arrangement, dissolution, or similar
proceeding involving or affecting ASSIGNEE or any further assignee, (vii) any
act or thing which, but for the provisions of this assignment, might be deemed a
legal or equitable discharge of a surety or assignor, to all of which
TENANT-ASSIGNOR hereby consents in advance, and (c) TENANT-ASSIGNOR expressly
waives and surrenders any defenses as assignor which may now or hereafter exist
to its liability under the Lease, it being the purpose and intent of OWNER and
<PAGE> 68
TENANT-ASSIGNOR that the obligations of TENANT-ASSIGNOR hereunder as assignor
shall be absolute and unconditional under any and all circumstances.
SIXTH: TENANT-ASSIGNOR and ASSIGNEE agree to pay to OWNER, upon demand,
as additional rent under the Lease, reasonable counsel fees incurred by OWNER
in connection with the assignment by TENANT-ASSIGNOR to ASSIGNEE of the
Tenant's interest under the Lease and with the preparation and execution of
this Agreement.
SEVENTH: Except as expressly modified by the foregoing provisions of this
Agreement the Lease is hereby ratified and confirmed in all respect by each of
the parties to this Agreement.
EIGHTH: The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective legal representatives,
successors and assigns.
<PAGE> 69
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as
of the day and year first above written.
55 BROAD STREET COMPANY, Owner
By: /s/ illegible
-------------------------------------
NYSERNET.ORG, INC., Tenant-Assignor
By: /s/ David A. Buckel
-------------------------------------
David A. Buckel
APPLIEDTHEORY COMMUNICATIONS, INC. Assignee
By: /s/ David A. Buckel
-------------------------------------
David A. Buckel
<PAGE> 70
STATE OF NEW YORK)
:ss.:
COUNTY OF NEW YORK)
On the 23rd day of Jan., 1997, before me personally came David A. Buckel,
to me known, who, being by me duly sworn, did depose and say that he resides at
Syracuse that he is the Secretary of NYSERNet.org, Inc., the corporation
described in and which executed the foregoing Assignment and Assumption of
Lease; as Tenant-Assignor; and that he signed his name thereto by authority of
the Board of Directors of said corporation.
/s/ Patricia J. Foster
----------------------------
Notary Public
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon, Co. No. 4755760
My Commission Expires Sept. 30, 1998
<PAGE> 71
STATE OF NEW YORK)
:ss.:
COUNTY OF NEW YORK)
On the 23rd day of Jan., 1997, before me personally came David A. Buckel,
to me known, who, being by me duly sworn, did depose and say that he resides at
Syracuse, that he is the Director of Finance of AppliedTheory Communications,
Inc., the corporation described in and which executed the foregoing Assignment
and Assumption of Lease as Assignee; and that he signed his name thereto by
authority of the Board of Directors of said corporation.
/s/ Patricia J. Foster
----------------------------
Notary Public
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon, Co. No. 4755760
My Commission Expires Sept. 30, 1998
<PAGE> 1
Exhibit 10.06
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE, made as of this _____________ day of May 1996, between
CUTTERMILL REALTY CO., A New York Limited Partnership, having an office at
40 Cutter Mill Road, Great Neck, NY 11021 party of the first part, hereinafter
referred to as OWNER, and NYSERNet, Inc., a New York Corporation, having an
office at 40 Cutter Mill Road, Great Neck, NY 11021 party of the second part,
hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner
the portion of the fourth floor shown on Exhibit "A" annexed hereto (the
"Premises") in the building known as 40 Cutter Mill Road (the "Building") Great
Neck, New York, for the term of One Hundred Twenty-One (121) months (or until
such term shall sooner cease and expire as hereinafter provided) to commence on
the Commencement Date and to end on the Expiration Date (as such terms are
hereinafter defined) both dates inclusive, at an annual rental rate of
$183,066.00 - One Hundred Eighty-Three Thousand Sixty-Six Dollars which Tenant
agrees to pay in lawful money of the United States which shall be legal tender
in payment of all debts and dues, public and private, at the time of payment,
in equal monthly installments in advance on the first day of each month during
said term, at the office of Owner or such other place as Owner may designate,
without any set off or deduction whatsoever, except that Tenant shall pay the
first Two monthly installment(s) on the execution hereof (unless this lease be
a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT 1. Tenant shall pay the rent as above and as hereinafter
provided.
OCCUPANCY 2. Tenant shall use and occupy demised premises for general
office purposes and for no other purpose.
TENANT 3. Tenant shall make no changes in or to the demised premises
ALTERATIONS: of any nature without Owner's prior written consent. Subject to
the prior written consent of Owner, and to the provisions of
this article, Tenant at Tenant's expense, may make alterations, installations,
additions or improvements which are non-structural and which do not affect
utility services or plumbing and electrical lines, in or to the interior of the
demised premises by using contractors or mechanics first approved by Owner.
Tenant shall, before making any alterations, additions, installations or
improvements, at its expense, obtain all permits, approvals and certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Owner and Tenant agrees to
carry and will cause Tenant's contractors and sub-contractors to carry such
workman's compensation, general liability, personal and property damage
insurance as Owner may require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or
not done pursuant to this article, the same shall be discharged by Tenant
within thirty days thereafter, at Tenant's expense, by filing the bond required
by law. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner in Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises unless
Owner, by notice to Tenant no later than twenty days later the date fixed as
the termination of this lease, elects to relinquish Owner's right thereto and
to have them removed by Tenant, in which event the same shall be removed from
the premises by Tenant promptly thereafter, at Tenant's expense. Nothing in
this Article shall be construed to give Owner title to or to prevent Tenant's
removal of trade fixtures, moveable office furniture and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Owner, Tenant shall immediately and at its expense, repair
and restore the premises to the condition existing prior to installation and
repair any damage to the demised premises or the building due to such removal.
All property permitted or required to be removed, by Tenant at the end of the
term remaining in the premises after Tenant's removal shall be deemed abandoned
and may, at the election of Owner, either be retained as Owner's property or
may be removed from the premises by Owner, at Tenant's expense.
MAINTENANCE 4. Tenant shall, throughout the term of this lease, take good
AND care of the demised premises and the fixtures and appurtenances
REPAIRS therein. Tenant shall be responsible for all damage or injury
to the demised premises or any other part of the building and
the systems and equipment thereof, whether requiring structural or
nonstructural repairs caused by or resulting from carelessness, omission,
neglect or improper conduct of Tenant, Tenant's subtenants, agents, employees,
invitees or licensees, or which arise out of any work, labor, service or
equipment done for or supplied to Tenant or any subtenant or arising out of the
installation, use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damage to the building and the demised
premises caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant's expense, all repairs in and to the
demised premises for which Tenant is responsible, using only the contractor for
the trade or trades in question, selected from a list of at least two
contractors per trade submitted by Owner. Any other repairs in or to the
building or the facilities and systems thereof for which Tenant is responsible
shall be performed by Owner at the Tenant's expense. Owner shall maintain in
good working order and repair the exterior and the structural portions of the
building, including the structural portions of its demised premises, and the
public portions of the building interior and the building plumbing, electrical,
heating and ventilating systems (to the extent such systems presently exist)
serving the demised premises. Tenant agrees to give prompt notice of any
defective condition in the premises for which Owner may be responsible
hereunder. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or others making repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. It is
specifically agreed that Tenant shall not be entitled to any setoff or
reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract. The provisions of this Article 4 shall not
apply in the case of fire or other casualty which are dealt with in Article 9
hereof.
WINDOW 5. Tenant will not clean nor require, permit, suffer or allow
CLEANING: any window in the demised premises to be cleaned from the
outside in violation of Section 202 of the Labor Law or any
other applicable law or of the Rules of the Board of Standards and Appeals, or
of any other Board or body having or asserting jurisdiction.
REQUIREMENTS 6. Prior to the commencement of the lease term, if Tenant is
OF LAW, then in possession, and at all times thereafter, Tenant, at
FIRE INSURANCE, Tenant's sole cost and expense, shall promptly comply with all
FLOOR LOADS: present and future laws, orders and regulations of all state,
federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, Insurance Services Office, or any similar body which shall impose
any violation, order or duty upon Owner or Tenant with respect to the demised
premises, whether or not arising out of Tenant's use or manner of use thereof,
(including Tenant's permitted use) or, with respect to the building if arising
out of Tenant's
<PAGE> 2
use or manner of use of the premises or the ing (including the use permitted
under the lease). Nothing herein shall require Tenant to make structural repairs
or alterations unless Tenant has, by its manner of use of the demised premises
or method of operation therein, violated any such laws, ordinances, orders,
rules, regulations or requirements with respect thereto. Tenant may, after
securing Owner to Owner's satisfaction against all damages, interest, penalties
and expenses, including, but not limited to, reasonable attorney's fees, by cash
deposit or by surety bond in an amount and in a company satisfactory to Owner,
contest and appeal any such laws, ordinances, orders, rules, regulations or
requirements provided same is done with all reasonable promptness and provided
such appeal shall not subject Owner to prosecution for a criminal offense or
constitute a default under any lease or mortgage under which Owner may be
obligated, or cause the demised premises or any part thereof to be condemned or
vacated. Tenant shall not do or permit any act or thing to be done in or to the
demised premises which is contrary to law, or which will invalidate or be in
conflict with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the demised premises or
the building of which the demised premises form a part, or which shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be
imposed upon Owner by reason of Tenant's failure to comply with the provisions
of this article and if by reason of such failure the fire insurance rate
shall,at the beginning of this lease or at any time thereafter, be higher than
it otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable to
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgement, to absorb and prevent
vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
Property -- Loss, Damage, Reimbursement, Indemnity:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees. Owner
or its agents will not be liable for any such damage caused by other tenants or
persons in, upon or about said building or caused by operations in construction
of any private, public or quasi public work.
If at any time any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any reason whatsoever including, but not limited to Owner's
own acts, Owner shall not be liable for any damage Tenant may sustain thereby
and Tenant shall not be entitled to any compensation therefor nor abatement or
diminution of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall indemnify and save harmless
Owner against and from all liabilities, obligations, damages, penalties, claims,
costs and expenses for which Owner shall not be reimbursed by insurance,
including reasonable attorneys fees, paid, suffered or incurred as a result of
any breach by Tenant, Tenant's agents, contractors, employees, invitees, or
licensees, of any covenant or condition of this lease, or the carelessness,
negligence or improper conduct of the Tenant, Tenant's agents, contractors,
employees, invitees or licensees. Tenant's liability under this lease extends to
the acts and omissions of any sub-tenant, and any agent, contractor, employee,
invitee or licensee of any sub-tenant. In case any action or proceeding is
brought against Owner by reason of any such claim, Tenant, upon written notice
from Owner, will, at Tenant's expense, resist or defend such action or
proceeding by counsel chosen by Tenant and approved by Owner in writing, such
approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect not to restore
the same as hereinafter provided. (d) If the demised premises are rendered
wholly unusable or (whether or not the demised premises are damaged in whole or
in part) if the building shall be so damaged that Owner shall decide to demolish
it or to rebuild it, then, in any of such events, Owner may elect to terminate
this lease by written notice to Tenant, given within 90 days after such fire or
casualty, specifying a date for the expiration of the lease, which date shall
not be more than 60 days after giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
owing shall be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be returned to
Tenant. Unless owner shall serve a termination notice as provided for herein,
Owner shall make the repairs and restorations under the conditions of (b) and
(c) hereof, with all reasonable expedition, subject to delays due to adjustment
of insurance claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises as promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy. (e) Nothing
contained hereinabove shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. Notwithstanding the foregoing,
each party shall look first to any insurance in its favor before making any
claim against the other party for recovery for loss or damage resulting from
fire or other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, Owner and Tenant each hereby
releases and waives all right of recovery against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefitting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease and assigns to Owner, Tenant's entire
interest in any such award.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant shall be deemed an assignment. If this lease be
assigned, or if the demised premises or any part thereof be underlet or occupied
by anybody other than Tenant, Owner may, after default by Tenant, collect rent
from the assignee, under-tenant or occupant, and apply the net amount collected
to the rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Electric Current: [Graphic of Hand with Pointing Finger]
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages or expenses which Tenant may sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times on notice to Tenant, to examine the same and to make such
repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to the demised premises or to any other portion of the
building or which Owner may elect to perform. Tenant shall permit Owner to use
and maintain and replace pipes and conduits in and through the demised premises
and to erect new pipes and conduits therein provided they are concealed within
the walls, floor, or ceiling. Owner may, during the progress of any work in the
demised premises, take all necessary materials and equipment into said premises
without the same constituting an eviction nor shall the Tenant be entitled to
any abatement of rent while such work is in progress nor to any damages by
reason of loss or interruption of business or otherwise. Throughout the term
hereof Owner shall have the right to enter the demised premises at reasonable
hours for the purpose of showing the
- -----------------------
[Graphic of hand with Pointing Finger] Rider to be added if necessary.
* chosen by Tenant and
** on notice to Tenant
<PAGE> 3
same to prospective purchasers or mortgag???? of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the premises.
Owner or Owner's agents may enter the same whenever such entry may be necessary
or permissible by master key or forcibly and provided reasonable care is
exercised to safeguard Tenant's property, such entry shall not render Owner or
its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom, Owner may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
VAULT, 14. No Vaults, vault space or area, whether or not enclosed
VAULT SPACE, or covered, not within the property line of the building is
AREA: leased hereunder, anything contained in or indicated on any
sketch, blue print or plan, or anything contained elsewhere
in this lease to the contrary notwithstanding. Owner makes no representation as
to the location of the property line of the building. All vaults and vault space
and all such areas not within the property line of the building, which Tenant
may be permitted to use and/or occupy, is to be used and/or occupied under a
revocable license, and if any such license be revoked, or if the amount of such
space or area be diminished or required by any federal, state or municipal
authority or public utility, Owner shall not be subject to any liability nor
shall Tenant be entitled to any compensation or diminution or abatement of rent,
nor shall such revocation, diminution or requisition be deemed constructive or
actual eviction. Any tax, fee or charge of municipal authorities for such vault
or area shall be paid by Tenant.
OCCUPANCY: 15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy
issued for the building of which the demised premises are a part. Tenant has
inspected the premises and accepts them as is, subject to the riders annexed
hereto with respect to Owner's work, if any. In any event, Owner makes no
representation as to the condition of the premises and Tenant agrees to accept
the same subject to violations, whether or not of record. As of the Lease date,
Owner has not been notified of any building or fire code violations in
connection with the demised premises.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the
sending of a written notice to Tenant within a reasonable time after the
happening of any one or more of the following events: (1) the commencement of a
case in bankruptcy or under the laws of any state naming Tenant as the debtor;
or (2) the making by Tenant of an assignment or any other arrangement for the
benefit of creditors under any state statute. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of court,
shall thereafter be entitled to possession of the premises demised but shall
forthwith quit and surrender the premises. If this lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be applicable
only to the party then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the demised premises
for the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the
covenants of this lease including the covenants for the
payment of rent or additional rent; or if the demised premises becomes vacant or
deserted; or if any execution or attachment shall be issued against Tenant or
any of Tenant's property whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if this lease be rejected under
Section 235 of Title 11 of the U.S. Code (bankruptcy code); or if Tenant shall
fail to move into or take possession of the premises within fifteen (15) days
after the commencement of the term of this lease, then, in any one or more of
such events, upon Owner serving a written thirty (30) days notice upon Tenant
specifying the nature of said default and upon the expiration of said thirty
(30) days, if Tenant shall have failed to comply with or remedy such default, or
if the said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said thirty (30) day period, and
if Tenant shall not have diligently commenced during such default within such
thirty (30) day period, and shall not thereafter with reasonable diligence and
in good faith, proceed to remedy or cure such default, then Owner may serve a
written three (3) days' notice of cancellation of this lease upon Tenant, and
upon the expiration of said three (3) days this lease and the term thereunder
shall end and expire as fully and completely as if the expiration of such three
(3) day period were the day herein definitely fixed for the end and expiration
of this lease and the term thereof and Tenant shall then quit and surrender the
demised premises to Owner but Tenant shall remain liable as hereinafter
provided.
(2) If the notice provided for in (1) hereof shall have
been given, and the term shall expire as aforesaid; or if Tenant shall make
default in the payment of the rent reserved herein or any item of additional
rent herein mentioned or any part of either or in making any other payment
herein required; upon Owner serving a written five(5) days notice upon Tenant
specifying the default amount and upon the expiration of said five (5) days, if
Tenant shall have failed to comply with or remedy such default, then and in any
of such events Owner may without notice, re-enter the demised premises either by
force or otherwise, and dispossess Tenant by summary proceedings or otherwise,
and the legal representative of Tenant or other occupant of demised premises and
remove their effects and hold the premises as if this lease had not been made,
and Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Owner may cancel and terminate such renewal or extension agreement by
written notice.
REMEDIES OF 18. In case of any such default, re-entry, expiration
OWNER AND and/or dispossess by summary proceedings or otherwise, (a)
WAIVER OF the rent shall become due thereupon and be paid up to the
time of such re-entry, dispossess and/or expiration, (b)
Owner may re-let, the premises or any part or parts thereof, either in the name
of Owner or otherwise, for a term or terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or convenanted to be paid and the net amount, if any, of the rents
collected on account of the lease or leases of the demised premises for which
moth of the period which would otherwise have constituted the balance of the
term of this lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any month shall not prejudice in any way the rights
of Owner to collect the deficiency of any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owner's option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Owner, in Owner's
sole judgment, considers advisable and necessary for the purpose of re-letting
the demised premises, and the making of such alterations, repairs, replacement,
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for an cause, or in the event of Owner obtaining
possession of demised premises, by reason of the violation by Tenant of any of
the covenants and conditions of this lease, or otherwise.
FEES AND 19. If Tenant shall default in the observance or
EXPENSES performance of any term or covenant on Tenant's part to be
observed or performed under or by virtue of any of the
terms or provisions in any article of this lease, then, unless otherwise
provided elsewhere in this lease, Owner may immediately or at any time
thereafter and without notice perform the obligation of Tenant thereunder. If
Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to
attorney's fees, in instituting, prosecuting or defending any action or
proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within five (5) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
BUILDING 20. Owner shall have the right at any time without the same
ALTERATIONS constituting an eviction and without incurring liability to
AND Tenant therefore to change the arrangement and/or location
MANAGEMENT: of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts
of the building and to change the name, number of designation by which the
building may be known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making any
repairs in the building or any such alterations, additions and improvements.
furthermore, Tenant shall not have any claim against Owner by reason of Owner's
imposition of such controls of the manner of access to the building by Tenant's
social or business visitors as the Owner may deem necessary for the security of
the building and its occupants.
NO REPRESENTATIONS 21. Neither Owner nor Owner's agents have made any
BY OWNER: representations or promises with respect to the physical
condition of the building, the land upon which
* As of the Lease date, Owner has not been notified of any building or fire
code violations in connection with the demised premises.
** thirty (30) days
*** upon Owner serving a written five (5) days notice upon Tenant specifying
the default, amount the expiration of said five (5) days, if Tenant shall
have failed to comply with or remedy such default
<PAGE> 4
it is erected or the demised premises, the re????????, expenses of operation or
any other matter or thing affecting or related to the premises except as herein
expressly set forth* and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth in the provisions of
this lease. Tenant has inspected the building and the demised premises and is
thoroughly acquainted with their condition and agrees to take the same "as is"
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in while or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
END OF TERM: 22. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If the
last day of the term of this Lease or any renewal thereof, falls on Sunday, this
lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at noon on the preceding business day.
QUIET ENJOYMENT 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured or for any other reason, Owner shall not be
subject to any liability for failure to give possession on said date and the
validity of the lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this lease, but the rent
payable hereunder shall be abated (provided Tenant is not responsible for
Owner's inability to obtain possession) until after Owner shall have given
Tenant written notice that the premises are substantially ready for Tenant's
occupancy. If permission is given to Tenant to enter into the possession of the
demised premises or to occupy premises other than the demised premises prior to
the date specified as the commencement of the term of this lease, Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease, except as to the
covenant to pay rent. The provisions of this article are intended to constitute
"an express provision to the contrary" within the meaning of Section 223-a of
the New York Real Property Law.
NO WAIVER: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver to such breach and no provision of this lease
shall be deemed to have been waived by Owner unless such waiver be in writing
signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. No act or thing done by Owner or Owner's
agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
WAIVER OF TRIAL BY JURY: 26. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by Jury in any action, proceeding** or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim** of
whatever nature or description in any such proceeding including a counterclaim
under Article 4.
INABILITY TO PERFORM: 27. This Lease and the obligation of Tenant to pay
rent hereinunder and perform all of the other covenants and agreements hereunder
on part of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under this
lease or to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repair,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Owner is prevented or delayed from so
doing by reason of strike or labor troubles or any cause whatsoever including,
but not limited to, government preemption in connection with a National
Emergency or by reason of any rule, order or regulation of any department or
subdivision thereof of any government agency or by reason of the conditions of
supply and demand which have been or are affected by war or other emergency.
BILLS AND NOTICES: 28. Except as otherwise in this lease provided, a
bill, statement, notice or communication which Owner may desire or be required
to give to Tenant, shall be deemed sufficiently given or rendered if, in
writing, sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
SERVICES PROVIDED BY OWNERS 29. As long as Tenant is not in default
under any of the covenants of this lease, Owners shall provide: (a) necessary
elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from
8 a.m. to 1 p.m. and have one elevator subject to call at all other times; (b)
heat to the demised premises when and as required by law, on business days from
8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (c) water for ordinary
lavatory purposes, but if Tenant uses or consumes water for any other purposes
or in unusual quantities (of which fact Owner shall be the sole judge), Owner
may install a water meter at Tenant's expense which Tenant shall thereafter
maintain at Tenant's expense in good working order and repair to register such
water consumption and Tenant shall pay for water consumed as shown on said meter
as additional rent as and when bills are rendered; (d) cleaning service for the
demised premises on business days at Owner's expense provided that the same are
kept in order by Tenant. If, however, said premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner satisfactory to
Owner and no one other than persons approved by Owner shall be permitted to
enter said premises or the building of which they are a part for such purpose.
Tenant shall pay Owner the cost of removal of any of Tenant's refuse and rubbish
from the building; (f) Owner reserves the right to stop services of the heating,
elevators, plumbing, air-conditioning, power systems or cleaning or other
services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
building of which the demised premises are a part supplies manually-operated
elevator service, Owner at any time may substitute automatic-control elevator
service and upon ten days' written notice to Tenant, proceed with alterations
necessary therefor without in any wise affecting this lease or the obligation of
Tenant hereunder. The same shall be done with a minimum of inconvenience to
Tenant and Owner shall pursue the alteration with due diligence.
CAPTIONS: 30. The Captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
lease nor the intent of any provisions thereof.
DEFINITIONS: 31. The term "office", or "offices", wherever used in this
lease, shall not be construed to mean premises used as a store or stores, for
the sale or display, at any time, of goods, wares or merchandise, of any kind,
or as a restaurant, shop, booth, bootblack or other stand, barber shop, or for
other similar purposes or for manufacturing. The term "Owner" means a landlord
or lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 29
hereof), Sundays and ***
- --------------
[hand graphic with finger pointing right] Rider to be added if necessary.
* specifically in Article 15,
** except mandatory counterclaims
*** New Year's Day, the date Washington's Birthday is generally celebrated,
Memorial Day, July 4th, Labor Day, Christmas Day and Thanksgiving Day.
<PAGE> 5
*(the Security Deposit)
ADJACENT EXCAVATION -- SHORING:
32. If an excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the demised premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
RULES AND REGULATIONS
33. Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
and such other and further reasonable Rules and Regulations as Owner or Owner's
agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agent, visitors or licensees.
SECURITY
34. Tenant has deposited with Owner the sum of $15,255.50 as security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security; and Tenant agrees to look to
the new Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
ESTOPPEL CERTIFICATE
35. Tenant, at any time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any
other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not there exists any default by
Owner under this Lease, and, if so, specifying each such default.
SUCCESSORS AND ASSIGNS:
36. The covenants, conditions and agreements contained in this lease shall bind
and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
- --------------------------
[hand graphic with finger pointing right] Space to be filled in or deleted.
SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
CUTTERMILL REALTY CO., Landlord,
By: Belfer Development
Corporation, G.P.
<TABLE>
<S> <C>
Witness for Owner: ................................[CORP. SEAL]
Andrew B. Belfer, V.P.
............................................ ......................................[L.S.]
NYSERNet, Inc.
Witness for Tenant: ................................[CORP. SEAL]
/s/ Richard Mandelbaum
............................................ ......................................[L.S.]
Richard Mandelbaum, President
</TABLE>
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me
personally came
to me known, who being by me duly sworn, did depose and say that he resides
in :
that he is the - of
the corporation described in and which executed the foregoing instrument, as
OWNER: that he knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
________________________________________________________________________________
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me
personally came
to me known and known to me to be the individual described
in and who, as OWNER, executed the foregoing instrument and acknowledged to me
that he executed the same.
________________________________________________________________________________
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me
personally came
to me known, who being by me duly sworn, did depose and say that he resides
in
that he is the of
the corporation described in and which executed the foregoing instrument, as
TENANT: that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
________________________________________________________________________________
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me
personally came
to me known and known to me to be the individual described in
and who, as TENANT, executed the foregoing instrument and acknowledged to me
that he executed the same.
________________________________________________________________________________
<PAGE> 6
ASSUMPTION AND ACCEPTANCE OF LEASE
This Assumption and Acceptance of Lease (the "Agreement"), is made and entered
into this 2nd day of December, 1996, by and among, Cuttermill Realty Co., having
an office for the transaction of business at 40 Cuttermill Road, Great Neck, New
York 11021 ("Landlord"), NYSERNet, Inc., having an office for the transaction
of business at 40 Cuttermill Road, Great Neck, New York 11021 ("Tenant"),
NYSERNet.net, Inc., NYSERNet.org, Inc. and AppliedTheory Communications, Inc.
(each individually an "Assuming Party" and collectively the "Assuming Parties").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant entered into a certain Lease Agreement,
dated May 8, 1996, (the "Lease") under the terms of which Landlord demised
certain premises (the "Premises") to Tenant, such premises being more fully
described in the Lease.
WHEREAS, as of December 2, 1996 (the "Effective Date") the Tenant
desires to have the Assuming Parties execute an assumption and acceptance of the
Lease by granting a wholly undivided interest in all of Tenant's rights, title,
estate and interest as tenant under the Lease, and each of the Assuming Parties,
jointly and severally desire to assume all of Tenant's duties and obligations as
tenant under the Lease, subject to the terms and conditions hereinafter set
forth.
WHEREAS, Landlord is willing to consent to this arrangement.
NOW, THEREFORE, in consideration of this Agreement and the covenants
and obligations hereinafter set forth, and other good and valuable
consideration, the receipt and legal sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Tenant hereby conveys, transfers and grants to each of the Assuming
Parties a wholly undivided interest in all of Tenant's rights, title, estate and
interest in and to the Lease and the leasehold estate created thereby effective
as of the Effective Date.
2. Each of the Assuming Parties hereby jointly and severally assume and
accept from Tenant, all of Tenant's right, title estate and interest in and to
the Lease and leasehold estate created thereby and each Assuming Party hereby
jointly and severally assumes all of the duties and obligations of the Tenant
under the Lease arising on or after the Effective Date.
-1-
<PAGE> 7
3. The Assuming Parties, jointly and severally, hereby agree (i) to pay
to Landlord, upon receipt of Landlord's invoice therefore, all rentals and other
charges accruing under the Lease for any period on or prior to the Effective
Date or relating to any period prior to the Effective Date and (ii) to perform,
keep and observe all covenants, terms, conditions and provisions required to be
performed, kept and/or observed by the Tenant under the Lease accruing or
required to be performed, kept or observed prior to, or relating to the period
prior to, the Effective Date.
4. The Assuming Parties, jointly and severally, hereby agree (i) to pay
to Landlord all rentals and other charges accruing under the Lease on or after
to the Effective Date and (ii) to perform, keep and observe all covenants,
terms, conditions and provisions required to be performed, kept and/or observed
by the Tenant under the Lease accruing or required to be performed, kept or
observed on or after, or relating to the period commencing with, the Effective
Date.
5. Landlord hereby consents to the Assuming Parties' assumption and
acceptance of Tenant's rights and liabilities under the Lease. Nothing contained
in the Agreement shall be construed as releasing Tenant from any liability under
the Lease incurred or arising prior to or subsequent to the Effective Date,
including, without limitation, any claim of any third party arising prior to or
subsequent to the Effective Date.
6. For purposes of the Lease, each Assuming Parties' mailing address
shall be 40 Cuttermill Road, Great Neck, New York 11021.
7. Persons signing this Agreement in a representative capacity warrant
their authority to do so.
8. Each Assuming Party acknowledges receipt of a copy of the Lease.
-2-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CUTTERMILL REALTY CO., Landlord NYSERNet, Inc., Tenant
By: Belfer Development Corporation,
General Partner
By: /s/ Andrew B. Belfer By: /s/ Richard Mandelbaum
------------------------- ------------------------------
Andrew B. Belfer, Pres. Richard Mandelbaum, Pres.
NYSERNet.net, Inc.
By: /s/ David A. Buckel
-----------------------------------
NYSERNet.org, Inc.
By: /s/ David A. Buckel
-----------------------------------
AppliedTheory Communications, Inc.
By: /s/ David A. Buckel
-----------------------------------
-3-
<PAGE> 1
EXHIBIT 10.07
STANDARD
OFFICE SPACE LEASE
Name of Office Building: INTERSTATE PLACE 1
Location of Office Building: 125 ELWOOD DAVIS ROAD
LIVERPOOL, NEW YORK 13088
Landlord: ELWOOD DAVIS ROAD COMPANY
Tenant: NYSERNET, INC.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 ..................................................................2
Premises...............................................................2
ARTICLE 2 ..................................................................2
Term of Lease..........................................................2
ARTICLE 3 ..................................................................3
Rent, Taxes and Lease Year.............................................3
ARTICLE 4 ..................................................................5
Construction, Financing and Alterations................................5
ARTICLE 5 ..................................................................6
Use of Premises .......................................................6
ARTICLE 6 ..................................................................6
Operating Costs .......................................................6
ARTICLE 7 ..................................................................7
Energy Costs and Water ................................................7
ARTICLE 8 ..................................................................8
Repairs ...............................................................9
ARTICLE 9 ..................................................................9
Indemnity .............................................................10
ARTICLE 10 .................................................................10
Insurance .............................................................10
ARTICLE 11 .................................................................11
Fire and Other Casualties .............................................11
ARTICLE 12 .................................................................11
Eminent Domain ........................................................11
ARTICLE 13 .................................................................12
Bankruptcy and Default Provisions .....................................12
ARTICLE 14 .................................................................13
Mechanic's Liens ......................................................14
ARTICLE 15 .................................................................14
Mortgages, Assignments, Subleases and Transfers of Tenant's Interest ..14
ARTICLE 16 .................................................................15
Subordination of Lease ................................................15
ARTICLE 17 .................................................................16
Entry of Premises .....................................................16
ARTICLE 18 .................................................................16
Notices and Certificates ..............................................16
ARTICLE 19 .................................................................17
Covenant of Quiet Enjoyment ...........................................18
ARTICLE 20 .................................................................18
Services ..............................................................18
ARTICLE 21 .................................................................18
Certain Rights Reserved to Landlord ...................................18
ARTICLE 22 .................................................................19
Miscellaneous Provisions ..............................................19
<PAGE> 3
STANDARD
OFFICE SPACE LEASE
AGREEMENT made this 13th day of February, 1996, by and between the following
parties:
Landlord: ELWOOD DAVIS ROAD COMPANY
---------------------------------------------------------------------
(Correct Legal Name of Landlord)
a partnership organized and existing under the laws of the State of New York
with its mailing address for notices and principal office at:
5786 WIDEWATERS PARKWAY
P.O. BOX 3
DEWITT, NEW YORK 13214-0003
Attention: THE WIDEWATERS GROUP, INC. (MANAGEMENT DIVISION)
hereinafter referred to as the "Landlord", and
Tenant: NYSERNET, INC.
-----------------------------------------------------------------------
(Correct Legal Name of Tenant)
a corporation organized and existing under the laws of the State of New York
with its principal office at:
125 ELWOOD DAVIS ROAD
- -------------------------------------------------------------------------------
(Street Address)
LIVERPOOL ONONDAGA NEW YORK 13088
- --------------------------------------------------------------------------------
(City or Town) (County) (State) (Zip Code)
Attention: Patricia Foster
------------------------------------------------
(Name of Person or Office to Receive Notices)
SSN or Fed. Tax ID #
---------------------------------------
Tenant has made an application for a Federal Tax Identification
Number and hereby agrees that it shall provide Landlord with said
number within five (5) days of Tenant's receipt of the same.
hereinafter referred to as the "Tenant."
Landlord has appointed The Widewaters Group, Inc. the Managing Agent, and
Landlord has granted to The Widewaters Group, Inc. the authority to rent,
operate and manage the Building on behalf of and in the name of Landlord.
1
<PAGE> 4
WITNESSETH:
ARTICLE 1
Premises
1.01 - Premises
Landlord hereby leases to Tenant and Tenant hereby leases and hires from
Landlord those certain premises in THE INTERSTATE PLACE 1 OFFICE BUILDING
(hereinafter called the "Building") which is located in the County of Onondaga
and State of New York, which premises are located on the 1st and 2nd floor(s) of
the Building and are outlined on the floor plan(s) attached hereto and made a
part hereof as Exhibit "A", together with the right to use, in common with
others, the Building Common Areas and Outside Common Areas as hereinafter
defined. For purposes of this paragraph 1.01, the sum of the square feet in the
Premises and Tenant's share of Building Common Areas (as defined in paragraph
1.02 hereof) shall be 17,770 leaseable square feet, 14,732 square feet of which
are to be improved by Landlord in accordance with the provisions of Exhibit "C",
attached hereto and made a part hereof, and 3,038 square feet of which shall be
accepted by Tenant in their "AS IS" condition (such premises are collectively
hereinafter referred to as the "Premises"). Upon execution of this Lease, the
Building contains 21,242 leaseable square feet of space. The Premises shall
include the area bounded by: the center line of any walls common to adjacent
tenants, the Building Common Area side of any wall adjoining Building Common
Areas (but not the surface thereof), the line established by the exterior face
of the exterior walls of the Building, the concrete floor surface and the lower
surface of the next higher floor (or roof). Landlord reserves unto itself, its
successors and assigns, the right to install, maintain, use, repair and replace
pipes, ducts, conduits, wires and structural elements leading through the
Premises in locations which will not materially interfere with Tenant's use
of the Premises. No right to use any part of the exterior of the Building and no
easement for light or air are included in the lease of the Premises hereby made.
1.02 - Definition of Building Common Areas
"Building Common Areas" shall be defined to mean all areas, space,
equipment, signs and special services provided by Landlord specifically for the
Building or for the common or joint use and benefit of all the tenants in the
Building, their employees, agents, customers, visitors and other invitees,
including without limitation, hallways, corridors, trash rooms, mechanical and
electrical rooms, storage rooms, stairways, entrances, elevators, rest rooms,
lobbies, stairs, loading docks, pedestrian walks, roofs and basements, janitor's
and storage closets within the Building and all other common rooms and common
facilities within the Building.
1.03 - Definition of Outside Common Areas
The term "Outside Common Areas" is defined to mean the land described on
Exhibit "B" attached hereto and made a part hereof, or such portion thereof as
is from time to time devoted to uses associated with the Building, and any
adjacent, contiguous or other land which may from time to time be devoted to
uses associated with the Building, together with such improvements as may from
time to time be erected upon or under any of such lands, including, but not
limited to, parking areas, lighting facilities, utility lines, sidewalks,
covered walkways, underground walkways, driveways, plazas, courts, retaining
walls, access roads, truck serviceways and landscaped areas, signs and
equipment.
ARTICLE 2
Term of Lease
2.01 - Initial Term
The initial term of this Lease shall be one hundred and twenty (120)
months.
2.02 - Construction Completed
In the event construction of the Premises is completed at the date of
execution of this Lease, the aforesaid initial term of this Lease shall commence
on the ______ day of ___________, 19___ and shall end on the ______ day of
___________, 19___.
If the preceding blanks are not filled in, this shall mean that paragraph
2.03 applies and this paragraph 2.02 shall be disregarded.
2.03 - Construction Not Completed
In the event construction of the Premises is not completed at the date of
execution of this Lease, the initial term of this Lease shall commence on the
date when the Premises are ready for occupancy, provided however, that if Tenant
takes possession of the Premises earlier than the date so determined, the term
of this Lease shall commence upon the date Tenant first occupies the Premises.
2
<PAGE> 5
THE PARTIES AGREE TO EXECUTE AND DELIVER A WRITTEN STIPULATION OF TERM OF
LEASE IN THE FORM ATTACHED HERETO AS EXHIBIT "G" PREPARED BY LANDLORD EXPRESSING
THE COMMENCEMENT AND TERMINATION DATES OF THE INITIAL TERM HEREOF WHEN SUCH
DATES HAVE BEEN DETERMINED.
The Premises shall be deemed "ready for occupancy" on the date that there
is delivered to Tenant a statement in writing by Landlord stating that
possession of the Premises is available to Tenant and certifying that the
following conditions have been fulfilled:
(a) That the Landlord has substantially completed all of Landlord's work
mentioned in Exhibit "C" hereto annexed. Substantially completed shall mean that
Tenant may commence the installation of its fixtures and equipment without
significant interference from Landlord's workmen and that facilities shall have
been installed in the Premises to insure reasonable security of said fixtures
and equipment.
(b) That adequate facilities exist for safe and convenient access to and
egress from the Premises by persons for the purposes of readying the Premises
for the conduct of Tenant's business therein.
2.04 - Term Commencement Date
The date of commencement of the term of this Lease as determined under
paragraph 2.02 or 2.03, whichever is applicable, is herein referred to as the
"Term Commencement Date." The word "term" shall, unless otherwise expressly
provided to the contrary, be deemed to include the initial and any renewal term.
2.05 - Condition of Premises
Tenant's taking possession shall be conclusive evidence as against Tenant
that the Premises were in good order and satisfactory condition when Tenant took
possession, EXCEPTING MINOR PUNCH-LIST ITEMS TO BE COMPLETED BY LANDLORD WITHIN
A REASONABLE PERIOD OF TIME FOLLOWING THE DATE OF DELIVERY, AND LATENT DEFECTS.
At the termination of this Lease, Tenant shall return the Premises broom clean
and in as good condition as when Tenant took possession, ordinary wear and loss
by fire or other casualty excepted, failing which the Landlord may restore the
Premises to such condition and Tenant shall pay the cost thereof.
2.06 - Tenant's Trade Fixtures and Personal Property
Upon the expiration or sooner termination of this Lease, Tenant shall
remove all of its trade fixtures and other property from the Premises and shall
promptly repair any damage caused to the Premises or to the Building by such
removal. If the Tenant fails to so remove any trade fixtures or other property
of Tenant prior to vacating the Premises, such fixtures and/or other property
shall be deemed abandoned by Tenant and shall become the property of Landlord
or, at Landlord's option, Landlord may cause the fixtures or property to be
removed at Tenant's expense.
2.07 - Expiration Date
The expiration date of the term of this Lease shall be the last day of the
month in which the term is to expire.
ARTICLE 3
Rent, Taxes and Lease Year
3.01 - Fixed Monthly Rent
Tenant agrees to pay to Landlord at the offices of Landlord, or at such
other place designated by Landlord, without any prior demand therefor and
without any deduction or set-off whatsoever, fixed monthly rent in accordance
with the following schedule:
MONTH OF LEASE TERM: FIXED MONTHLY RENT:
-------------------- ------------------
Months 01-02, inclusive: $18,981.51
Months 03-60, inclusive: $21,639.76
Months 60-120, inclusive: $21,639.76
(each monthly installment sometimes referred to herein as "fixed monthly rent"),
payable in advance upon the first day of each calendar month during the term
hereof. The monthly installment shall be deemed to have been paid upon such
first day only if actually received by such first day.
If the term shall commence or terminate upon a day other than the first (or
in the case of termination the last) day of a calendar month, Tenant shall pay,
upon the Term Commencement Date, and on the first day of the last calendar
month, a pro rata portion of the fixed monthly rent for the first and last
fractional calendar month, respectively, prorated on a per diem basis with
respect to such fractional calendar month.
3
<PAGE> 6
3.02 - Taxes
(a) Landlord shall, in the first instance, pay during the term of this
Lease, to the public officers charged with the collection thereof, all Building
Taxes as hereinafter defined.
The term "Building Taxes" shall be deemed to include (i) all real property
taxes (which shall be deemed to include all property taxes and assessments,
water and sewer rates and charges, which may be levied or assessed by any
lawful authority against the Building, the Building Common Areas and the
Outside Common Areas. The amounts required to be paid by Landlord or any tenant
or occupant of the Building pursuant to any Payment in Lieu of Tax Agreement
entered into with a taxing authority having jurisdiction over the Building
shall be considered for the purposes of this Lease to be included within the
definition of Building Taxes.
(b) During the term of this Lease, Tenant agrees to pay to Landlord as
additional rent, Tenant's Allocable Share (computed pursuant to paragraph
22.10(b) hereof) of the amount by which Building Taxes payable by Landlord
under paragraph 3.02(a) above for each lease year exceeds said Building Taxes
payable during the Tax Base Year as hereinafter defined. The term "Tax Base
Year" for purposes of this Lease shall mean THE 1995-1996 SCHOOL TAX YEAR for
School Taxes and THE 1996 CALENDAR YEAR for State, Town and County Taxes. At
the beginning of each lease year, Landlord will submit to Tenant Landlord's
estimate of the increases in Building Taxes for the following lease year.
Within ten (10) days after receipt of such estimate, (and thereafter on the
first day of each month without invoice) Tenant shall pay to Landlord an amount
equal to one twelfth (1/12) of Tenant's Allocable Share of such estimated
increase. At the end of each lease year or partial lease year, Landlord will
furnish to Tenant a statement setting forth the actual Building Taxes payable
during such lease year, comparing such actual Building Taxes with the Building
Taxes for the Tax Base Year and also comparing Tenant's Allocable Share of the
increase as estimated by Landlord and paid by Tenant with Tenant's Allocable
share of the actual increase in Building Taxes for such lease year. Any
overpayment or underpayment by Tenant shall be promptly adjusted by payment
within fifteen (15) days of the balance of any underpayment for such year by
Tenant to Landlord, or by Landlord to Tenant of the balance of any overpayment
for such year, or at Landlord's election by applying such overpayment by Tenant
as a credit to the next succeeding monthly installments of increases in
Building Taxes, or to offset any then existing monetary default by Tenant under
this Lease. A copy of a tax bill or assessment bill submitted by Landlord to
Tenant shall at all times be sufficient evidence of the amount of Building
Taxes levied or assessed against the property to which such bill relates.
(c) Tenant shall at all times be responsible for and pay, before
delinquency, all municipal, county, state or federal taxes assessed against
its leasehold interest or any fixtures, furnishing, equipment, stock-in-trade
or other personal property of any kind owned, installed or used in or on the
Premises.
(d) Should any governmental taxing authority acting under any present or
future law, ordinance or regulation, levy, assess or impose a tax, excise,
surcharge and/or assessment (other than a tax on net rental income or franchise
tax) upon or against the rents payable by Tenant to Landlord, or upon or
against the Building, the Building Common Areas or the Outside Common Areas,
either by way of substitution for or in addition to any existing tax on land or
buildings or otherwise, Tenant shall be responsible for and shall pay Tenant's
Allocable Share of such tax, excise, surcharge and/or assessment in the manner
provided in subparagraph (b) above.
(e) Landlord may seek a reduction in the assessed valuation (for real
estate tax purposes) of the Building in which the Premises are situate by
administrative or legal proceeding. Tenant shall pay to Landlord Tenant's
Allocable Share of Landlord's costs for said proceedings including but not
limited to, special counsel, counsel's reimbursable expenses, and special
appraisers if required, Tenant's Allocable Share of Landlord's costs being
computed under paragraph 22.1(b). In the event that the assessed valuation of
the Building is reduced as aforementioned or in any other manner, all future
computations of Tenant's Allocable Share of Building Taxes shall be made with
respect to the new assessed valuation. Upon receipt of any refund resulting
from any proceeding for which Tenant has paid Tenant's Allocable Share of
Landlord's costs and has paid Tenant's Allocable Share of excess Building Taxes
under paragraph 3.02(b) above, Landlord shall recompute the amount that would
have been due from Tenant and pay to Tenant the amount by which Building Taxes
originally paid by Tenant exceed such recomputed amount.
(f) Should any alternative or improvement performed by Tenant during the
term of this Lease cause an increase in assessment, AS EVIDENCED BY A LETTER
FROM THE TOWN OF SALINA TAX ASSESSOR, OR OTHER MUNICIPAL AUTHORITY HAVING
APPROPRIATE JURISDICTION, Tenant shall pay to Landlord the cost of all taxes
resulting from such increase in assessment. Any amount paid separately
hereunder by Tenant to Landlord shall be in addition to any amounts paid by
Tenant pursuant to paragraph 3.02(b) above.
<PAGE> 7
3.03 - Past Due Rent
If, during the term of this Lease, Tenant shall fail to pay any installment
of fixed monthly rent or additional rent or any other charge hereunder when the
same is due and payable, Tenant shall pay Landlord, in addition to such
installment of fixed monthly rent or additional rents or any charge, without
notice or demand by Landlord, a sum equal to one-tenth (1/10) of the payment
due, said additional sum payable as herein required being the agreed liquidated
damages for Tenant's late payment of any installment not paid when due. If
Tenant's failure to pay any such installment continues for more than thirty (30)
days from the original date such installment was due,Landlord shall have the
right to impose as additional liquidated damages a sum equal to one-tenth (1/10)
of the amount then due. Nothing contained in the paragraph 3.03 shall be
construed to be a limitation of or in substitution of Landlord's rights and
remedies under Article 13. Any payments by Tenant to Landlord shall first be
applied to satisfy any past due rent charges under this Section, THEN USED,
APPLIED OR RETAINED, THE WHOLE OR ANY PART OF THE BALANCE OF THE PAYMENTS
RECEIVED, TO THE EXTENT REQUIRED, TOWARD THE PAYMENT OF ANY FIXED MONTHLY RENT
AND ADDITIONAL RENT OR ANY OTHER SUM WHICH MAY BE DUE UNDER THE LEASE FROM
TENANT (WHETHER BY ACCELERATION OR OTHERWISE), OR FOR ANY SUM WHICH LANDLORD MAY
EXPEND OR MAY BE REQUIRED TO EXPEND BY REASON OF TENANT'S DEFAULT IN RESPECT OF
ANY OF THE TERMS, COVENANTS AND CONDITIONS OF THE LEASE, before being applied by
Landlord for any other purpose. Tenant shall pay to Landlord an administrative
fee of $100.00 for each and every check submitted by Tenant which is dishonored.
If Landlord receives form Tenant two or more checks which have been dishonored,
all checks from Tenant thereafter shall, at Landlord's option, be either
certified or cashier's checks. NOTWITHSTANDING THE FOREGOING, TENANT SHALL NOT
BE OBLIGATED TO PAY THE FOREGOING LIQUIDATED DAMAGES WITH RESPECT TO THE FIRST
THREE (3) LATE PAYMENTS OF ANY CHARGE HEREUNDER DURING ANY TWELVE (12) MONTH
PERIOD, PROVIDED THAT LANDLORD RECEIVES SAID PAYMENT WITHIN FIVE (5) DAYS OF ITS
DUE DATE.
3.04 - Definition of Lease Year and Partial Lease Year
The term "lease year" is defined to mean a period of twelve (12)
consecutive calendar months, the first full lease year commencing on the first
day of January following the Term Commencement Date, and each succeeding lease
year commencing on the anniversary of the commencement of the first full lease
year. Any portion of the term which is less than a lease year shall be deemed a
"partial lease year" and computations requiring proration shall be pro rated on
a per diem basis using a 365 day year.
Landlord reserves the right to designate and change the beginning and
ending day of the lease year, notice of which shall be given to Tenant.
3.05 - Security Deposit
Intentionally deleted.
3.06 - Place for Payments
(a) Tenant shall deliver to Landlord all payments of fixed monthly rent,
additional rent, and other sums at the office of Landlord shown on page 1 of
this Lease or such other place as may be designated by Landlord. Checks should
be made payable to The Widewaters Group, Inc.
(b) Intentionally deleted.
ARTICLE 4
Construction, Financing and Alterations
4.01 - Landlord's Obligation
Landlord shall, at its cost and expense (except as otherwise specified in
Exhibit "C"), construct the Premises for Tenant's use and occupancy in
accordance with plans and specifications prepared by Landlord or Landlord's
architect, incorporating in such construction all items of work described in
Exhibit "C" attached hereto and made part hereof. LANDLORD AND TENANT
ACKNOWLEDGE THAT LANDLORD SHALL BE OWNER OF THE IMPROVEMENTS DESCRIBED IN
EXHIBIT "C". LANDLORD FURTHER ACKNOWLEDGES THAT LANDLORD SHALL BE RESPONSIBLE
FOR REPORTING DEPRECIATION FOR SUCH IMPROVEMENTS TO THE INTERNAL REVENUE SERVICE
OVER THE APPLICABLE SCHEDULED TIME PERIOD. Any work in addition to any of the
items specifically enumerated in said Exhibit "C" shall be performed by Tenant
at its own cost and expense, or if Landlord installs or constructs any of such
additional work in the Premises at Tenant's request it shall be paid for by
Tenant within fifteen (15) days after receipt of a bill therefor.
4.02 - Financing
If Landlord can obtain mortgage financing or refinancing only upon the
basis of modifications of the terms and provisions of this Lease, Landlord shall
have the right to cancel this Lease if Tenant refuses to approve in writing any
such modifications within thirty (30) days after Landlord's request thereof. The
lease modifications referred to herein shall not relate to those provisions
pertaining to length of the term on the Lease, amount of rent, additional rent,
and other charges, NOR SHALL SUCH MODIFICATIONS EITHER INCREASE TENANT'S
LIABILITIES NOR DECREASE
<PAGE> 8
ITS RIGHTS HEREUNDER. If such right to cancel is exercised, this Lease shall
thereafter be null and void, any money or prepaid rent deposited hereunder
shall be returned to Tenant, and neither party shall have any liability to the
other by reason of such cancellation.
In the event of a refinancing or a bona fide sale of the Building by
Landlord, Tenant shall, immediately upon request therefor, provide to
Landlord a balance sheet and a statement of income and expenses for Tenant's
last fiscal year.
4.03 - Tenant's Obligation
Tenant shall, at its cost and expense, perform the work described in
Exhibit "D" attached hereto and made a part hereof (herein referred to as
"Tenant's Work"). Tenant acknowledges its ability to perform such work and no
delay in its performance shall cause or be deemed to cause any delay or
postponement of the Term Commencement Date, UNLESS ANY SUCH DELAY(S) IN
TENANT'S PERFORMANCE IS SHOWN TO BE CAUSED WHOLLY OR IN PART BY LANDLORD.
Tenant agrees, at Tenant's expense, to obtain and maintain for so long as
Tenant's Work continues, insurances of the type and in the amounts set forth in
Exhibit "D" to fully protect Landlord as well as Tenant from and against any
and all liability for death and personal injury or damage to property caused in
or about the Premises by reason of the performance of Tenant's Work. Tenant
shall furnish to Landlord certificates evidencing said coverage prior to the
commencement of Tenant's Work.
4.04 - Alterations, Additions and Improvements
Tenant shall not make any alterations, additions or improvements in or to
the Premises without the prior written consent of Landlord, WHICH CONSENT SHALL
NOT BE UNREASONABLY WITHHELD OR DELAYED, and then only by contractors approved
by Landlord. If Landlord shall grant its consent, Tenant shall provide Landlord
with certificates evidencing the insurance coverages and limits required by
Exhibit "D" prior to the commencement of any such work. Tenant shall not make
nor permit any defacement, injury or waste in, to or about the Premises or any
part of the Building. Tenant agrees that any improvements as may be installed
within the Premises by Tenant pursuant to this paragraph 4.04 shall, at the
option of Landlord, remain as part of the Premises at the expiration of the
Lease or any extension or renewal thereof. Landlord, however, shall have the
right to require Tenant to remove any alterations, additions or improvements so
made. Tenant shall, at its expense, repair or cause to be repaired any damage to
the Premises caused by such removal. UPON TENANT'S WRITTEN INQUIRY, LANDLORD
SHALL NOTIFY TENANT AT THE TIME OF TENANT'S MAKING OF SUCH IMPROVEMENTS AS TO
WHETHER OR NOT LANDLORD SHALL REQUIRE SUCH REMOVAL OF ANY ALTERATION, ADDITION
OR IMPROVEMENT AT THE END OF THE LEASE TERM. IT IS HEREBY STIPULATED THAT TENANT
SHALL NOT BE REQUIRED TO REMOVE IMPROVEMENTS MADE TO THE PREMISES BY LANDLORD AS
PART OF LANDLORD'S WORK OR BY TENANT PRIOR TO THE TERM COMMENCEMENT DATE.
ARTICLE 5
Use of Premises
5.01 - Use of Premises
Tenant agrees to use the Premises for general office purposes and for no
other purpose whatsoever. Tenant further agrees to comply with the rules and
regulations set forth in Exhibit "E" attached hereto and made a part hereof,
and with such reasonable modifications thereof and additions thereto as
Landlord may hereafter from time to time make for the Building, the Building
Common Areas or the Outside Common Areas. Landlord shall not be responsible for
the non-observance by any other tenant of any of said rules and regulations and
shall not be responsible to Tenant for any violation of the rules and
regulations, or the covenants or agreements contained in any other lease, by
any other tenant of the Building, or its agents or employees.
ARTICLE 6
Operating Costs
6.01 - Definitions
(a) The term "Operating Costs" shall be deemed to include (i) the costs of
operating, managing, and maintaining the Building, the Building Common Areas
and the Outside Common Areas, including, but without limiting the generality of
the foregoing, the cost of: gardening and landscaping; parking lot repair,
maintenance and line restriping; janitorial and cleaning services (which shall
be deemed to include labor, materials and supplies for cleaning any office
space in the Building, whether or not leased to tenants, including the
Premises); insurance premiums; repairs to the Building and roof; painting and
caulking; refinishing; glass repair; the maintenance and repair of lighting,
utilities, sanitary control facilities, and heating, ventilating and
air-conditioning systems and equipment; removal of snow, ice, trash, waste and
refuse in compliance with any and all recycling laws, rules and regulations
imposed by the municipality in which the Building is located and specifically
excluding any hazardous or toxic wastes (including but not limited to petroleum
products, medical waste, etc.) which shall be disposed of by
6
<PAGE> 9
Tenant at Tenant's own cost and expense; traffic control and policing; fire and
security protection; SUBJECT TO SECTION 6.01(b)(iv) BELOW, the cost, as
reasonably amortized by Landlord, with annual interest at the prime rate in
existence at the time of completion of the improvement ("Prime Interest Rate"),
of any capital improvement made after calendar year 1996 in compliance with the
requirements of any federal, state or local law or governmental regulation; the
cost, as reasonably amortized by Landlord, with interest with annual interest at
the Prime Interest Rate, of any other capital improvement made after calendar
year 1996; maintenance, replacement and rental of signs and equipment;
depreciation of the capital cost of any machinery, equipment and vehicles used
in connection with the operation and maintenance of the Outside Common Areas and
Building Common Areas; repair of on-site water lines, sanitary and storm sewer
lines; personnel costs; holiday and other decorations; and related costs to
implement such services.
(b) Operating Costs shall not include (i) franchise or income taxes
imposed on Landlord, except to the extent hereinbefore provided, (ii) the cost
to Landlord for any work or service performed in any instance for any tenant
(including Tenant( at the cost of such tenant, (iii) the cost of improvements
performed for tenants as Landlord's work or (iv) REPAIRS OR REPLACEMENTS WHICH,
UNDER SOUND ACCOUNTING PRINCIPALS AND PRACTICES CONSISTENT WITH THE OPERATION OF
COMMERCIAL OFFICE BUILDINGS, SHOULD BE CLASSIFIED AS CAPITAL EXPENDITURES
(EXCEPT THAT IF ANY SUCH REPAIR OR REPLACEMENT IS OF SUCH A NATURE THAT IT
SHOULD BY CONSIDERED UNDER GOOD ACCOUNTING PRACTICE A DEFERRED EXPENSE AND
SPREAD OVER A PERIOD OF NOT OVER TEN (10) YEARS, THE OPERATING COST FOR A LEASE
YEAR SHALL INCLUDE ONLY THE PROPORTIONATE SHARE OF SUCH DEFERRED EXPENSES,
APPROPRIATELY ALLOCATED TO SUCH YEAR).
6.02 - Tenant to Share Increases in Operating Costs
(a) Tenant agrees to pay to Landlord, as additional rent, monthly (or
less frequently as Landlord shall determine) within ten (10) days after receipt
of Landlord's estimate therefor (and thereafter on the first day of each month
without invoice) an amount equal to one twelfth (1/12) of Tenant's Allocable
Share (computed pursuant to paragraph 22.10(a) hereof) of the estimated amount
by which Operating Costs for each lease year exceed the Operating Costs for the
Base Period as hereinafter defined. The "Base Period" for purposes of this Lease
shall mean that period consisting of twelve (12) consecutive calendar months,
the first of which shall be the month following the month in which the TENANT
first takes occupancy of the Building or any part thereof. In determining the
amount of Operating Costs for any lease year or partial lease year, (1) if less
than 100% of the square feet leasable in the Building shall have been occupied
by tenants at any time during a lease year or partial lease year, Operating
Costs shall be deemed, for purposes of this Article 6, to be increased to an
amount equal to like operating costs which would normally be expected to be
incurred, had such occupancy been 100% during the entire period, or (2) if
Landlord is not furnishing any particular work or service (the cost of which if
performed by Landlord would constitute Operating Costs) to a tenant who has
undertaken to perform such work or service in lieu of the performance thereof by
Landlord, Operating Costs shall be deemed for the purposes of this Article to be
increased by an amount equal to the additional Operating Costs which would
reasonably have been incurred during such period by Landlord if it had at its
own expense furnished which work or service to such tenant.
(b) Following the end of each lease year (or partial lease year),
Landlord shall furnish to Tenant a comparative statement showing Tenant's
Allocable Share of the Operating Costs during such year and the amounts paid by
Tenant (based on Landlord's estimate of increases in Operating Costs)
attributable to such year. Any overpayment or underpayment by Tenant shall be
promptly adjusted by payment, within fifteen (15) days, of the balance of any
underpayment for such year by Tenant to Landlord, or by Landlord to Tenant of
the balance of any overpayment for such year, or at Landlord's election by
applying such overpayment by Tenant as a credit to succeeding monthly
installments of increases in Operating Costs, or to offset any then existing
monetary default by Tenant under this Lease. Landlord and Tenant shall use their
best efforts to minimize such costs of operation, management and maintenance in
a manner consistent with generally accepted office building practices.
(c) Tenant covenants and agrees to promptly pay Landlord as
additional rent, upon demand, the amount of any increase in costs for trash
removal from the Premises or any other part of the Building that results by
reason of Tenant's extraordinary trash removal requirements, including but not
limited to the removal of Tenant's purged files, the disposal of boxes, and any
governmental fines resulting from Tenant's non-compliance with local recycling
laws, rules or regulations.
ARTICLE 7
Energy Costs and Water
7.01 - Definitions
As used in this Lease "Occupant HVAC Energy" shall mean the cost of all
energy of any kind which is consumed for purposes of hearing, ventilating and/or
air conditioning all leasable space within the Premises during the normal
operating hours for the Building. "Occupant Extra HVAC Energy" shall mean the
cost of all energy of any kind which is consumed for the purposes of heating,
ventilating and/or air conditioning all leasable space within the Premises
during hours which are in addition to the normal operating hours for the
Building as set forth in Section 20.01 of this Lease. "Occupant Lights and
Outlets Energy" shall mean the cost of all energy of any kind which is consumed
by the lighting fixtures and electrical convenience plugs and outlets in all
leasable space
7
<PAGE> 10
within the Building during all hours of each day. "Building Energy Costs and
Water" shall mean (i) the cost of all energy of any kind consumed within the
Building Common Areas and the Outside Common Areas, and (ii) the Occupant HVAC
Energy.
7.02 - Tenant to Share Increases in Building Energy Costs and Water
(a) Tenant agrees to pay Landlord as additional rent, monthly, within ten
(10) days after receipt of Landlord's estimate therefore (and thereafter on the
first day of each month, without invoice) an amount equal to one-twelfth (1/12)
of Tenant's Allocable Share (computed under paragraph 22.10(a)hereof) of the
estimated amount by which Building Energy Costs and Water for each lease year
exceed the Base Amount as hereinafter defined. The term "Base Amount" for
purposes of this Lease shall be (i) the amount computed by applying the
electrical rate in effect during the month following the month in which the
TENANT takes occupancy of the Building or any part thereof to the total kilowatt
hours of usage (computed monthly) during the twelve (12) consecutive month
period commencing with the month following the Term Commencement Date and (ii)
the actual cost of all water used in the Building during the aforementioned
twelve (12) month period. In determining the amount of Building Energy Costs and
Water for the purpose of this Article 7 for any lease year or partial lease
year, (1) if less than 100% of the square feet leasable in the Building shall
have been occupied by tenants at any time during a lease year or partial lease
year, Building Energy Costs and Water shall be deemed for the purposes of this
Article to be increased to an amount equal to the like Building Energy Costs and
Water which would normally be expected to be incurred, had such occupancy been
100% during the entire period, or (2) if Landlord is not furnishing any
particular work or service (the cost of which if performed by Landlord would
constitute Building Energy Costs and Water) to a tenant who has undertaken to
perform such work or service in lieu of the performance thereof by Landlord,
Building Energy Costs and Water shall be deemed for the purposes of this Article
to be increased by an amount equal to the additional Building Energy Costs and
Water which would reasonably have been incurred during such period by Landlord
if it had at its own expense furnished such work or service to such tenant.
(b) Following the end of each lease year (or partial lease year), Landlord
shall furnish to Tenant a comparative statement showing Tenant's Allocable
Share of the Building Energy Costs and Water during such year and the amounts
paid by Tenant (based on Landlord's estimates of increases in Building Energy
Costs and Water) attributable to such year. Any overpayment or underpayment by
Tenant shall be promptly adjusted by payment, within (30) days, of the balance
of any underpayment for such year by Tenant to Landlord, or by Landlord to
Tenant of the balance of any overpayment for such year, or at Landlord's
election by applying such overpayment for such year as a credit to succeeding
monthly installments of increases in Building Energy Costs and Water, or to
offset any then existing monetary default by Tenant under this Lease. The
Building Energy Costs and Water hereinabove described in this Article 7 shall
be subject to review by Tenant at Landlord's office, and Landlord and Tenant
shall use their best efforts to minimize such Building Energy Costs and Water.
7.03 - Charge for Occupant Lights and Outlets Energy
Tenant agrees to pay to Landlord, as additional rent, a monthly charge for
Occupant Lights and Outlets Energy in the sum of $1,258.71 being payable in
advance on the first day of each calendar month during the term. The monthly
charge for Occupant Lights and Outlets Energy as herein set forth was calculated
by Landlord based upon the presumed usage by Tenant of (2) watts of electrical
energy for each square foot of the Premises, during the normal operating hours
of the Building and at the electric rate schedule referred to in the definition
of Base Amount in paragraph 7.02(a). FOLLOWING THE END OF EACH LEASE YEAR (OR
PARTIAL LEASE YEAR), LANDLORD SHALL FURNISH TO TENANT A COMPARATIVE STATEMENT
SHOWING TENANT'S ACTUAL CONSUMPTION OF ELECTRIC ENERGY AND THE AMOUNTS PAID BY
TENANT FOR THE SAME UNDER THIS SECTION 7.03 ATTRIBUTABLE TO SUCH YEAR. BASED ON
TENANT'S ACTUAL USAGE, ANY OVERPAYMENT OR UNDERPAYMENT BY TENANT SHALL BE
PROMPTLY ADJUSTED BY PAYMENT, WITHIN THIRTY (30) DAYS, OF THE BALANCE OF ANY
UNDERPAYMENT FOR SUCH YEAR BY TENANT TO LANDLORD, OR BY LANDLORD TO TENANT OF
THE BALANCE OF ANY OVERPAYMENT FOR SUCH YEAR, OR AT LANDLORD'S ELECTION BY
APPLYING SUCH OVERPAYMENT BY TENANT AS A CREDIT TO SUCCEEDING MONTHLY
INSTALLMENTS OF AMOUNTS DUE PURSUANT TO THIS SECTION 7.03, OR TO OFFSET ANY THEN
EXISTING MONETARY DEFAULT BY TENANT UNDER THIS LEASE. In the event that tenant's
consumption of energy or the cost thereof shall increase, Landlord shall adjust
the monthly charge herein set forth so as to reflect such change, and Tenant
agrees to pay to Landlord, as additional rent, the amount of such monthly
charge, as adjusted, within thirty (30) days following Tenant's receipt of
notice of the adjustment, and on the first day of each calendar month thereafter
without notice or invoice.
7.04 - Separate Metering of the Premises
(a) LANDLORD SHALL CAUSE THE OCCUPANT LIGHTS AND OUTLETS ENERGY, AS WELL
AS THE HVAC ENERGY CONSUMED FOR THE PURPOSES OF HEATING, VENTILATING AND/OR AIR
CONDITIONING TENANT'S MACHINE AND EQUIPMENT ROOM(S) LOCATED ON THE FIRST FLOOR
OF THE PREMISES, TO BE SEPARATELY METERED FROM BOTH (i) THE BUILDING ENERGY
COSTS AND WATER, AND (ii) THE OTHER PREMISES IN THE BUILDING WHICH ARE EITHER
LEASED OR LEASEABLE TO OTHER TENANTS.
(b) UPON THIRTY (30) DAYS ADVANCE WRITTEN NOTICE TO LANDLORD, TENANT MAY
ELECT TO CONTRACT DIRECTLY WITH THE APPROPRIATE LOCAL AUTHORITY, MUNICIPALITY
OR OTHER GOVERNMENTAL AGENCY TO OBTAIN SERVICE FOR TENANT'S OCCUPANT LIGHTS AND
OUTLETS ENERGY REQUIREMENTS. TENANT COVENANTS AND AGREES THAT ALL TIMES DURING
THE LEASE TERM, ITS USE OF ANY UTILITY SERVICE SHALL NEVER EXCEED THE CAPACITY
OF THE MAINS, FEEDERS, DUCTS, CONDUITS AND LINES BRINGING THE SAME TO THE
PREMISES, PROVIDED, HOWEVER, THAT TENANT MAY INCREASE THE
8
<PAGE> 11
CAPACITY OF THE AFORESAID, WITH LANDLORD'S PRIOR WRITTEN APPROVAL, IF TENANT
PAYS FOR AND PERFORMS ALL NECESSARY WORK THEREFOR (INCLUDING MAINTENANCE AND
REPAIR OF SAME) AND, PROVIDED FURTHER, THAT NO WORK PERFORMED BY TENANT WILL
RESULT IN ANY INCREASED EXPENSE TO LANDLORD IN ANY MANNER WHATSOEVER.
7.05 - Charge for Occupant Extra HVAC Energy
In the event Tenant shall operate the heating, ventilating and/or air
conditioning equipment within the Premises during hours which are in addition
to the normal operating hours for the Building as set forth in Section 20.01 of
this Lease to THE EXTENT SUCH EQUIPMENT SHALL NOT BE METERED SEPARATELY
PURSUANT TO SECTION 7.04, ABOVE, Tenant agrees to pay to Landlord, as
additional rent, the Occupant Extra HVAC Energy consumed during such period of
time. Tenant agrees to pay such charge to Landlord within ten (10) days
following Tenant's receipt of Landlord's invoice therefor.
ARTICLE 8
Repairs
8.01 - Repairs
Tenant shall give to Landlord prompt notice of any damage to, or defective
condition in any Part of or appurtenance to the Building's plumbing, electrical,
heating, air-conditioning or other systems serving, located in, or passing
through the Premises. Subject to the provisions of Article 11, Tenant shall, at
Tenant's own expense, keep the Premises, including everything therein (except
the heating and air-conditioning systems), in good order, condition and repair
during the term. Landlord shall, as part of the Operating Costs set forth in
Article 6, maintain the heating and air-conditioning systems throughout the
Building (including the Premises) and the outside walls, outside windows, roof
and foundation of the Building containing the Premises in good order and repair.
Repairs made by Landlord required due to negligence or fault of Tenant, its
contractors, agents or employees shall be made at Tenant's expense, plus
nineteen percent (19%) administrative charge.
EXCEPTING ANY OF TENANT'S OBLIGATIONS AS MAY BE SPECIFICALLY SET FORTH IN
THIS LEASE AND SUBJECT TO ANY REIMBURSEMENT WHICH MAY BE PERMITTED PURSUANT TO
THE PROVISIONS OF ARTICLE 6, ABOVE, LANDLORD SHALL REPLACE THE ROOF, THE HVAC,
PLUMBING AND ELECTRICAL SYSTEMS, AND STRUCTURAL PORTIONS THE BUILDING AND
PREMISES AS THE SAME MAY BECOME NECESSARY.
Tenant, at Tenant's expense, shall comply with all laws or ordinances, and
all rules and regulations of all governmental authorities and of all insurance
bodies at any time in force, applicable to the Premises or to Tenant's use
thereof, except that Tenant shall not hereby be under any obligation to comply
with any law, ordinance, rule or regulation requiring any structural alteration
of or in connection with the Premises, unless such alteration is required by
reason of a condition which has been created by, or at the instance of, Tenant,
or is required by reason of a breach of any of Tenant's covenants and
agreements hereunder. All repairs made by Tenant shall be made using
contractors approved by Landlord, which approval shall not be unreasonably
withheld. If Tenant fails or neglects to comply with any laws or ordinances,
rules and regulations of any governmental authority or insurance body as herein
required of Tenant, then Landlord or its agents may enter the Premises and
make said repairs and comply with any laws or ordinances, or the rules and
regulations of any governmental authority or insurance body at the cost and
expense of the Tenant, plus a 19% administrative charge, and in case Tenant
fails to pay therefor upon notice within five (5) days thereafter, the said
cost and expenses shall be added to the next month's installment of fixed
monthly minimum rent and be due and payable as such or Landlord may deduct the
same from any balance remaining in Landlord's hands. This provision is in
addition to the right of Landlord to terminate this Lease by reason of default
on the part of Tenant.
8.02 - Hazardous Materials
Tenant shall, at all times, comply with all local and federal laws, rules
and regulations governing the use, handling and disposal of Hazardous Materials
in the Premises including, but not limited to Section 1004 of the Federal
Reserve Conservation and Recovery Act, 42 U.S.C. Section 6901 et. seq. (42
U.S.C. Section 6903) and any additions, amendments, or modifications thereto. As
used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste including but not limited to petroleum products,
which is, or becomes, regulated by any local or state government authority in
which the Premises is located or the United States Government. Landlord and its
agents shall have the right, but not the duty, to inspect the Premises at any
time to determine whether Tenant is complying with the terms of this Section. If
Tenant is not in compliance with this Section, Landlord shall have the right to
immediately enter upon the Premises and take whatever actions reasonably
necessary to comply including, but not limited to, the removal from the Premises
of any Hazardous Materials and the restoration of the Premises to a clean, neat,
attractive, healthy and sanitary condition. Tenant shall pay all such costs
incurred by Landlord within ten (10) days of receipt of a bill therefor, plus
nineteen percent (19%) administrative charge.
LANDLORD ACKNOWLEDGES AND AGREES THAT IT SHALL BE RESPONSIBLE FOR THE
PRESENCE OF ANY HAZARDOUS MATERIALS LOCATED IN OR AT THE BUILDING AND/OR THE
BUILDING AND OUTSIDE COMMON AREAS WHICH ARE SHOWN TO HAVE BEEN PRESENT PRIOR TO
THE TERM COMMENCEMENT DATE.
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ARTICLE 9
Indemnity
9.01 - Indemnification by Tenant
Tenant does hereby indemnify Landlord, Landlord's managing agent (and such
other persons as are in privity of estate with Landlord) defend and save it
harmless from and against any and all claims, actions, damages, liability and
expense in connection with loss of life, personal injury and/or damage to
property arising from or out of any occurrence in, upon or at the Premises,
from or out of the occupancy or use by Tenant of the Premises, the Building
Common Areas and/or Outside Common Areas or any part thereof, or occasioned
wholly or in part by any act or omission of Tenant, its agents, contractors,
employees, lessees or concessionaires IN, UPON OR AT THE PREMISES, THE BUILDING
COMMON AREAS AND/OR OUTSIDE COMMON AREAS OR ANY PART THEREOF. HOWEVER, NOTHING
HEREIN SHALL BE DEEMED TO RELIEVE LANDLORD OF LIABILITY FOR ITS ACTS, OMISSIONS
OR NEGLIGENCE OR THE ACTS, OMISSIONS OR NEGLIGENCE OF LANDLORD'S AGENTS,
EMPLOYEES OR CONTRACTORS AND LANDLORD HEREBY INDEMNIFIES AND AGREES TO HOLD
TENANT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, ACTIONS, DAMAGES,
LIABILITY AND EXPENSE IN CONNECTION WITH THE LOSS OF LIFE, PERSONAL INJURY
AND/OR DAMAGE TO PROPERTY ARISING FROM OR OUT OF SUCH ACTS, OMISSIONS OR
NEGLIGENCE. IN CASE EITHER PARTY SHALL, WITHOUT FAULT ON ITS PART, BE MADE A
PARTY TO ANY LITIGATION COMMENCED BY OR AGAINST THE OTHER, THEN SUCH PARTY
AGREES TO PROTECT AND HOLD THE OTHER HARMLESS AND TO PAY ALL COSTS, EXPENSES
AND REASONABLE ATTORNEY'S FEES INCURRED OR PAID BY SUCH PARTY IN CONNECTION
WITH SUCH LITIGATION. THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER ALL
COSTS, EXPENSES AND REASONABLE ATTORNEY'S FEES THAT MAY BE INCURRED OR PAID BY
SUCH PARTY ENFORCING THE COVENANTS AND AGREEMENTS IN THIS LEASE.
ARTICLE 10
Insurance
10.01 - Liability Insurance
At all times during the term of this Lease, Tenant shall, at its sole cost
and expense, maintain personal injury and property damage liability insurance,
naming the Landlord as an additional insured party, against claims for personal
injury, death or property damage occurring on, in or about the Premises during
the term of this Lease of not less than Two Million Dollars ($2,000,000.00)
with respect to personal injury, death or property damage, and including
contractual liability coverage. In the event that Tenant shall not have
delivered to Landlord a policy or certificate evidencing such insurance fifteen
(15) days prior to the Term Commencement Date and fifteen (15) days prior to
the expiration dates of each expiring policy, Landlord may obtain such
insurance as it may reasonably require to protect its interest, and the cost of
such policies shall be paid by Tenant to Landlord as additional rent upon
demand, plus nineteen percent (19%) administrative charge.
10.02 - All Risks and Difference in Conditions Insurance
At all times during the term of this Lease, Landlord shall keep the
Building insured for the benefit of Landlord against loss or damage by risks
now or hereafter embraced by "All Risks", "Difference in Conditions", and loss
of rent coverages, and against such other risks as Landlord from time to time
reasonably may designate in amounts sufficient to prevent Landlord from
becoming a coinsurer.
In any event, the amount applicable to "All Risks" shall be ninety
percent (90%) of the then full replacement cost (being the cost of replacing
the Building, exclusive of the costs of excavations and footings below the
lowest grade level). Such full replacement cost shall be determined from time
to time (but not more frequently than once in any twelve (12) calendar months)
by an appraiser, architect or other person or firm designated by Landlord.
10.03 - Insurance on Common Areas
At all times during the term of this Lease, Landlord shall keep the Common
Areas insured for personal injury and property damage liability, "All Risk"
property coverage, "Difference in Conditions", workers' compensation,
employee's liability and any other casualty or risk insurance which Landlord or
Landlord's insurance carrier deems necessary or appropriate.
10.04 - Increase in Fire Insurance Premium
Tenant covenants and agrees to promptly pay to Landlord as additional
rent, upon demand, the amount of any increase in the rate of insurance on the
Premises or on any part of the Building that (but for Tenant's act(s) or
Tenant's permitting certain activities to take place which result in an
increase in said rate of insurance) would otherwise have been in effect.
10.05 - Waiver of Subrogation
Each party hereto waives on behalf of the insurers of such party's
property, any and all claims or rights of subrogation of any such insurer
against the other party hereto for loss of or damage to the property so
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insured other than loss or damage resulting from the willful act of such other
party, and each party hereby agrees to maintain insurance upon its property, it
being understood, however, (a) that such waiver shall be ineffective as to any
insurer whose policy of insurance does not authorize such waiver, (b) that it
shall be the obligation of each party seeking the benefit of the foregoing
waiver to request the other party (i) to submit copies of its insurance, and
(ii) in case such waiver results in an additional charge from the insurer
thereunder, the additional charge for such waiver shall be paid by the party
requesting the benefit of said waiver; and (c) that no party shall be liable to
the other under clause (b) hereof except for willful failure to comply with any
request pursuant to said clause (b).
10.06 - Tenant's Property
At all times during the term of this Lease, Tenant shall, at Tenant's
sole cost and expense, carry "all-risk" insurance coverage for Tenant's trade
fixtures, furnishings, equipment and other personal property of Tenant.
ARTICLE 11
Fire and Other Casualties
11.01 - Untenantability
If the Premises are made untenantable in whole or in part by fire or
other casualty, the fixed monthly rent, additional rent and other charges, until
repairs shall be made or the Lease terminated as hereinafter provided, shall be
apportioned on a per diem basis according to the part of the Premises which is
usable by Tenant, if, but only if, such fire or other casualty ARE NOT SHOWN TO
HAVE BEEN caused by Tenant's FAILURE TO PROPERLY MAINTAIN ITS fixtures or
equipment or by fault or negligence of Tenant, its contractors, agents or
employees. If such damage shall be so extensive that the Premises cannot be
restored by Landlord within a period of nine (9) months, either party shall have
the right to cancel this Lease by notice to the other given at any time within
thirty (30) days after the date of such damage, except that if such fire or
casualty ARE SHOWN to be due to Tenant's FAILURE TO PROPERLY MAINTAIN ITS
fixtures or equipment or due to Tenant's fault or negligence Tenant shall have
no right to cancel. If a portion of the Building other than the Premises shall
be so damaged that in the opinion of Landlord the Building should be restored in
such a way as to alter the Premises materially, Landlord may cancel this Lease
by notice to Tenant given at any time within thirty (30) days after the date of
such damage. In the event of giving effective notice pursuant to this paragraph,
this Lease and the term and the estate hereby granted shall expire on the date
fifteen (15) days after the giving of such notice as fully and completely as if
such date were the date hereinbefore set for the expiration of the term of this
Lease. If this Lease is not so terminated, Landlord will promptly (taking into
account the time necessary to obtain required permits and approvals and the time
necessary to effectuate a satisfactory settlement with Landlord's insurance
company) restore the damage insured by Landlord pursuant to paragraph 10.02.
Tenant hereby expressly waives the provisions of Section 227 of the New York
Real Property Law and agrees that the foregoing provisions of this paragraph
11.01 shall govern and control in lieu thereof.
11.02 - Loss of Property and Water Damage
Landlord shall not be responsible to Tenant for any loss or theft of
property in or from the Premises, or for any loss or theft or damage of or to
any property left with any employee of Landlord, however occurring, UNLESS THE
SAME SHALL BE SHOWN TO BE DUE TO THE NEGLIGENCE OF LANDLORD. Landlord shall not
be liable for any damage caused by water, rain, snow or ice, or by breakage,
stoppage or leakage of water, gas, heating, air-conditioning, sewer or other
pipes or conduits, or arising from any other cause, in, upon, about or adjacent
to the Premises or the Building, UNLESS THE SAME SHALL BE SHOWN TO BE DUE TO THE
NEGLIGENCE OF LANDLORD.
ARTICLE 12
Eminent Domain
12.01 - Eminent Domain
(a) In the event that title to the whole or any part of the Premises
shall be lawfully condemned or taken in any manner for any public or
quasi-public use, this Lease and the term and estate hereby granted shall
forthwith cease and terminate as of the date of vesting of title, and Landlord
shall be entitled to receive the entire award, Tenant hereby assigning to
Landlord Tenant's interest therein, if any.
ANYTHING CONTAINED IN THE FOREGOING TO THE CONTRARY NOTWITHSTANDING,
TENANT MAY SEPARATELY PURSUE THE CONDEMNING AUTHORITY FOR MOVING EXPENSES, THE
TAKING OF PERSONAL PROPERTY OF TENANT, ANY IMPROVEMENTS CONSTRUCTED BY TENANT,
OR FOR THE INTERRUPTION OF OR DAMAGE TO TENANT'S BUSINESS, PROVIDED, HOWEVER,
THAT THE SAME DOES NOT THEREBY DIMINISH LANDLORD'S AWARD.
(b) In the event that title to a part of the Building other than the
Premises shall be so condemned or taken, and if in the opinion of Landlord, the
Building should be restored in such a way as to alter the Premises materially,
or in the event that title to all or a material part of the Outside Common Areas
shall be so condemned or taken, Landlord may terminate this Lease and the term
and estate hereby granted by notifying Tenant of such termination within sixty
(60) days following the date of vesting of title, and this Lease and the term
and estate hereby granted shall expire on the date specified in the notice of
termination, which date shall not be less than sixty
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(60) days after the giving of such notice, as fully and completely as if such
date were the date hereinbefore set for the expiration of the term of this
Lease, and the fixed monthly rent, additional rent, and other charges hereunder
shall be apportioned as of such date. In such event, Tenant shall not be
entitled to any portion of Landlord's award hereunder, if any, nor shall Tenant
have any claim against Landlord for the value of the unexpired portion of the
term.
ARTICLE 13
Bankruptcy and Default Provisions
13.01 - Conditional Limitations
(a) This Lease and the demised term are subject to the limitation that
if, at any time prior to or during the term, any one or more of the following
events (herein called an "event of default") shall occur, that is to say:
(i) If Tenant shall make an assignment for the benefit of its
creditors; or
(ii) If the leasehold estate hereby created shall be taken on
execution or by other process of law; or
(iii) If any petition shall be filed against Tenant in any court,
whether or not pursuant to any statute of the United States
or of any State, in any bankruptcy, reorganization,
composition, extension, arrangement, or insolvency
proceedings, and Tenant shall thereafter be adjudicated
bankrupt, or such petition shall be approved by the court, or
the court shall assume jurisdiction of the subject matter and
if such proceedings shall not be dismissed within ninety (90)
days after the institution of the same, or if any such
petition shall be so filed by the Tenant; or
(iv) If in any proceedings a receiver or trustee be appointed for
Tenant's property, and such receivership or trusteeship shall
not be vacated or set aside within ninety (90) days after the
appointment of such receiver or trustee; or
(v) If Tenant shall fail to pay any installment of the fixed
monthly rent or any part thereof when the same shall become
due and payable, and such failure shall continue for TEN (10)
DAYS AFTER notice from Landlord; or
(vi) If Tenant shall fail to EITHER (a) pay any other charge
required to be paid by Tenant hereunder, OR (b) FAIL TO CAUSE
A GUARANTY OF LEASE TO BE EXECUTED AS MAY BE REQUIRED BY
LANDLORD PURSUANT TO SECTION 22.22, BELOW, and either such
failure shall continue for TEN (10) DAYS after notice from
Landlord; or
(vii) Tenant fails to perform or observe any other requirement of
this Lease (not hereinbefore specifically referred to) on the
part of Tenant to be performed or observed and such failure
continues for thirty (30) days after receipt of notice from
Landlord to Tenant. NOTWITHSTANDING THE FOREGOING, IN THE
EVENT THAT THE CURE OF TENANT'S FAILURE TO PERFORM SHALL BE
OF SUCH A NATURE SO AS TO REASONABLY REQUIRE MORE THAN THIRTY
(30) DAYS, LANDLORD AGREES THAT TENANT SHALL NOT BE DEEMED IN
DEFAULT OF THIS SUBSECTION 13.01(a)(vii) OF THE LEASE IF
TENANT SHALL PROVIDE LANDLORD WRITTEN NOTICE OF ITS INTENTION
TO CURE AND SHALL COMMENCE THE SAME WITHIN THIRTY (30) DAYS,
AND SHALL THEREAFTER DILIGENTLY PROSECUTE THE CURE TO
COMPLETION WITHIN A REASONABLE TIME, NOT TO EXCEED SIXTY (60)
DAYS.
(b) This Lease and the term are expressly subject to the conditional
limitation that upon the happening of any one or more of the aforementioned
events of default, Landlord, in addition to the other rights and remedies it may
have, shall have the right to immediately declare this Lease terminated and the
term ended, in which event all of the right, title and interest of Tenant
hereunder shall wholly cease and expire upon service by Landlord of a Notice of
Termination. Tenant shall then quit and surrender the Premises to Landlord in
the manner and under the conditions as provided for under this Lease, but Tenant
shall remain liable as hereinafter provided.
(c) If the Landlord shall not be permitted to terminate this Lease as
hereinabove provided because of Title 11 of the United States Code, as amended,
relating to Bankruptcy (the "Bankruptcy Code"), then Tenant or any trustee for
Tenant agrees promptly, within no more than fifteen (15) days after the request
of Landlord to the Bankruptcy Court to assume or reject this Lease and Tenant
agrees not to seek or request any extension or adjournment of any application to
assume or reject this Lease so made by Landlord. In such event, Tenant or any
trustee for Tenant may only assume this Lease if it (1) cures or provides
adequate assurance that the trustee will promptly cure any default hereunder,
(2) compensates or provides adequate assurance that the Tenant will promptly
compensate Landlord for any actual pecuniary loss to Landlord resulting from
Tenant's default, and (3) provides adequate assurance of future performance
under this Lease by Tenant. In no event after the assumption of this Lease by
Tenant or any trustee for Tenant shall any then existing default remain uncured
for a period in excess of ten (10) days. Adequate assurance of future
performance of this Lease shall include, without limitation, adequate assurance
(a) of the source of the fixed monthly rent required to be paid to Landlord
hereunder and (b) that the assumption or any permitted assignment of this Lease
will not constitute a breach of any provision of this Lease. In order to
adequately assure the source of payments due under this Lease in such event,
each person owning, directly or indirectly, individually or through one or more
entities, a five percent (5%) or greater interest in Tenant or any assignee
whether through ownership of stock, partnership interest or otherwise, shall
personally guarantee the obligations of Tenant hereunder by executing a Guaranty
Agreement in form and substance as set forth in Exhibit F attached hereto.
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13.02 - Landlord's Remedies
(a) If this Lease shall be terminated as provided in paragraph 13.01,
Landlord or Landlord's agents or employees may immediately or at any time
thereafter re-enter the Premises and remove therefrom Tenant, its agents,
employees, licensees, and any subtenants and other persons, firms or
corporations, and all or any of its or their property therefrom either by
summary dispossess proceedings or by any suitable action or proceeding at law,
without being liable to indictment, prosecution or damages therefor, and
repossess and enjoy the Premises, together with all alterations, additions and
improvements thereto.
(b) In case of any such termination, re-entry or dispossession by
summary proceedings or otherwise, the rents and all other charges required to be
paid up to the time of such termination, re-entry or dispossession, shall be
paid by Tenant, and Tenant shall also pay to Landlord all expenses which
Landlord may then or thereafter incur for legal expenses, attorneys' fees,
brokerage commissions and all other costs paid or incurred by Landlord for
restoring the Premises to good order and condition and for altering and
otherwise preparing the same for reletting thereof. Landlord may, at any time
and from time to time, relet the Premises, in whole or in part, for any rental
then obtainable either in its own name or as agent of Tenant, for a term or
terms which, at Landlord's option, may be for the remainder of the then current
term of this Lease or for any longer or shorter period.
(c) If this Lease be terminated as aforesaid, Tenant nevertheless
covenants and agrees, notwithstanding any entry or re-entry by Landlord, whether
by summary proceedings, termination, or otherwise, to pay and be liable for on
the days originally fixed herein for the payment thereof, amounts equal to the
several installments of fixed monthly rent, additional rent and other charges as
they would, under the terms of this Lease, become due if this Lease had not been
terminated or if Landlord had not entered or re-entered as aforesaid, whether
the Premises be relet or remain vacant in whole or in part for a period less
than the remainder of the term or for the whole thereof, but in the event the
Premises be relet by Landlord, Tenant shall be entitled to a credit in the net
amount of rent received by Landlord in reletting the Premises after deduction of
all expenses and costs incurred or paid as aforesaid in reletting the Premises
and in collecting the rent in connection therewith. As an alternative, at the
election of Landlord, Tenant shall pay to Landlord as damages, such a sum as at
the time of such termination represents the amount of the then present value of
the total fixed monthly rent and additional rent and other benefits which would
have accrued to Landlord under this Lease for the remainder of the term
(including all renewal terms whether or not Tenant had elected to renew) if the
Lease terms had been fully complied with by Tenant.
(d) Tenant hereby expressly waives, so far as permitted by law, for
and on behalf of itself and all persons claiming through or under Tenant also
waives any and all rights of redemption or re-entry or repossession under
present or future laws, including specifically but without limitation, Section
761 of the New York Real Property Actions and Proceeding Law including and
amendments hereafter made thereto, and Tenant further waives any and all rights
to restore the operation of this Lease and further waives any right under
Article 63 of the Civil Practice Law and Rules. In case Tenant shall be
dispossessed by a judgment or by warrant of any court or judge, or in case of
re-entry or repossession by Landlord, or in case of any expiration or
termination of this Lease, Landlord and Tenant, so far as permitted by law,
waive and will waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of said Premises,
or any claim of injury or damage. The terms "enter," or "re-entry" as used in
this lease are not restricted to their technical legal meaning.
(e) No failure by Landlord to insist upon the strict performance of
any covenant, agreement, term or condition of this Lease or to exercise any
right or remedy consequent upon a breach thereof, and no acceptance of full or
partial rent during the continuance of any such breach, shall constitute a
waiver of any such breach or of such covenant, agreement, term or condition. No
waiver of any breach shall affect or alter this Lease, but each and every
covenant, agreement, term and condition of this Lease shall continue in full
force and effect with respect to any other then existing or subsequent breach
thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly installments of rent or additional rent stipulated in this Lease shall
be deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or letter accompanying a check for
payment of rent be deemed any accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or to pursue any other remedy provided by this Lease.
(f) In the event of any breach or threatened breach by Tenant of any
of the covenants, agreements, terms or conditions contained in this Lease,
Landlord shall be entitled to enjoin such breach or threatened breach and shall
have the right to invoke any right or remedy allowed at law or in equity or by
statute or otherwise.
(g) Each right or remedy of Landlord provided for in this Lease shall
be cumulative and shall be in addition to every other right or remedy provided
for in this Lease, or now or hereafter existing at law or in equity or by
statute or otherwise.
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ARTICLE 14
Mechanic's Liens
14.01 - Mechanic's Liens
Tenant agrees to pay when due all sums of money that may become due
for, or purporting to be due for, any labor, services, materials, supplies or
equipment alleged to have been furnished or to be furnished to or for Tenant
in, upon or about the Premises and/or Landlord's interest therein.
If any mechanic's lien shall be filed against the Premises or the
Building based upon any act of Tenant or anyone claiming through Tenant, Tenant,
after notice thereof from Landlord (or any person in privity of estate with
Landlord), shall forthwith take whatever action by bonding, deposit, payment or
otherwise, as will remove or satisfy such lien within ten (10) days. In the
event Tenant does not remove or satisfy said lien within said ten (10) day
period, Landlord shall have the right to do so by posting a bond or undertaking,
and Tenant agrees to reimburse Landlord for any and all expenses incurred by
Landlord in connection therewith within five (5) days after receipt by Tenant of
Landlord's invoice therefor. These expenses shall include, but not be limited
to, filing fees, legal fees and bond premiums.
However, nothing in this Article 14 shall be deemed or construed as (a)
Landlord's consent to any person, firm or corporation for the performance of
any work or services, or the supply of any materials to the Premises, or (b)
giving Tenant or any other person, firm or corporation any right to contract
for or to perform or supply any work, services or materials that would permit
or give rise to a lien against the Premises of the Building.
ARTICLE 15
Mortgages, Assignments, Subleases and Transfers of Tenant's Interest
15.01 - Limitation on Tenant's Rights
Except as hereinafter otherwise provided, during the term of this Lease,
neither this Lease nor the interest of Tenant in this Lease, or in any sublease,
or in any rentals under any sublease shall be sold, assigned, transferred,
mortgaged, pledged, hypothecated or otherwise disposed of, whether by operation
of law or otherwise, unless Landlord's prior written consent is obtained in each
case, nor shall the Premises be sublet in any case unless such prior written
consent is obtained.
SO LONG AS TENANT IS NOT IN DEFAULT UNDER THIS LEASE, LANDLORD'S CONSENT
SHALL NOT BE UNREASONABLY WITHHELD FOR THE USE SET FORTH IN SECTION 5.01 HEREOF,
PROVIDED, HOWEVER, THAT THE PROPOSED ASSIGNEE OR SUBLESSEE MEETS SUCH STANDARDS
AS LANDLORD, USING ITS REASONABLE BUSINESS JUDGMENT, MAY REASONABLY IMPOSE,
INCLUDING, BUT NOT LIMITED TO THE FOLLOWING: (a) THE FINANCIAL STRENGTH OF THE
PROPOSED ASSIGNEE/SUBTENANT MUST BE AT LEASE EQUAL TO THAT OF TENANT AT THE TIME
THAT EITHER (i) TENANT ENTERED INTO THIS LEASE, OR (ii) SUCH ASSIGNMENT OR
SUBLEASE IS PROPOSED, WHICHEVER IS GREATER; (b) THE BUSINESS REPUTATION AND
CREDIT WORTHINESS OF THE POSED ASSIGNEE/SUBTENANT MUST BE IN ACCORDANCE WITH
GENERALLY ACCEPTABLE STANDARDS; (iii) THE USE OF THE PREMISES BY THE PROPOSED
ASSIGNEE/SUBTENANT MUST EITHER BE THE SAME USE PERMITTED BY THE LEASE, OR A USE
THAT IN THE LANDLORD'S SOLE DISCRETION IS COMPATIBLE WITH THE OTHER OCCUPANTS OF
THE BUILDING AT THE TIME OF SUCH ASSIGNMENT OR SUBLEASE; AND (iv) THE USE OF THE
PREMISES BY THE PROPOSED ASSIGNEE/SUBTENANT WILL NOT VIOLATE OR CREATE ANY
POTENTIAL VIOLATIONS OF ANY LAWS, AND WILL NOT VIOLATE ANY OTHER AGREEMENTS
AFFECTING THE PREMISES, THE BUILDING, THE LANDLORD OR OTHER TENANTS IN THE
BUILDING. TENANT SHALL NOT BE RELEASED BY ANY SUCH ASSIGNMENT OR SUBLET BUT
SHALL CONTINUE TO BE FULLY RESPONSIBLE FOR THE DUE PERFORMANCE OF THE
OBLIGATIONS HEREUNDER.
It is understood and agreed between the parties that, should Tenant
request Landlord's consent to a proposed assignment of this Lease or a
subletting of all or any portion of the Premises, Landlord will, in addition to
any other requirements which may be imposed as conditions to Landlord's consent,
require that Tenant execute and deliver to Landlord an agreement whereby Tenant
obligates itself, as additional rent, to pay over to Landlord the amount, if
any, of all rent, additional rent and any other consideration paid by such
assignee or sublessee to Tenant pursuant to such assignment or sublease which is
in excess of the rent and additional rent due and payable from time to time from
Tenant to Landlord pursuant to this Lease.
Should Tenant request Landlord's consent to a proposed assignment of
this Lease or a subletting of all or part of the Premises, Landlord shall have
the right at Landlord's option to recapture THAT PORTION OF the Premises
PROPOSED TO BE ASSIGNED, SUBLET OR OTHERWISE TRANSFERRED, by written notice
given to Tenant within thirty (30) days after Landlord's receipt of Tenant's
request for Landlord's consent. If Landlord exercises its right to recapture the
Premises, or any part thereof, this Lease shall be cancelled an terminated as of
the date that is proposed by Tenant for the request assignment or subletting as
fully and effectively as if such date were the date originally specified herein
for the expiration of this Lease. If this Lease shall be cancelled with respect
to less than the entire Premises, the fixed monthly rent reserved herein shall
be prorated on the basis of the number of leaseable square feet retained by
Tenant in proportion to the number of leasable square feet contained in the
Premises, and this Lease shall continue thereafter in full force and effect with
respect to the portion of the Premises retained by Tenant, and the parties shall
execute an amendment of this Lease to provide for the reduction in square
footage and rental.
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No consent by Landlord to an assignment of this Lease and no assignment
made as hereinafter permitted, shall be effective until there shall have been
delivered to Landlord (a) an agreement, in recordable form, executed by Tenant
and the proposed assignee, wherein and whereby such assignee assumes due
performance of the obligations on Tenant's part to be performed under this
Lease to the end of the term hereof, and (b) the written consent to such
assignment by the holder of any fee or leasehold mortgage to which this Lease
is then subject shall have been obtained and delivered to Landlord if so
required by the terms of such fee or leasehold mortgage.
Notwithstanding the assumption by such assignee of due performance,
Tenant shall continue to be fully responsible for the due performance of
Tenant's obligations hereunder in the same manner and to the same extent as if
no such assignment had been made.
Any assignment, mortgage, pledge, sublease or hypothecation of this Lease,
or of the interest of Tenant hereunder, without full compliance with any and
all requirements set forth in this Lease shall be a breach of this Lease and a
default hereunder, shall be null and void, and shall confer no rights upon any
third party.
15.02 - Effect of Landlord's Consent
Any consent by Landlord to a sale, assignment, sublease, mortgage,
pledging, hypothecation, or transfer of this Lease, shall apply only to the
specific transaction thereby authorized and shall not relieve Tenant from the
requirement of obtaining the prior written consent of Landlord to any further
sale, assignment, sublease, mortgage, pledge, hypothecation, or transfer of this
Lease. In instances where the consent of Landlord is required here under to any
proposed assignment or sublease of this Lease, or to the mortgaging, pledging or
hypothecation of this Lease, contemporaneously with the request of Tenant
therefor, Tenant shall submit in writing information reasonably sufficient to
enable Landlord to decide with respect thereto including, but not limited to,
(i) the name and address of the proposed transferee, (ii) a current financial
statement of the proposed transferee, (iii) the consideration to be paid by the
proposed transferee to Tenant, and (iv) the use intended to be made of the
Premises by the proposed transferee. Landlord shall reply to Tenant within ten
(10) days after receipt of the request and information as aforementioned.
15.03 - Sale of Stock or Partnership Interest
Tenant agrees that if (i) Tenant or any Guarantor of Tenant's obligations
under this Lease is a corporation and there shall be a sale of stock
constituting a controlling interest in Tenant or any Guarantor of Tenant's
obligations under this Lease (whether such sale occurs at one time or at
intervals so that, in the aggregate, over the term of this Lease, such a sale
shall have occurred), or (ii) Tenant or any Guarantor of Tenant's obligations
under this Lease is a partnership and there shall be a sale of a partnership
interest constituting a controlling interest in Tenant or any Guarantor of
Tenant's obligations under this Lease (whether such sale occurs at one time or
at intervals so that, in the aggregate, over the term of this Lease, such a sale
shall have occurred), then and in any of such events, Landlord shall have the
right, at its sole election, to deem such sale a default pursuant to Article 13
of this Lease and to cancel and terminate this Lease at any time thereafter by
giving notice of Landlord's intention to do so and this Lease shall terminate
upon the expiration of thirty (30) days after such notice of intention from
Landlord to Tenant, but Tenant shall remain liable for its obligations under
this Lease as provided in Article 13 hereof.
The term "sale" shall include any transfer of the stock or partnership
interest in Tenant or its Guarantor, as the case may be, other than a transfer
by operation of law occurring upon the death of a stockholder or partner and the
devolution of the stock or partnership interest held by such stockholder or
partner to his legal representative, heirs or legatees, but shall not include a
stock offering whereby an aggregate of greater then fifty percent (50%) of
Tenant's stock shall be offered publicly, to parties who are nonstockholders as
of the date of this Lease, through a recognized security exchange.
ARTICLE 16
Subordination of Lease
16.01 - Subordination to Mortgages and Ground Leases
This Lease and all the rights of Tenant hereunder are and shall be subject
and subordinate to the lien of any ground or underlying leases and to any
mortgage or mortgages, whether fee or leasehold mortgages, which may now or
hereafter affect the Premises or the Building or the land under the Building,
and to all renewals, modifications, consolidations, replacements and extensions
thereof, and advances thereunder. ANYTHING CONTAINED IN THE FOREGOING TO THE
CONTRARY NOTWITHSTANDING, SO LONG AS TENANT SHALL NOT HAVE DEFAULTED WITH
RESPECT TO ANY OF THE TERMS AND CONDITIONS OF THIS LEASE, THE HOLDER OF ANY
SUCH GROUND LEASE, UNDERLYING LEASE OR MORTGAGE SHALL (i) ACKNOWLEDGE THIS
LEASE AND TENANT'S RIGHTS HEREUNDER, AND (ii) NOT DISTURB THE TENANCY HEREBY
CREATED.
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Tenant will not do, suffer or permit any act, happening or occurrence or
any condition to occur or remain which may be prohibited under the terms or
provisions of any ground or underlying lease or mortgage to which this Lease is
subject or which will create a default thereunder except that Tenant shall not
be obligated to pay the principal indebtedness or any installment thereof or
interest thereon.
So long as any such mortgage or lease shall remain a lien on the Premises,
Tenant agrees simultaneously with the giving of any notice to Landlord which is
required to be given by this Lease, to give a duplicate copy thereof to any
mortgage or ground lessor, notice or whose name and address have been given to
Tenant. Further, Tenant agrees that if Landlord defaults in the performing of
any of its covenants under this Lease and if such default allows Tenant to
cancel or surrender said Lease, the mortgagee or ground lessor may cure said
default with the same effect as if cured by Landlord, and if necessary, enter
upon the Premises for the purpose of curing any such default, provided that the
mortgagee or ground lessor must cure the default within the time in which
Landlord is obligated to cure such default under this Lease. The giving of any
such notice to Landlord shall not be properly given under the terms of this
Lease and shall be of no force and effect until a duplicate copy thereof shall
also have been given to the mortgagee or ground lessor pursuant to this
paragraph.
ARTICLE 17
Entry to Premises
17.01 - Entry to Premises by Landlord
Landlord shall have the right to enter the Premises at all reasonable terms
AND UPON TWENTY-FOUR (24) HOURS NOTICE (EXCEPT IN EVENT OF EMERGENCY, AND
THEN, WITHOUT NOTICE) for the purposes of:
(a) inspecting the same, and/or
(b) making any repairs to the Premises and performing any work
therein that may be necessary by reason of Tenant's default
under the terms of this Lease continuing beyond any applicable
period of grace, and/or
(c) exhibiting the Premises for the purpose of sale, ground lease
or mortgage.
ARTICLE 18
Notices and Certificates
18.01 - Notices and Certificates
Any notice, statement, certificate, request or demand required or permitted
to be given under this Lease shall be in writing sent either by an overnight
express mail service (such as Federal Express) of by registered or certified
mail, postage prepaid, return receipt requested, addressed, as the case may be,
to the Landlord in care of Landlord's Managing Agent (see Page 1) at the address
shown at the beginning of this Lease, and to Tenant at the address shown at the
beginning of this Lease or to such other addresses as Landlord or Tenant shall
designate in the manner herein provided. Such notice, statement, certificate,
request or demand shall be deemed to have been given on the date mailed as
aforesaid by such express mail service or on the date deposited in any post
office or branch post office regularly maintained by the United States
Government, except for notice of change of address or revocation of a prior
notice, which shall only be effective upon receipt or refusal to accept receipt
of such notice.
At any time or times when Tenant's interest herein shall be vested in more
than one person, firm or corporation, jointly, in common or in severalty, a
notice given by Landlord to any one such person, firm or corporation shall be
conclusively deemed to have been given to all such persons, firms or
corporations. Any notice by Tenant pursuant to the provisions hereof shall be
void and ineffective unless signed by all such persons, firms and corporations
shall have previously given notice to Landlord, signed by each of them
designating and authorizing one or more of them to give the notice referred to,
and such notice shall then be unrevoked be any notice to Landlord.
18.02 - Certificate by Tenant
Within fifteen (15) days after request by Landlord, Tenant, from time to
time and without charge, shall deliver to Landlord or to a person, firm or
corporation, specified by Landlord, a duly executed and acknowledged instrument
certifying:
(a) that this Lease is unmodified and in full force and effect, or
if there has been any modification, that the Lease is in full
force and effect, as modified, and identifying the date of any
such modification; and
(b) whether Tenant knows or does not know, as the case may be, of
any default by Landlord in the performance by Landlord of the
terms, covenants, and conditions of this Lease, and specifying
the nature of such defaults, if any; and
(c) whether or not there are any then existing set-offs or
defenses by Tenant to the enforcement by Landlord of the
terms, covenants, and conditions of this Lease and any
modification thereof, and if so, specifying them; and
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(d) the date to which the fixed monthly rent has been paid.
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ARTICLE 19
Covenant of Quiet Enjoyment
19.01 - Covenant of Quiet Enjoyment
Tenant, subject to the terms and provisions of this Lease, on payment of
the rent and observing, keeping and performing all the terms and provisions of
this Lease on its part to be observed, kept and performed, shall lawfully,
peaceably and quietly have, hold and enjoy the Premises during the term hereof
on and after the Term Commencement Date without hindrance or ejection by
Landlord and any persons lawfully claiming under Landlord, subject nevertheless
to the terms and conditions of this Lease and to any ground or underlying lease
and/or mortgage(s); but it is understood and agreed that this covenant, and any
and all other covenants of Landlord contained in this Lease shall be binding
upon Landlord and its successors only with respect to breaches occurring during
its and their respective ownership of Landlord's interest hereunder.
ARTICLE 20
Services
20.01 - Services
During the term of this Lease, while Tenant is not in default hereunder,
Landlord shall furnish to the Premises electricity, lighting, heating,
ventilating, air conditioning, elevator service and water to the plumbing
fixtures, if any, on Monday through Friday from 7:00 a.m. to 6 p.m., principal
legal holidays excepted (herein referred to as the "Normal Operating Hours").
SUCH SERVICES SHALL BE MADE AVAILABLE TO TENANT SEVEN (7) DAYS A WEEK ON A
TWENTY-FOUR (24) HOUR BASIS. Landlord shall also furnish janitorial services
consisting of cleaning floors, removing waste paper each business day and
window cleaning.
20.02 - Interruption of Service
No diminution or abatement of rent or other compensation shall be claimed
or allowed for inconvenience or discomfort arising from the making of repairs
or improvements to the Premises, the Building or its appurtenances. There shall
be no diminution or abatement of rent or any other compensation for
interruption or curtailment of any service or utility herein expressly or
impliedly agreed to be furnished by Landlord when such interruption or
curtailment shall be due to accident, alterations, repairs (desirable or
necessary), or to inability or difficulty in securing supplies or labor, or to
some other cause not resulting from gross negligence on the part of Landlord.
No such interruption or curtailment shall be deemed a constructive eviction.
Tenant agrees that Landlord shall not be responsible for interruption of
utility service caused by any utility company or governmental regulatory
agency. NOTWITHSTANDING THE FOREGOING, IN THE EVENT THAT ANY INTERRUPTION OF
UTILITY SERVICE SHALL CONTINUE FOR A PERIOD OF MORE THAN THREE (3) CONSECUTIVE
BUSINESS DAYS. LANDLORD AGREES THAT THERE SHALL BE AN EQUITABLE ABATEMENT OF
THE RENT RESERVED HEREIN UNTIL SUCH TIME AS THE INTERRUPTED SERVICE SHALL BE
RESTORED IN FULL.
ARTICLE 21
Certain Rights Reserved to Landlord
21.01 - Certain Rights Reserved to Landlord
Landlord reserves the following rights:
(a) To name the Building and to change the name or street address of
the Building;
(b) To install and maintain a sign or signs on the exterior or
interior of the Building;
(c) To designate all sources furnishings sign painting and lettering,
ice, drinking water, towels, toilet supplies, shoe shining,
vending machines, mobile vending service, catering, and like
services used on the Premises;
(d) During the last ninety (90) days of the term, if during or prior
to that time Tenant vacates the Premises, to decorate, remodel,
repair, alter or otherwise prepare the Premises for reoccupancy,
including the placing of a notice of reasonable size on or in the
Premises offering the Premises "For Rent" or "For Lease", all
without affecting Tenant's obligation to pay rental for the
Premises;
(e) To constantly have pass keys to the Premises;
(f) At any time in the event of an emergency, or otherwise at
reasonable times, to take any and all measures, including
inspections, repairs, alterations, additions and improvements to
the Premises or to the Building, as may be necessary or desirable
for the safety, protection or preservation of the Premises or the
Building or the Landlord's interests, or as may be necessary or
desirable in the operation or improvement of the Building or in
order to comply with all laws, orders and requirements of
governmental or other authority;
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(g) At any reasonable time and from time to time throughout the term
of the Lease to show the Premises to persons wishing to rent
same or to purchase the Building.
ARTICLE 22
Miscellaneous Provisions
22.01 - Holdover
(a) Should Tenant continue to occupy the Premises after the expiration of
the term hereof or after a forfeiture incurred, and if Landlord consents to
such continued occupancy, such tenancy shall be from month-to-month, and such
month-to-month tenancy shall be under all the terms, covenants and conditions
of this Lease, except at ONE AND ONE HALF TIMES the monthly rent reserved
herein.
(b) Should Tenant continue to occupy the Premises without Landlord's
consent after the expiration of the term hereof or after a forfeiture incurred,
such continued occupancy shall confer no rights whatsoever upon Tenant and
Tenant hereby consents in advance to the immediate entry of an order, warrant
and judgment by any court of competent jurisdiction directing the removal of
Tenant and all of Tenant's personal property from the Premises. Such continued
occupancy by Tenant shall in no event be deemed or construed to be a
month-to-month tenancy or a tenancy at will or by sufferance, even if Landlord
accepts rent from Tenant for the period of such continued occupancy after the
expiration of the term hereof or after a forfeiture incurred, or for any
preceding period.
22.02 - Limitation on Personal Liability
(a) It is understood and agreed that Tenant shall look solely to the
estate and property of Landlord in the Building for the satisfaction of Tenant's
remedies for the collection of a judgment (or other judicial process) requiring
the payment of money by Landlord in the event of any default or breach by
Landlord with respect to any of the terms, covenants and conditions of this
Lease to be observed and/or performed by Landlord and any other obligation of
Landlord created by or under this Lease, and no other property or assets of
Landlord or of its partners, beneficiaries, co-tenants, shareholders, or
principals (as the case may be) shall be subject to levy, execution or other
enforcement procedures.
(b) The term "Landlord," as used in subparagraph 22.02(a) above and
throughout this Lease, so far as covenants and agreements on the part of
Landlord are concerned, shall be limited to mean and include only the owner or
owners at the time in question of the Building and Lease. Further, in the event
of any transfer or transfers of the title to the Lease and/or the Building,
Landlord herein named (and in case of any subsequent transfers or conveyances,
the then grantor), including each of its partners, beneficiaries, co-tenants,
shareholders, or principals (as the case may be), shall be automatically freed
and relieved from and after the date of such transfer and conveyance of all
liability as respects the performance of any covenants and agreements on the
part of Landlord. Landlord or the grantor shall turn over to the grantee all
monies and security, if any, then held by Landlord or such grantor on behalf of
Tenant, Landlord thereby being relieved of and from all responsibility for such
monies and security, and shall assign to such grantee all right, title and
interest of Landlord or such grantor thereto, it being intended that the
covenants and agreements contained in this Lease on the part of Landlord to be
performed shall, subject as aforesaid, be binding on Landlord, its successors
and assigns.
22.03 - No Representations by Landlord
Landlord and Landlord's agents have made no representations or promises
with respect to the Building, the land upon which the Building is erected or
the Premises except as herein expressly set forth, and no rights, easements, or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this Lease.
22.04 - Lease Binding
All covenants in this Lease which are binding upon Tenant shall be
construed to be equally applicable to and binding upon Tenant's agents,
employees and others claiming the right to be in the Premises or in the
Building through or under Tenant. If more than one individual, firm or
corporation shall join as Tenant, the singular context shall be construed to be
plural wherever necessary, and the covenants of Tenant shall be the joint and
several obligations of each party signing as Tenant; and, when the parties
signing as Tenant are partners, it shall be the joint and several obligations
of the firm and of the individual members thereof.
22.05 - Failure to Give Possession
(a) If Landlord shall be unable to give possession of the Premises on the
Term Commencement Date by reason of the fact that the Premises are located in a
building being constructed which has not been sufficiently completed to make
the Premises ready for occupancy or by reason of the fact that a certificate of
occupancy has not been procured or for any other reason, then, EXCEPT AS
SPECIFICALLY SET FORTH IN SECTION 22.05(b), BELOW, Landlord shall not be
subject to any liability for the failure to give possession on said date. Under
such circumstances the rent reserved and covenanted to be paid herein shall not
commence until possession of the Premises is given or the Premises are
available for occupancy by Tenant, and no such failure to give possession on
the Term
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Commencement Date shall in any way affect the validity of this Lease or the
obligations of Tenant hereunder, nor shall same be construed in any way to
extend the term of this Lease. If the Building is not in the course of
construction, and Landlord is unable to give possession of the Premises on
the Term Commencement Date by reason of the holding over or retention of
possession by any tenant, tenants, or occupants, or for any other reason, or if
repairs, improvements or decoration of the Premises or of the Building are not
completed, such inability by Landlord shall not constitute a default under this
Lease but the Term Commencement Date shall be postponed until such date as such
holdover tenant or occupant shall give up possession of the Premises, and/or
the repairs, improvements or decorations have been completed, and the term of
this Lease shall be deemed to commence on such Term Commencement Date as
postponed (and the termination date of the term of the Lease shall be extended
by the same period as the Term Commencement Date is postponed).
(b) LANDLORD AGREES THAT LANDLORD SHALL USE ITS BEST EFFORTS TO DELIVER
THE PREMISES TO TENANT ON OR BEFORE THE EXPIRATION OF THE TWELVE (12) WEEKS
FOLLOWING FULL EXECUTION OF THIS LEASE. ANYTHING CONTAINED IN SECTION 22.05(a)
TO THE CONTRARY NOTWITHSTANDING, IN THE EVENT LANDLORD SHALL FAIL TO DELIVER
POSSESSION OF THE PREMISES TO TENANT WITHIN THIRTY (30) DAYS FOLLOWING THE
EXPIRATION OF SAID TWELVE (12) WEEK PERIOD (THE THIRTIETH DAY OF SAID PERIOD
BEING HEREINAFTER REFERRED TO AS THE "OUTSIDE DELIVERY DATE") FOR ANY REASON
OTHER THAN TENANT DELAY OR DELAY RESULTING FROM LANDLORD'S FAILURE TO RECEIVE
EQUIPMENT NECESSARY TO PERFORM AND COMPLETE LANDLORD'S WORK. TENANT SHALL BE
ENTITLED TO AND SHALL RECEIVE TWO (2) DAYS OF FREE RENT FOR EACH TWENTY-FOUR
(24) HOUR PERIOD EXPIRING FROM 11:59 P.M. ON THE OUTSIDE DELIVERY DATE THROUGH
THE ACTUAL DATE ON WHICH LANDLORD SHALL DELIVER THE PREMISES TO TENANT,
EXCLUSIVE.
22.06 - Relocation of Tenant
Intentionally deleted.
22.07 - Force Majeure
The period of time during which either party is prevented or delayed in
the performance or the making of any improvements or repairs or fulfilling any
obligation other than the payment of fixed monthly rent or additional rent
required under this Lease due to unavoidable delays caused by fire,
catastrophe, strikes or labor trouble, civil commotion, Acts of God or the
public enemy, governmental prohibitions or regulation or inability to obtain
materials or labor by reason thereof, or other causes beyond such party's
reasonable control, shall be added to such party's time for performance
thereof, and such party shall have no liability by reason thereof.
22.08 - Attornment by Tenant
If at any time during the term of this Lease the Building is sold through
a mortgage foreclosure proceeding, or if Landlord hereunder shall be the holder
of a leasehold estate covering premises which include the Premises and if such
leasehold estate shall be cancelled or otherwise terminated prior to the
expiration date thereof and prior to the expiration of the term of this Lease,
or in the event of the surrender thereof whether voluntary, involuntary or by
operation of law, Tenant shall make full and complete attornment to the
purchaser at the foreclosure sale or to the lessor of such leasehold estate for
the balance of the term of this Lease upon the same covenants and conditions as
are contained herein so as to establish direct privity between such purchaser
or lessor and Tenant and with the same force and effect as though this Lease
was made directly from such purchaser or lessor to Tenant. Tenant shall make
all rent payments thereafter directly to such purchaser or lessor.
22.09 - Landlord May Pay Tenant's Obligations
All costs and expenses which Tenant assumes or agrees to pay under the
provisions of this Lease shall at Landlord's election be treated as additional
rent, and in the event of non-payment, Landlord shall have all the rights and
remedies herein provided for in case of non-payment of rent or of a breach of
covenant. If Tenant shall default in making any payment required to be made by
Tenant (other than the payment of rent as provided by Article 3 above) or shall
default in performing any term, covenant or condition of this Lease on the part
of Tenant to be performed which shall involve the expenditure of money by
Tenant, Landlord or Landlord's option may, but shall not be obligated to, make
such payment or, on behalf of Tenant, expend such sums as may be necessary to
perform and fulfill such term, covenant or condition, and any and all sums so
expended by Landlord, with interest thereon at the rate of one and one-half
percent (1 1/2%) per month from the date of such expenditure, shall be and be
deemed to be additional rent, in addition to the rent provided in Article 3 and
shall be repaid by Tenant to Landlord on demand, but no such payment or
expenditures by Landlord shall be deemed a waiver of Tenant's default nor shall
it affect any other remedy of Landlord by reason of such default.
22.10 - Definition of "Tenant's Allocable Share"
(a) For purposes of determining Tenant's Allocable Share herein,
except as provided in subparagraph (b) below, such share shall be the
percentage resulting from dividing the number of square feet CONTAINED IN THE
PREMISES, by the total number of square feet LEASEABLE in the Building as of the
beginning of each lease year or partial lease year.
(b) For purposes of determining Tenant's Allocable Share for
paragraph 3.02, such share shall be the percentage resulting from dividing the
number of square feet set forth CONTAINED IN THE PREMISES
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above, by the total number of square feet leasable in the Building as of the
beginning of each lease year or partial lease year.
22.11 - Division of Costs
Landlord may construct and operate other office buildings located within
the office park in which the Building is located. Tenant agrees that Landlord
may treat the Building and the adjacent office buildings as one unit for the
purpose of purchasing and providing energy and water, insurance and the common
services included within Operating Costs. Landlord shall equitably divide such
costs between the Building and the adjacent office buildings for each lease year
(or partial lease year) and the allocation of such costs shall be subject to
verification by Tenant at Landlord's offices.
22.12 - Effect of Captions
The captions or legends on this Lease are inserted only for convenient
reference or identification of the particular paragraphs. They are in no way
intended to describe, interpret, define or limit the scope, or extent or intent
of this Lease, or any paragraph or provision thereof.
22.13 - Tenant Authorized to Do Business
Tenant represents and covenants that it is and throughout the term of this
Lease shall be authorized to do business in the state in which the Building is
located. In the event Tenant hereunder is a corporation, the persons executing
this Lease on behalf of the Tenant hereby covenant and warrant that: the Tenant
is a duly constituted corporation qualified to do business in the state in which
the Building is located, all Tenant's franchise and corporate taxes have been
paid to date; and such persons are duly authorized by the governing body of such
corporation to execute and deliver this Lease on behalf of the corporation.
22.14 - Execution in Counterparts
This Lease may be executed in one or more counterparts, any one or all of
which shall constitute but one agreement.
22.15 - Memorandum of Lease
Upon request by either party, Landlord and Tenant agree to execute a
Memorandum or Notice of Lease in recordable form pursuant to applicable state
law. Upon the expiration or earlier termination of this Lease, the party who
shall have recorded such Memorandum or Notice of Lease from the public records,
and upon failure to do so, the other party, upon ten (10) days prior notice to
the party who recorded the aforesaid instrument, is hereby appointed
attorney-in-fact to execute any such instrument in the recording party's name,
place and stead. The requesting party shall pay for all recording fees and
attorney's fees in connection with the preparation and recording of the
Memorandum or Notice of Lease.
22.16 - Law Governing, Effect and Gender
This Lease shall be construed in accordance with the laws of the state in
which the Building is located and shall be binding upon the parties hereto and
their respective legal representatives, successors and assigns except as
expressly provided otherwise. Should any provisions of this Lease require
judicial interpretation, it is agreed that the court interpreting or construing
the same shall not apply a presumption that the terms of any such provisions
shall be more strictly construed against one party or the other by reason of the
rule of construction that a document is to be construed most strictly against
the party who itself or its agent prepared the same, it being agreed that the
agents of all parties have participated in the preparation of this Lease. Use of
the neuter gender shall be deemed to include the masculine or feminine, as the
sense requires. Any reference to successors and assigns of Tenant is not
intended to constitute a consent to any assignment by Tenant but has reference
only to those instances in which Landlord may later give consent to a particular
assignment as required by the provisions of Article 15 hereof.
22.17 - Security Agreement
Intentionally deleted.
22.18 - Amendments
The parties hereto mutually agree that so long as a mortgage or any
extension thereof shall be a lien upon the Premises, they will not reduce the
rents from that provided for in this Lease, provided for payments of rents prior
to time herein provided for, not terminate said Lease prior to the end of the
term, except as otherwise provided in this Lease, without first obtaining the
consent of the mortgagee in writing, and that any such proposed modification or
termination without said mortgagee's consent shall be void as against said
mortgagee.
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22.19 - Brokerage
Tenant warrants that it has had no dealings with any broker or agent in
connection with this Lease and covenants and agrees to pay any commission,
compensation or charge claimed by any real estate broker, salesman or agent with
respect to this Lease or the negotiation thereof.
ANYTHING TO THE CONTRARY CONTAINED IN THE FOREGOING NOTWITHSTANDING, AND
PROVIDED THAT THIS LEASE SHALL HAVE BEEN FULLY EXECUTED, LANDLORD AGREES THAT IN
THE EVENT TENANT SHALL SUBLEASE ITS PREMISES OR ASSIGN ITS LEASEHOLD INTEREST,
AS THE CASE MAY BE, UNDER THAT CERTAIN LEASE BY AND BETWEEN TENANT AND UNIGARD
INSURANCE COMPANY, FOR PREMISES LOCATED AT 200 ELWOOD DAVIS ROAD IN THE VILLAGE
OF LIVERPOOL, COUNTY OF ONONDAGA AND STATE OF NEW YORK (THE "UNIGARD LEASE"),
LANDLORD SHALL REIMBURSE TENANT FOR THE PAYMENT OF ONE (1) REASONABLE BROKERAGE
COMMISSION, IF ANY, WHICH SHALL HAVE BEEN PAID BY TENANT TO ANY REAL ESTATE
BROKER, SALESMAN OR AGENT IN CONNECTION WITH SUCH SUBLEASE OR ASSIGNMENT OF THE
UNIGARD LEASE.
22.20 - Complete Agreement
This Lease contains and embraces the entire Agreement between the parties
hereto and it or any part of it may not be changed, altered, modified, limited,
terminated, or extended orally or by any agreement between the parties unless
such agreement be expressed in writing, signed and acknowledged by the parties
hereto, their legal representative, successors or assigns, except as may be
expressly otherwise provided herein.
22.21 - Arbitration
Any controversy or claims arising or relative to any matter in connection
with this Lease, with reference to which this Lease shall expressly provide that
this section governs, shall be settled by arbitration in the City of Syracuse,
New York, in accordance with the rules of the American Arbitration Association
or its successor organization, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction hereof.
22.22 - Guaranty of Lease
IN THE EVENT THAT LANDLORD SHALL IN ITS REASONABLE ESTIMATION AND GOOD
FAITH JUDGMENT DETERMINE THAT THE FINANCIAL STRENGTH OF TENANT SHALL HAVE
DECREASED FROM THAT WHICH EXISTED UPON TENANT'S EXECUTION OF THIS LEASE, SUCH
THAT LANDLORD SHALL REASONABLY REQUIRE ADEQUATE ASSURANCE OF FUTURE PERFORMANCE
UNDER THIS LEASE BY TENANT, LANDLORD RESERVES THE RIGHT TO REQUIRE ANY ONE (1)
OF THE FOLLOWING ENTITIES TO EXECUTE THE GUARANTY OF LEASE IN THE FORM SET FORTH
IN EXHIBIT "F", ATTACHED HERETO AND MADE PART HEREOF:
(A) ANY CORPORATION THAT IS A PARENT, SUBSIDIARY OR AFFILIATE OF TENANT;
(B) ANY CORPORATION RESULTING FROM A MERGER OR CONSOLIDATION AFFECTING
TENANT; OR
(C) ANY CORPORATION ACQUIRING ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF
TENANT;
In the event that Landlord shall request the Guaranty of any of the
foregoing, Tenant represents and covenants that it will cause said Guaranty of
Lease to be duly executed and delivered to Landlord not later than ten (10) days
after receipt of Landlord's request. The guarantor under such Guaranty of Lease
is herein referred to as "Guarantor." If Tenant or Tenant's Guarantor is a
partnership or other business organization, the members of which are subject to
personal liability, the liability of each such member, or Guarantor, where there
is more than one Guarantor, shall be deemed to be joint and several. Any present
or future partner of Tenant or Tenant's Guarantor(s) who is no longer a partner
of Tenant or its Guarantor(s) at the time of any default under this Lease shall,
nevertheless, remain liable for the obligations of Tenant under this Lease, as
if any such partner had been a partner on the date of such default.
22.23 - Invalidity of Particular Provisions
If any term or provision of this Lease or the application thereof to any
person or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Lease, 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 and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
22.24 - Execution of Lease by Landlord
The submission of this document for examination and negotiation does not
constitute an offer to lease, or a reservation of, or option for, the Premises
and this document becomes effective and binding only upon the execution and
delivery hereof by Landlord and by Tenant. All negotiations, considerations,
representations and understandings between Landlord and Tenant are incorporated
herein and may be modified or altered only by an agreement in writing between
Landlord and Tenant, and no act or omission of any employee or other agent of
Landlord shall later, change or modify any of the provisions hereof.
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22.25 - Relationship of the Parties
Nothing contained herein shall be deemed or construed by the parties hereto
nor by any third party as creating the relationship of principal and agent or of
partnership or of joint venture between the parties hereto, it being understood
and agreed that neither the method of computation of rent nor any other
provision herein contained, nor any acts of the parties hereto, shall be deemed
to create any relationship between the parties hereto other than Landlord and
Tenant.
22.26 - Tenant's Option to Lease Additional Premises
Landlord hereby grants Tenant the option, to be exercised as hereinafter
provided, to lease additional square footage of office premises which may be
available in the Building from time to time, and located in an area of the
Building designated by Landlord (such space is hereinafter referred to as the
"Additional Premises"). However, if the square footage of premises requested by
Tenant is not available in the Building, then Landlord may designate that the
Additional Premises be located within the neighboring Interplace II Office
Building located at 100 Elwood Davis Road in the Village of Liverpool, County of
Onondaga and State of New York (the "IP2 Building") which will accommodate
Tenant's additional office premises requirements.
(a) Tenant may exercise its option hereunder to lease the Additional Premises
by giving Landlord written notice of such exercise at any time DURING THE
INITIAL TERM OF THIS LEASE at least nine (9) months prior to the date
Tenant specifies in its notice that possession of the Additional Premises
is to be delivered to Tenant. If such option shall be duly exercised by
Tenant, Landlord shall inform Tenant in writing within three (3) months of
Landlord's receipt of Tenant's notice as to whether or not Landlord shall
be able to make the Additional Premises available to Tenant upon the date
specified in said notice ("Landlord's Notice of Availability").
(b) If Tenant duly exercises its option to lease the Additional Premises under
this Section 22.26, and the Additional Premises shall be available either
in the Building or the IP2 Building, the leasing of the Additional Premises
by Tenant shall be upon the same terms and conditions as provided in this
Lease for the Premises (the "Existing Terms"), except that:
(i) IN THE EVENT THAT THE ADDITIONAL PREMISES SHALL BE LOCATED IN THE
BUILDING, THE FIXED MONTHLY RENT FOR THE ADDITIONAL PREMISES SHALL BE
EQUAL TO THIRTEEN AND 95/100 DOLLARS ($13.95) PER SQUARE FOOT OF
LEASEABLE PREMISES PLUS AN AMOUNT EQUAL TO THE COST OF ANY WORK
PERFORMED BY LANDLORD (IF ANY) IN ORDER TO PREPARE THE ADDITIONAL
PREMISES FOR TENANT'S OCCUPANCY AMORTIZED OVER THE REMAINING TERM OF
THE LEASE, AS MAY BE EXTENDED FROM TIME TO TIME ("ADDITIONAL PREMISES
BASE RENT"); AND
(ii) IN THE EVENT THAT THE ADDITIONAL PREMISES SHALL BE LOCATED IN THE IP2
BUILDING, the amounts payable under the Lease, including, but not
limited to, the fixed monthly rent, base periods (i.e. Tax Base Year,
Base Periods for Common Area Costs, Base Amounts for Building Energy
Costs and Water), charges for Building Utilities Tenant Electric
Energy, and charges for Extra Tenant Electric (and any other charges
or costs under the lease) shall be "Fair Market Rents, Terms and
Conditions for office space of comparable size, class and quality in
the Village of Liverpool as of the date Tenant exercises its option
under this Section 22.26. Anything to the contrary contained in this
Lease notwithstanding, the per square foot rent under the lease for
the Additional Premises shall not be less than the per square foot
rent payable for the Premises hereunder.
IF THE ADDITIONAL PREMISES ARE LOCATED IN THE BUILDING, LANDLORD AND TENANT
SHALL PROMPTLY EXECUTE A LEASE MODIFICATION AGREEMENT WHEREBY THE PARTIES
INCORPORATE THE ADDITIONAL PREMISES INTO THE PREMISES AND MODIFY THE LEASE
SO AS TO REFLECT AND INCORPORATE THE PAYMENT OF THE ADDITIONAL PREMISES
BASE RENT, AND SUCH OTHER TERMS AND CONDITIONS UPON WHICH LANDLORD AND
TENANT SHALL MUTUALLY AGREE.
IN THE EVENT THAT THE ADDITIONAL PREMISES ARE TO BE LOCATED IN THE IP2
BUILDING AND LANDLORD AND TENANT AGREE ON THE FAIR MARKET RATE, TERMS AND
CONDITIONS, THE PARTIES AGREE THAT THEY SHALL PROMPTLY EXECUTE A LEASE ON
LANDLORD'S STANDARD OFFICE LEASE, INCORPORATING THE EXISTING TERMS AND SUCH
FAIR MARKET TERMS AND CONDITIONS FOR THE ADDITIONAL PREMISES.
(c) If Landlord and Tenant are unable to agree upon the Fair Market Rents,
Terms and Conditions for the Additional Premises in the IP2 Building within
twenty (20) days following Tenant's receipt of Landlord's Notice of
Availability, (i) the dispute shall proceed to arbitration or (ii) TENANT,
AT ITS OPTION, MAY WITHDRAW ITS EXERCISE OF THIS OPTION UPON WRITTEN NOTICE
GIVEN WITHIN TWO (2) BUSINESS DAYS FOLLOWING THE EXPIRATION OF SAID TWENTY
(20) DAYS, WITHOUT PREJUDICE. IN THE EVENT THAT TENANT DOES NOT WITHDRAW
ITS EXERCISE, THEN IN SUCH CASE, and within five (5) business days after
the expiration of such twenty (20) day period, each party shall appoint an
arbitrator and notify the other party of such appointment by identifying
the appointee. Each party hereto agrees to select as its respective
appointee a licensed real estate broker, who is an individual of
substantial experience with respect to office building ownership,
management and marketing in the general geographic area of the greater
Syracuse area, which person shall not be regularly employed or have been
retained during the last two (2) years as a consultant
23
<PAGE> 26
by the party selecting such person. Neither party may consult directly or
indirectly with any arbitrator regarding the Fair Market Rents, Terms and
Conditions prior to appointment, or after appointment, outside the presence
of the other party. The arbitration shall be conducted in the City of
Syracuse under the provisions of the commercial arbitration rules of the
American Arbitration Associations and the laws of the State of New York.
(d) Not later than five (5) business days after both arbitrators are appointed,
each party shall separately, but simultaneously, submit in a sealed
envelope to each arbitrator their separate suggested Fair Market Rents,
Terms and Conditions for the Additional Premises and shall provide a copy
of such submission to the other party. After reviewing such submissions,
the selected arbitrators shall determine whether Landlord's or Tenant's
estimate of the Fair Market Rent, Terms and Conditions is closer to the
actual Fair Market Rent, Terms and Conditions and shall declare such closer
estimate to be the Fair Market Rent, Terms and Conditions. It is hereby
acknowledged and agreed that the decision of the arbitrators shall be final
and binding upon the parties and that the parties shall promptly enter into
a new lease prepared by counsel for the Landlord on Landlord's Standard
Office Lease for the Additional Premises for a term to be agreed upon, and
setting forth (i) the Existing Terms and (ii) the Fair Market Rent, Terms
and Conditions as determined by arbitration.
h) Each party shall be responsible for the costs, charges and/or fees of its
respective appointee, and the parties shall share equally in the costs,
charges and/or fees of the third arbitrator, if any. The decision of the
arbitrator(s) may be entered in any court having jurisdiction thereof.
j) For purposes of this paragraph, the term "Fair Market Rents, Terms and
Conditions" shall mean the annual amount per rentable square foot and
additional charges that a willing, comparable, non-equity, non-renewal,
non-expansion new tenant would pay and a willing, comparable landlord of a
first class office building in the Village of Liverpool would accept at
arm's length, giving appropriate consideration to annual rental rates per
rentable square foot, the type of escalation clauses including, but without
limitation, operating expense and real estate tax escalation clauses, the
extent of liability under such escalation clauses (e.g., whether determined
on a net lease basis or by increases over a particular base year or base
dollar amount), abatement provisions reflecting free rent and/or no rent
during the period of construction or any other period during the lease
term, brokerage commissions, if any, length of lease term, size and
location of the premises being leased, Building Standard work letter and/or
tenant improvement allowances, if any, and other generally applicable terms
and conditions of tenancy for a single floor or the space in question, if
smaller.
k) Anything to the contrary contained in this Section 22.26 or the Lease to
the contrary notwithstanding, provided Tenant shall not be in default of
any of the terms or conditions of this Lease (as defined in Section
13.01(a) as an event of default), then, UPON THE EXPIRATION OF THE
EIGHTY-FOURTH (84TH) FULL CALENDAR MONTH OF THE INITIAL LEASE TERM ("84TH
MONTH"), in the event THAT LANDLORD SHALL BE UNABLE TO ACCOMMODATE
additional square footage requirements of Tenant as exercised pursuant to
the terms of this Section 22.26 FROM AND AFTER THE EXPIRATION OF SAID 84TH
MONTH. Landlord shall so inform Tenant within Landlord's requisite Notice
of Availability, and Tenant may thereafter elect to terminate this Lease by
written notice to Landlord ("Notice of Termination") given within sixty
(60) days following Tenant's receipt of said Notice of Availability, which
termination shall be effective upon the expiration of ninety (90) days
following Landlord's receipt of Tenant's Notice of Termination.
In the event Tenant shall duly exercise its option to terminate the Lease
pursuant to the provisions of this Section 22.26(k), this Lease shall
terminate upon the later to occur of (i) the expiration of ninety (90) days
following Landlord's receipt of Tenant's Notice of Termination; and (ii)
the date set forth in said Notice of Termination as the effective date of
the same (the "Termination Date"), and Landlord and Tenant shall be
released from the accrual of any further obligation or liability to the
other under this Lease from and after said Termination Date.
In the event Tenant shall fail to timely give notice to Landlord within
sixty (60) days following its receipt of Landlord's Notice of Availability
informing Tenant that Additional Premises are not available, Tenant shall
be deemed to waived such right to terminate, and this Lease shall continue
in full force and effect.
l) Landlord hereby represents and warrants that it has reserved the right
under each of its representative leases with ACC Communications and Interim
Personnel, being tenants of premises located in the Building, to relocate
each of said tenants upon SIXTY (60) days prior written notice. In the
event Tenant shall at any time during the term of this Lease desire to
lease the respective premises of any of the tenants heretofore named, and
provided Tenant shall not be in default of the terms or conditions of this
Lease (as defined in Section 13.01(a) as an event of default), Landlord
hereby agrees that it negotiate in good faith with Tenant for the leasing
of the desired premises and, upon reaching a business deal with Tenant
regarding said desired premises, Landlord shall exercise its right to
relocated the tenant(s) thereof and enter into a lease with Tenant for the
same. TENANT AGREES THAT ANY SUCH RELOCATION OF TENANT(S) BY LANDLORD SHALL
BE AT TENANT'S SOLE COST AND EXPENSE, AND THAT TENANT SHALL REIMBURSE
LANDLORD FOR ANY SUCH COSTS INCURRED BY LANDLORD WITHIN THIRTY (30) DAYS OF
TENANT'S RECEIPT OF AN INVOICE THEREFOR.
24
<PAGE> 27
22.27 - Tenant's Right of First Option
PROVIDED THAT TENANT SHALL NOT DEFAULT IN ANY OF THE TERMS OR CONDITIONS OF
THIS LEASE, LANDLORD AGREES THAT TENANT SHALL HAVE THE FIRST OPTION TO LEASE
ADDITIONAL PREMISES LOCATED IN THE BUILDING CURRENTLY UNDER LEASE WITH ANY OTHER
TENANT ("OTHER TENANT PREMISES"), SUCH OPTION TO ACCRUE UPON THE DATE THAT THE
OTHER TENANT PREMISES SHALL BECOME AVAILABLE. THE LEASING OF THE OTHER TENANT
PREMISES SHALL BE UPON ALL OF THE TERMS AND CONDITIONS OF THIS LEASE, EXCEPT
THAT THE FIXED MONTHLY RENT FOR THE OTHER TENANT PREMISES SHALL BE EQUAL TO
THIRTEEN AND 95/100 DOLLARS ($13.95) PER SQUARE FOOT OF LEASEABLE PREMISES PLUS
AN AMOUNT EQUAL TO THE COST OF ANY WORK PERFORMED BY LANDLORD (IF ANY) IN ORDER
TO PREPARE THE OTHER TENANT PREMISES FOR TENANT'S OCCUPANCY AMORTIZED OVER THE
REMAINING TERM OF THE LEASE, AS MAY BE EXTENDED FROM TIME TO TIME ("OTHER TENANT
PREMISES BASE RENT").
LANDLORD SHALL NOTIFY TENANT IN WRITING OF THE AVAILABILITY OF ANY OTHER
TENANT PREMISES UPON THE EARLIER TO OCCUR OF (I) AT LEAST SIX (6) MONTHS PRIOR
TO THE EXPIRATION OF THE RESPECTIVE LEASE ON SAID PREMISES AS OF THE DATE OF
EXECUTION OF THIS LEASE; AND (II) UPON SUCH OTHER DATE THAT OTHER TENANT
PREMISES MAY BECOME AVAILABLE, AND TENANT SHALL THEREAFTER HAVE THIRTY (30)
DAYS FROM RECEIPT OF LANDLORD NOTICE WITHIN WHICH TO SERVE LANDLORD IRREVOCABLE
NOTICE (TIME BEING OF THE ESSENCE) OF TENANT'S INTENTION TO LEASE OTHER TENANT
PREMISES ("TENANT'S FIRST OPTION NOTICE").
IN THE EVENT THAT TENANT SHALL TIMELY EXERCISE ITS RIGHT OF FIRST OPTION,
LANDLORD AND TENANT SHALL PROMPTLY EXECUTE A LEASE MODIFICATION AGREEMENT
WHEREBY THE PARTIES INCORPORATE THE OTHER TENANT PREMISES INTO THE PREMISES AND
MODIFY THE LEASE SO AS TO REFLECT AND INCORPORATE THE PAYMENT OF THE OTHER
TENANT PREMISES BASE RENT, AND SUCH OTHER TERMS AND CONDITIONS UPON WHICH
LANDLORD AND TENANT SHALL MUTUALLY AGREE.
IN THE EVENT THAT LANDLORD SHALL NOT TIMELY RECEIVE TENANT'S FIRST OPTION
NOTICE, TENANT SHALL BE DEEMED TO HAVE WAIVED ITS FIRST OPTION RIGHT TO LEASE
THE RESPECTIVE OTHER TENANT PREMISES, AND LANDLORD MAY LEASE THE SAME TO
ANOTHER TENANT WITHOUT FIRST OFFERING IT AGAIN TO TENANT.
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the
date first above written.
LANDLORD: TENANT:
ELWOOD DAVID ROAD COMPANY NYSERNet, INC.
By: Joseph T. Scuderi By: David A. Buckel
--------------------------------- ----------------------
Joseph T. Scuderi Name: David A. Buckel
Member of the Executive Committee Title: Controller
25
<PAGE> 28
(Acknowledgment of Landlord)
STATE OF NEW YORK }
SS.:
}
COUNTY OF ONONDAGA
On this 13th day of February, 1996, before me personally came Joseph T. Scuderi
to me personally known, who being by me duly sworn, did dispose and say that he
resides in Fayetteville, NY, that he is a Member of the Executive Committee of
ELWOOD DAVIS ROAD COMPANY, the partnership described in and which executed the
within Lease as Landlord; and who further acknowledged to me that he executed
said Lease for, on behalf and in the name of such partnership by the
authorization thereof.
MARGO M. McCAFFERY Margo McCaffery
Notary Public, State of New York __________________
No. 01MC5056553 Notary Public
Qualified in Madison County
Commission Expires March 4, 98
(Acknowledgment of Tenant)
STATE OF NEW YORK }
SS.:
COUNTY OF ONONDAGA }
On this 30th day of May, 1996, before me personally came David Buckel, to
me personally known, who, being by me duly sworn, did dispose and say that he
resides at Syracuse, NY, that he is the Assistant Secretary of NYSERNet, INC.,
the corporation described in, and which executed the within Lease as Tenant;
and who further acknowledged to me that he executed said Lease for, on behalf
and in the name of said corporation by order of the Board of Directors thereof.
Patricia J Foster
___________________
Notary Public
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No.4755760
My Commission Expires Sept. 30, 1996
<PAGE> 29
ASSIGNMENT OF LEASE AND ASSUMPTION AGREEMENT
THIS AGREEMENT ("Agreement") is made this 17 day of January, 1997, by and
between ELWOOD DAVID ROAD COMPANY, a general partnership organized and existing
pursuant to the laws of the State of New York with a principal office at c/o The
Widewaters Group, Inc., P. O. Box 3, 5786 Widewaters Parkway, Dewitt, New York
13214-0003 ("Landlord"); NYSERNet, INC., a New York corporation with Federal Tax
Identification # 13-3378833 and a principal office at 125 Elwood Davis Road,
Liverpool, New York 13088 ("Prior Tenant"); and APPLIED THEORY (TM)
COMMUNICATIONS, INC., a not-for-profit corporation with Federal Tax
Identification # 16-149-1253 and principal office at 125 Elwood Davis Road,
Syracuse NY, 13212 ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Prior Tenant entered into a Standard Office Space
Lease dated February 13, 1996, as modified by Lease Modification Agreement #1
dated December 20, 1996, for 21,246 leasable square feet of office premises
located in the Interstate Place I Office Building at 125 Elwood Davis Road,
Liverpool, New York (collectively, the "Lease"); and
WHEREAS, there has been a sale of all, or substantially all assets from
Prior Tenant to Tenant.
WHEREAS, in conjunction with said sale, Prior Tenant desires to assign to
Tenant all of Prior Tenant's leasehold estate, rights, title, interest,
covenants, duties, liabilities and obligations under the Lease upon the terms
and conditions set forth herein (the "Assignment");
WHEREAS, under the terms of the Lease, the Prior Tenant may not assign,
sublease or otherwise transfer its interest under the Lease without the prior
consent of Landlord;
WHEREAS, Prior Tenant has requested that Landlord consent to the
Assignment; and
WHEREAS, Landlord agrees to grant its consent to said Assignment only upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual entry into this
Agreement by the parties hereto and for other good and valuable consideration,
the receipt and legal sufficiency of which is hereby acknowledged by the
parties, the parties hereto agree as follows:
1. Landlord hereby consents to the assignment of Prior Tenant's leasehold
estate, rights, title, interest, covenants, duties, liabilities and
obligations under the Lease upon the terms and conditions set forth herein.
2. Prior Tenant does hereby assign, transfer, convey and grant to Tenant, its
successors and assigns, forever, its entire right, title and interest in the
Lease.
1 of 4
<PAGE> 30
3. Tenant hereby: (a) acknowledges that it has received and reviewed a true and
complete copy of the Lease; (b) accepts Prior Tenant's assignment of the
Lease; and further (c) hereby assumes and covenants and agrees to perform
from and after the Effective Date hereof, as a direct obligation to the
Landlord, all of the obligations of "Tenant" arising under the Lease.
4. Anything contained in the Lease or this Agreement to the contrary
notwithstanding, and further notwithstanding the assumption by Tenant of such
obligations, Prior Tenant is and shall not be released under the Lease, but
shall continue to be fully responsible for the due performance of the
obligations of "Tenant" under the Lease, in the same manner and to the same
extent as if no such assignment or assumption had been made.
5. As of the Effective Date of this Agreement, the Lease shall be deemed
modified by deleting the definition of Tenant on page 1 thereof, and
inserting the following in its place and stead:
"Tenant: APPLIED THEORY (TM) COMMUNICATIONS, INC.
______________________________________________________________
(Correct Legal Name of Tenant)
a not-for-profit corporation organized and existing under
the laws of the State of New York with principal office at:
________
125 Elwood Davis Road
_____________________________________
Syracuse, NY, 13212
_____________________________________
Attention: Mr. David A. Buckel
_____________________________________________
(Name of Person or Officer to receive Notices)
Fed. Tax ID # 16-149-1253
____________________________
hereinafter referred to as "Tenant"."
6. Landlord's consent set forth herein is not and shall not be construed as a
consent by Landlord to any further assignment or subletting by Prior Tenant
or Tenant. Further assignment or subletting, if any, shall be subject to all
relevant provisions of the Lease.
7. Prior Tenant and Tenant hereby certify to Landlord that as of the date hereof
(i) the Lease is in full force and effect; (ii) there currently exist no
defaults by Landlord under the Lease, nor any condition which with the giving
of notice or the passage of time, or both, would constitute a default under
the Lease on the part of Landlord; (iii) Tenant has no existing set-offs,
counterclaims or defenses against Landlord under the Lease; and that (iv) the
Lease as modified hereby contains the entire agreement between the parties
hereto with respect to the Premises, the Lease and the Office Building.
8. Prior Tenant and Tenant jointly and severally represent and warrant to
Landlord that each has taken all necessary corporate, partnership or other
action necessary to execute and deliver this Agreement, and that this
Agreement constitutes the legally binding obligation of each such party and
is enforceable in accordance with its terms. Both Prior Tenant and Tenant
further represent and warrant that each has full and complete authority to
enter into and execute this Agreement and acknowledge that Landlord is
relying upon the herein made representations of Prior Tenant's and Tenant's
respective authority to execute this Agreement and both Tenant and Prior
Tenant shall indemnify save and hold Landlord harmless from any
2 of 4
<PAGE> 31
claims, or damages including reasonable attorneys' fees arising from any
misrepresentation herein made by either Prior Tenant or Tenant.
9. This Agreement may be executed in one or more counterparts, any one or all
of which constitute one document.
10. Terms not defined in this Agreement shall have the meaning ascribed to them
in the Lease.
11. The Effective Date of this Agreement for all purposes shall be upon its
full execution, and this Agreement shall not be binding unless and until
signed on behalf of all parties hereto.
12. Except as herein modified and amended, all the other terms and conditions
of the Lease shall continue in full force and effect.
13. As of the Effective Date, this Agreement shall be attached to and made a
part of the Lease.
IN WITNESS WHEREOF, each party hereto has executed this Agreement or
caused it to be executed on its behalf by its duly authorized representatives,
the day and year first above written.
PRIOR TENANT:
NYSERNet, INC.
By: /s/ David A. Buckel
------------------------------
Printed name: David A. Buckel
--------------------
Title: Director of Finance
---------------------------
TENANT:
APPLIED THEORY (TM) COMMUNICATIONS, INC.
By: /s/ David A. Buckel
------------------------------
Printed name: David A. Buckel
--------------------
Title: Director of Finance
---------------------------
LANDLORD
ELWOOD DAVIS ROAD COMPANY
By: /s/ Joseph R. Scuderi
--------------------------------
Joseph R. Scuderi
Member of the Executive Committee
3 of 4
<PAGE> 32
ACKNOWLEDGMENTS
STATE OF NEW YORK }
COUNTY OF ONONDAGA } ss.:
On this 17th day of January, 1997, before me personally came Joseph R.
Scuderi, to me personally known, who, being by me duly sworn, did depose and
say that he resides at Manlius, New York, that he is a Member of the Executive
Committee of Elwood Davis Road Company, the partnership described in, and which
executed the within instrument as Landlord; that he executed the same on behalf
of and in the name of such Partnership.
Margo M. McCaffery
----------------------------------
Notary Public
MARGO M. McCAFFERY
Notary Public, State of New York
No. 01MC5056553
Qualified in Madison County
Commission Expires March 4, 1998
STATE OF NEW YORK }
COUNTY OF ONONDAGA } ss.:
On this 10th day of January, 1997, before me personally came David A.
Buckel, to me personally known, who, being by me duly sworn, did depose and say
that he/she resides in Syracuse, NY, that he/she is the Director of Finance of
NYSERNet, Inc., the corporation described in and which executed the within
instrument as Prior Tenant; and that he/she signed his/her name thereto by
order of the Board of Directors of said corporation.
Patricia J. Foster
----------------------------------
Notary Public
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No. 4755760
My Commission Expires Sept. 30, 1998
STATE OF NEW YORK }
COUNTY OF ONONDAGA } ss.:
On this 10th day of January, 1997, before me personally came David A.
Buckel, to me personally known, who, being by me duly sworn, did depose and say
that he/she resides in Syracuse, NY, that he/she is the Secretary/Treasurer of
APPLIED Theory (TM) Communications, Inc., the not-for-profit corporation
described in and which executed the within instrument as Tenant; and that
he/she signed his/her name thereto by order of the Board of Directors of said
corporation.
Patricia J. Foster
----------------------------------
Notary Public
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No. 4755760
My Commission Expires Sept. 30, 1998
4 of 4
<PAGE> 33
[THE WIDEWATERS GROUP Letterhead]
December 23, 1996
VIA FIRST CLASS MAIL
Mr. David Buckel
NYSERNet, Inc.
125 Elwood Davis Road
Liverpool, NY 13088
Re: Lease Modification Agreement #1
Dear Mr. Buckel:
Enclosed, for your files, please find one (1) fully executed duplicate
original of the above-referenced document. Feel free to contact Susan Scuderi
should you have any questions with regard to the enclosed.
Very truly yours,
/s/ Michelle L. Smith
Michelle L. Smith
Paralegal
THE WIDEWATERS GROUP, INC.
cc: William S. Holstein, Vice President
Charles G. Sangster, Director of Leasing
Susan M. Scuderi, Esq.
Kaye Habib, Manager-Internal Audit
Dave Mooney, Property Manager
<PAGE> 34
LEASE AGREEMENT
This Lease Agreement ("Lease") dated this 8 day of September 1998, is by
and between ELWOOD DAVIS ROAD COMPANY, a general partnership organized and
existing pursuant to the laws of the State of New York with a principal office
at c/o The Widewaters Group, In., P.O. Box 3, 5786 Widewaters Parkway, Dewitt,
New York 13214-0003 Attn.: Lease Administration ("Landlord"), and APPLIEDTHEORY
(TM) COMMUNICATIONS, INC. (successor-in-interest to NYSERNet, Inc.), a
corporation with a principal office at 125 Elwood Davis Road, Liverpool, New
York 13088 Attn.: Patricia Foster ("Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and NYSERNet, Inc. entered into a Standard Office Space
Lease February 13, 1996, as modified by Lease Modification Agreement #1 dated
December 20, 1996, relating to office space in the office building located at
125 Elwood Davis Road, Liverpool, New York 13088 (the building is herein
referred to as "IP1"). The Standard Office Space Lease February 13, 1996,
excluding the Lease Modification Agreement #1 dated December 20, 1996 is
hereinafter referred to as the "IP1") Original Lease";
WHEREAS, Tenant assumed the rights, title, and interest in the lease from
NYSERNet, Inc., as evidenced by the Assignment of Lease and Assumption
Agreement dated January 17, 1997;
WHEREAS, Tenant desires to lease from Landlord premises in an office
building that is adjacent to IP1 and has an address of 100 Elwood Davis Road,
Liverpool, New York 13088 (hereinafter referred to as the "Building");
WHEREAS, Landlord is owner of IP1 and the Building;
WHEREAS, Landlord has agreed to enter into a lease agreement with Tenant
upon the terms and conditions contained set forth below; and
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Article 1 through and including Article 22 of the IP1 Original Lease and
Exhibits attached thereto, without any subsequent modifications, are hereby
incorporated into this Lease and made a part hereof by reference, except as
otherwise set forth below:
A. The following replaces Section 1.01 of the IP1 Original Lease:
1.01 - Premises
Landlord hereby leases to Tenant and Tenant hereby leases and
hires from Landlord those certain premises in the Interstate Place II
Office Building (hereinafter called the "Building") which is located
in the County of Onondaga and State of New York, which premises are
located on the 2nd floor of the Building and are outlined on the
floor plan(s) attached hereto and made a part hereof as Exhibit "A",
together with the right to use, in common with others, the Building
Common Areas and Outside Common Areas as hereinafter defined. For
purposes of this paragraph 1.01, the sum of the square feet in the
Premises and Tenant's share of Building Common Areas (as defined in
paragraph 1.02 hereof) shall be 5,789 leaseable square feet. Upon
execution of this Lease, the Building contains 40,220 leaseable square
feet. The Premises shall include the area bounded by: the center line
of any walls common to adjacent tenants, the Building Common Area side
of any wall adjoining Building Common Areas (but not the surface
thereof), the line established by the exterior face of the exterior
walls of the Building, the concrete floor surface and the lower
surface of the next higher floor (or roof). Landlord reserves unto
itself, its successors and assigns, the right to install, maintain,
use, repair and replace pipes, ducts, conduits, wires and structural
elements leading through the Premises in locations which will not
materially interfere with Tenant's use of the Premises. No right to
use any part of the exterior of the Building and no easement for light
or air are included in the lease of the Premises hereby made.
B. The rent schedule in the first paragraph of Section 3.01 of the IP1
Original Lease is hereby replaced with the following schedule:
MONTH OF LEASE TERM: FIXED MONTHLY RENT
-------------------- ------------------
Months 01-60, inclusive: $7,212.13 14.95
Months 61-120, inclusive: $7,694.55 15.95
C. The following replaces Section 4.01 of the IP1 Original Lease:
4.01 - Landlord's Obligation
Landlord shall, at its cost and expense (except as otherwise
specified), construct the Premises for Tenant's use and occupancy in
accordance with plans and specifications prepared by Landlord or
Landlord's architect, incorporating in such construction all items of
work described in Exhibit "C" attached hereto and made a part
hereof. Any work in addition to any of the items specifically
enumerated in said Exhibit "C" shall be performed by Tenant at its own
cost and expense, or if Landlord installs or constructs any of such
1
<PAGE> 35
additional work in the Premises at Tenant's request it shall be paid
for by Tenant within fifteen (15) days after receipt of a bill
therefor.
C. Tenant's monthly charge for Occupant Lights and Outlets Energy as set
forth in Section 7.03 shall be $410.05, payable in accordance with,
and subject to the provisions of said section.
D. Section 22.05(b), and the second paragraph of Section 22.19 of the IP1
Original Lease shall not apply to this Lease.
E. Tenant shall have no Option to Lease Additional Premises a provided in
Section 22.26 of the IP1 Original Lease.
2. All references to Exhibits "A", "B", and "C" in the IP1 Original Lease
shall be deemed to respective exhibits A, B, And C, attached hereto and
made a part hereof.
3. Tenant represents and warrants that it has taken all necessary corporate,
partnership or other action necessary to execute and deliver this Lease,
and that this Lease constitutes the legally binding obligation of Tenant
enforceable in accordance with its terms. Tenant further represents and
warrants that it has full and complete authority to enter into and execute
this Lease and acknowledges that Landlord is relying upon Tenant's
representation of its authority to execute this Lease and Tenant shall save
and hold Lease harmless from any claims, or damages including reasonable
attorneys' fees arising from Tenant's misrepresentation of its authority to
enter into and execute this Lease.
4. The effective date of this Lease for all purposes shall be upon its full
execution and it shall not be binding unless and until executed on behalf
of both parties hereof.
5. This Agreement may be executed in one or more counterparts, any one or all
of which constitute one document.
LANDLORD:
Elwood Davis Road Company
By: /s/ Joseph T. Scuderi
-------------------------------------
Joseph T. Scuderi
Member of the Executive Committee
WITNESS: TENANT:
AppliedTheory (TM) Communications, Inc.
- ------------------------------------
Name: By:
------------------------------- -------------------------------------
Date: Name:
------------------------------- Title:
STATE OF NEW YORK )
SS.:
COUNTY OF ONONDAGA )
On this 8 day of September 1998, before me personally came Joseph T. Scuderi, to
me personally known, who, being by me duly sworn, did depose and say that he
resides in Fayetteville, N.Y.; that he is a Member of the Executive Committee of
Elwood Davis Road Company; that he is known to me to be one of the Members of
the Executive Committee of the partnership that executed the within instrument;
and he acknowledged to me that he executed the same on behalf of and in the name
of such partnership.
/s/ Michelle L. Smith
----------------------------------------
NOTARY PUBLIC
Michelle L. Smith
Notary Public, State of New York
Qualified in Onondaga Cty No. 5014751
My Commission Expires July 6, 1999
STATE OF NEW YORK )
SS.:
COUNTY OF NASSAU )
On this 31 day of August 1998, before my personally came David Buckel to me
personally known, who, being by me duly sworn, did depose and say that s/he
resides in Freehold, N.J.; that s/he is the CFO of AppliedTheory (TM)
Communications, Inc., the corporation described in and which executed the within
Lease; and that s/he signed his name thereto by order of the Board of Directors
of said corporation.
/s/ Diane Barker
----------------------------------------
DIANE BARKER NOTARY PUBLIC
Notary Public, State of New York
No. 01BA6003556
Qualified in Nassau County
Commission Expires 3/9/2000
2
<PAGE> 1
Exhibit 10.10
CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of October 5, 1996 between APPLIEDTHEORY
COMMUNICATIONS, INC., a New York corporation (hereinafter referred to as the
"Company"), and SHELLEY A. HARRISON (hereinafter referred to as the
"Consultant").
W I T N E S S E T H
WHEREAS, the Consultant possess certain skills and abilities that would be
useful to the Company in connection with its operations, financing and business
planning; and
WHEREAS, the Company is desirous of being able to avail itself of the
Consultant's experience on the terms and conditions hereinafter set forth; and
WHEREAS, the Consultant is willing to render advisory and consulting
services to the Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual promises of
the parties, and other good and valuable consideration, it is hereby agreed as
follows:
1. Consulting Period. (a) The Company shall retain the Consultant, and
the Consultant shall serve the Company, in an advisory and consulting capacity
for the period commencing on the date hereof and ending on October 5, 2000
(such period, as extended pursuant to Section 1(b) or as shortened pursuant to
Section 1(c), being hereinafter referred to as the "Consulting Period").
<PAGE> 2
(b) The Consulting Period shall automatically be renewed for successive
additional one-year periods on the same terms and conditions unless written
notice is provided to the other party hereto at least 90 days prior to the end
of the Consulting Period (as extended, if applicable).
(c) The Consulting Period may be terminated prior to the end of its
stated term by either party upon at least 90 days prior written notice (an
"Early Termination"). In the event of an Early Termination, the consulting fee
payable pursuant to Section 3(a) hereof shall terminate as of such date, but
any of the stock options set forth in Section 3(b) hereof that are not then
vested shall fully vest on the date that the Company concludes, contracts for,
or the Board of Directors of the Company approves a sale of equity securities
or securities convertible into equity securities, a merger, or consolidation,
issuance of a majority of its stock, a sale of a majority of its assets or a
similar transaction at any time during the Consulting Period or within a period
of two years from an Early Termination, provided, however, that (i) the
transaction or a similar transaction (the "Transaction") was introduced or
proposed by the Consultant or (ii) the Company consulted with the Consultant
regarding the Transaction prior to the Early Transaction.
2. Consulting Services. The Consultant agrees to render advisory and
consulting services during the Consulting Period, as mutually agreed, with
respect to the Company's operations, financing and business planning. In
particular, the Company agrees that, in all cases, it shall consult with the
Consultant regarding any proposed transaction of the type specified in Section
1(c) that arises or is under investigation or review by the Company or its
advisors during the Consulting Period.
2
<PAGE> 3
3. Payments. (a) The Company will pay the Consultant a fee of Five
Thousand Dollars ($5,000) per month for each month during the Consulting Period.
(b) The Company has also issued a non-statutory stock option
for 100,000 shares of the Company's Common Stock at an option price of $1.00 per
share on the terms set forth in the Non-Statutory Stock Option Contract attached
hereto as Exhibit A, as modified by the provisions of Section 1(c) hereof.
4. Disclosure of Information. The Consultant recognizes and acknowledges
that the trade secrets and proprietary information and processes of the Company
and its affiliates, as they may exist from time to time, are valuable, special
and unique assets of the Company. The Consultant will not, in whole or in part,
disclose such secrets, information and processes to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever,
nor shall the Consultant make use of any such secrets, information and processes
for its own purposes or for the benefit of any person, firm, corporation or
other entity (except the Company) under any circumstances, provided that these
restrictions shall not apply to such secrets, information and processes which
are then in the public domain (provided that the Consultant was not responsible,
directly or indirectly, for such secrets, information or processed entering the
public domain without the Company's consent) or to disclosure of any such
secrets, information or processes as required by law or pursuant to court order.
The Consultant agrees that the restrictions in this Section shall extend to any
confidential proprietary information contained in all memoranda, books, papers,
letters and other data, and all copies thereof and therefrom, in any way
relating to the Company's business and affairs, whether made by the Consultant
or otherwise coming into the Consultant's possession.
3
<PAGE> 4
5. Independent Contractor. Nothing contained herein shall constitute the
Consultant an employee or agent of the Company, and the relationship of the
Consultant to the Company for all purposes, including, without limitation, tax
purposes, shall be one of the independent contractor. Without limitation of the
forgoing, it is understood that, unless otherwise expressly agreed in writing,
the Consultant shall have no power or authority to execute any agreement or
instrument on behalf of the Company or otherwise bind the Company contractually
or legally.
6. Notices. All communications and notices pursuant to this Agreement
shall by in writing and shall be deemed given if and when delivered personally
or mailed certified or registered mail, postage prepaid, addressed as follows:
If to the Consultant:
Dr. Shelley A. Harrison
5 Norma Lane
Dix Hills, NY 11746
If to the Company:
Applied Theory Communications, Inc.
40 Cutter Mill Road, Suite 405
Great Neck, NY 11021
Attention: Richard Mandelbaum
Chairman & CEO
Any party may, be written notice to the others, change the address to which
notices to such party are to be delivered to mailed, provided that any such
change of address shall only be effective upon receipt.
7. Parties in Interest and Assignment. This Agreement shall insure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
Neither party may assign its rights under this Agreement without the written
consent of
4
<PAGE> 5
the other.
8. Representing. Each of the Consultant and the Company hereby
represents to the other that it has full power and authority to enter into this
Agreement and to perform its obligations hereunder and that this Agreement
constitutes a legal, valid and binding obligation of such party, enforceable
against it in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally.
9. Complete Agreement. This Agreement, together with the Non-Stock
Option Contract attached hereto as Exhibit A, contains the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all previous negotiations, commitments and writings with respect thereto.
10. Amendment and Waivers. This Agreement may be amended, modified,
altered or terminated, and any of its provisions, waived, only in a writing
signed on behalf of the parties hereto.
11. Governing Law and Severability. This Agreement shall be governed
by and construed and enforced in accordance with laws of the State of New York.
If any provision of this Agreement is void, or is so declared, such provision
shall be deemed, and hereby is, severed from this Agreement, which otherwise
shall remain in full force and effect.
12. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
5
<PAGE> 6
13. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which taken together shall constitute one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
5th day of October, 1996.
COMPANY:
APPLIEDTHEORY COMMUNICATIONS, INC.
By: /s/ Richard Mandelbaum
-------------------------------
Richard Mandelbaum
Chairman & CEO
CONSULTANT:
/s/ Shelley A. Harrison
--------------------------------
Shelley A. Harrison
7
<PAGE> 1
Exhibit 10.12
NOTE
July 30, 1998
FOR VALUE RECEIVED, David A. Buckel, residing at 4015 Foothill Path,
Syracuse, NY 13215 (the "Maker") hereby promises to pay to AppliedTheory
Communications, Inc., a corporation organized under the laws of the State of New
York (the "Payee), the principal amount of $264,000.00 (two hundred and
sixty-four thousand Dollars and zero Cents). Except as specified in Section 3 of
this Note, interest shall accrue on the outstanding principal beginning on the
date hereof and shall continue to accrue to and including the day upon which the
principal is required to be paid in full, as herein specified.
1. Interest. Except as specified in Section 4 of this Note, interest
shall accrue daily at an annual rate of five point fifty six percent (5.56%),
which corresponds to the Applicable federal rate for a note of this kind and
duration made in July of 1998, as published in Revenue Ruling 98-33, in Internal
Revenue Bulletin 9826. Except as specified in Section 4 of this Note, accrued
interest shall be payable annually.
2. Payments. Maker shall pay the entire outstanding principal balance,
plus all accrued and unpaid interest thereon, on the earlier of (i) the date
which is thirty-six (36) months from the date of this Note, or (ii) another date
to be described in any security agreement which relates to this note and is
concluded by and among the Maker and the Payee. All payments shall be made in
the lawful money of the United States, and shall be applied first to accrued
interest and then to the outstanding principal balance. Payments shall be made
at the offices of Payee at 125 Elwood Davis Road Syracuse, N.Y. 13212-4311 or at
such other place as Payee or any subsequent holder of the Note may designate to
Maker in writing.
3. Prepayments. The indebtedness evidenced by this Note may be prepaid
at any time and from time to time, without advance notice to Payee, in whole or
in part, with interest accrued to the date of prepayment on such principal
amount so prepaid.
4. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing, Payee may, by notice to Maker, declare
this Note, all interest hereon, and all other amounts payable hereunder to be
due and payable, whereupon the same shall become immediately due and payable
with interest to accrue daily at an annual rate of fifteen percent (18%):
(a) There is a failure to make any payment of principal of, interest
on, or any other amount payable under this Note, when due;
(b) Maker breaches any other obligation to Payee hereunder, or Maker
breaches or defaults under any other agreement with Payee whatsoever;
(c) Maker shall become insolvent or admit in writing his inability
to pay his debts as they become due, or shall make a general assignment for the
benefit of creditors;
<PAGE> 2
(d) Any proceedings shall be instituted by or against Maker seeking
either (i) an order for relief with respect to, or reorganization, arrangement,
adjustment composition of, his debts under the United States Bankruptcy Code or
under any other law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or (ii) appointment of a trustee, receiver or similar official for
Maker or for any substantial part of his property; and, with respect only to a
proceeding instituted against Maker, such proceedings is not dismissed within
thirty (30) days thereafter;
(e) There shall be any default or event of default under any
guarantee of, or subordination agreement relating to, or mortgage, security or
other agreement securing, this Note;
(f) Maker's death;
(g) Maker fails to execute a security agreement and pledge
collateral on terms and conditions acceptable to the Payee as specified in
Section 14 of this Note.
5. No Waiver, etc. No delay or omission on the part of Payee in
exercising any right hereunder or under any guarantee or subordination agreement
relating to or mortgage, security or other agreement securing, this Note shall
operate as a waiver of such right or of any other right of Payee, nor shall any
delay, omission or waiver on any one occasion be deemed to be a bar to or waiver
of the same or any other right on any future occasion. Maker, and every
guarantor and endorser of this Note, regardless of the time, order or place of
signing, waives presentment, demand, protest and notices of every kind with
respect to this Note and assents (i) to any extension or postponement of the
time of payment and to any other indulgence, (ii) to the addition or release of,
or any compromise or settlement with, any guarantor or endorser or other party
or person primarily or secondarily liable hereunder, and (iii) to the addition
or release of, the failure to take or perfect an interest in, any compromise or
settlement with respect to, or any delay in proceeding or failure to proceed
against, any collateral or other security for this Note.
6. Payee's Expenses. Maker also agrees to pay on demand all costs and
expenses (including fees and expenses of counsel) incurred by Payee in
determining its rights under this Note and any and all security agreements,
mortgages and guarantees securing this Note and under all subordination
agreements relating to this Note; in administering and/or enforcing this Note
and any and all security agreements, mortgages and guarantees securing this Note
and under all subordination agreements relating to this Note; and in taking,
holding, insuring, appraising, preparing for sale and selling, or otherwise
realizing on, any collateral securing this Note. All such costs and expenses
shall bear interest, payable on demand, form the date of payment thereof by
Payee until paid in full by Maker, at the rate(s) from time to time applicable
to the principal of this Note, including any rate applicable during the
existence of an Event of Default or any event which with notice or passage of
time or both would constitute an Event of Default.
7. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, applicable to contracts made
and to be performed wholly within the State of New York, without giving effect
to conflict of laws principles.
2
<PAGE> 3
8. Notices. Any notice or other communication required or permitted
under this Note shall be in writing and shall be deemed to have been duly served
(i) upon hand delivery, or (ii) on the third day following delivery to the
United States Postal Service as certified or registered mail, return receipt
requested and postage prepaid, or (iii) on the first day following delivery to a
nationally recognized United States overnight courier service, fee prepaid,
return receipt or other confirmation of delivery requested, or (iv) when
telecopied or sent by facsimile transmission if an additional notice is also
delivered or mailed, or communication shall be delivered or directed to a party
at its address set forth above or, as to each such party or any holder hereof,
at the address set forth above or, as to each such party or any holder hereof,
at such other address as may be designated by such party or holder in a notice
given to the other parties hereto in accordance with the provisions of this
paragraph.
9. Maximum Interest. Notwithstanding any other provisions of this Note,
Payee does not intend to charge, and Maker shall not be required to pay, any
interest or other fees or charges in excess of the maximum permitted by
applicable law. Any payments in excess of such maximum shall be refunded to
Maker or credited against unpaid principal.
10. Security and Setoff. As security for this Note, and any renewal or
extension hereof, the Maker gives the Payee a security interest in all sums now
or hereafter standing to the Maker's credit on the books of Payee and/or any
affiliate of Payee, including, but not limited to, amounts due for unpaid wages
and expense reimbursements (the "Credit Amounts"). The Payee may at its option
and at any time(s), with or without notice to the Maker, after the occurrence of
an event of default hereunder, set off or realize upon any and all Credit
Amounts, and apply them to the payment or reduction of all or any of the
principal of and interest accrued upon this Note then due, whether by maturity,
acceleration or otherwise, in such manner as the Payee may determine, in its
sole discretion. The Payee shall not be obligated to assert or enforce any
rights under this paragraph or to take any action in reference thereto, and the
Payee may, in Payee's discretion, at any time(s) relinquish Payee's rights under
this paragraph without thereby affecting or invalidating Payee's right
thereafter to assert such rights.
11. Modifications Waiver. No modification or waiver of this Note or any
part hereof shall be effective unless made in writing and signed by Maker and
Payee. No course of dealing between Maker and Payee, or between Payee and any
other party, will be deemed effective to modify, amend, waive or discharge any
part of this Note or of the rights or obligations of Maker hereunder.
12. Jurisdiction and Venue. In the event that any legal proceedings are
commenced in any court with respect to any matter arising under this Note, Maker
specifically consents and agrees that: (i) the courts of the State of New York
and/or the United States Federal Courts sitting in the State of New York shall
have exclusive jurisdiction over Maker and over the subject matter of any such
proceedings; and (ii) the venue of any such action shall be in Onondaga County,
New York and/or the United States District Court for the Northern District of
New York and/or Nassau County, New York and/or the United States District Court
for the Eastern District of New York and/or New York County, New York and/or the
United States District Court for the Southern District of New York.
13. Severability. Any provision of this Agreement which is prohibited
or
3
<PAGE> 4
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
14. Security. The Maker shall, within five (5) days of a written demand
from the Payee, execute a security agreement with the Payee or any other
documents required by the Payee in order for the Maker to pledge: (a) the twelve
thousand (12,000) shares of common stock of the Payee which are subject to and
more particularly identified in the Option Agreement by and among the Maker,
NYSERNet.net, Inc., IXC Internet Services, Inc., a Delaware corporation and
Grumman Hill Investments III, L.P., a Delaware limited partnership.
IN WITNESS WHEREOF, David A. Buckel has executed this Note as of the
date first above written.
/s/ David A. Buckel
-------------------------------------
David A. Buckel
4
<PAGE> 1
Exhibit 10.13
NOTE
July 30, 1998
FOR VALUE RECEIVED, James D. Luckett, residing at 6065 Lisi Gardens
Drive, North Syracuse,, NY 13212 (the "Maker") hereby promises to pay to
AppliedTheory Communications, Inc., a corporation organized under the laws of
the State of New York (the "Payee"), the principal amount of $30,000.00 (thirty
thousand Dollars and zero Cents). Except as specified in Section 3 of this Note,
interest shall accrue on the outstanding principal beginning on the date hereof
and shall continue to accrue to and including the day upon which the principal
is required to be paid in full, as herein specified.
1. Interest. Except as specified in Section 4 of this Note,
interest shall accrue daily at an. annual rate of five point fifty six percent
(5.56%), which corresponds to the Applicable federal rate for a note of this
kind and duration made in July of 1998, as published in Revenue Ruling 98-33, in
Internal Revenue Bulletin 98-26. Except as specified in Section 4 of this Note,
accrued interest shall be payable annually.
2. Payments. Maker shall pay the entire outstanding principal
balance, plus all accrued and unpaid interest thereon, on the earlier of (i) the
date which is thirty-six (36) months from the date of this Note, or (ii) another
date to be described in any security agreement which relates to this note and is
concluded by and among the Maker and the Payee. All payments shall be made in
the lawful money of the United States, and shall be applied first to accrued
interest and then to the outstanding principal balance. Payments shall be made
at the offices of Payee at 125 Elwood Davis Road Syracuse, N.Y. 13212-4311 or at
such other place as Payee or any subsequent holder of the Note may designate to
Maker in writing.
3. Prepayments. The indebtedness evidenced by this Note may be
prepaid at any time and from time to time, without advance notice to Payee, in
whole or in part, with interest accrued to the date of prepayment on such
principal amount so prepaid.
4. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing, Payee may, by notice to Maker, declare
this Note, all interest hereon, and all other amounts payable hereunder to be
due and payable, whereupon the same shall become immediately due and payable
with interest to accrue daily at an annual rate of fifteen percent (18 %):
(a) There is a failure to make any payment of principal
of, interest on, or any other amount payable under this Note, when due;
(b) Maker breaches any other obligation to Payee
hereunder, or Maker breaches or defaults under any other agreement with Payee
whatsoever;
<PAGE> 2
(c) Maker shall become insolvent or admit in writing his
inability to pay his debts as they become due, or shall make a general
assignment for the benefit of creditors;
(d) Any proceedings shall be instituted by or against
Maker seeking either (i) an order for relief with respect to, or reorganization,
arrangement, adjustment composition of, his debts under the United States
Bankruptcy Code or under any other law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (ii) appointment of a trustee, receiver
or similar official for Maker or for any substantial part of his property; and,
with respect only to a proceeding instituted against Maker, such proceedings is
not dismissed within thirty (30) days thereafter;
(e) There shall be any default or event of default under
any guarantee of, or subordination agreement relating to, or mortgage, security
or other agreement securing, this Note;
(f) Maker's death;
(g) Maker fails to execute a security agreement and
pledge collateral on terms and conditions acceptable to the Payee as specified
in Section 14 of this Note.
5. No Waiver. etc, No delay or omission on the part of Payee in
exercising any right hereunder or under any guarantee or subordination agreement
relating to or mortgage, security or other agreement securing, this Note shall
operate as a waiver of such right or of any other right of Payee, nor shall any
delay, omission or waiver on any one occasion be deemed to be a bar to or waiver
of the same or any other right on any future occasion. Maker, and every
guarantor and endorser of this Note, regardless of the time, order or place of
signing, waives presentment, demand, protest and notices of every kind with
respect to this Note and assents (i) to any extension or postponement of the
time of payment and to any other indulgence, (ii) to the addition or release of,
or any compromise or settlement with, any guarantor or endorser or other party
or person primarily or secondarily liable hereunder, and (iii) to the addition
or release of, the failure to take or perfect an interest in, any compromise or
settlement with respect to, or any delay in proceeding or failure to proceed
against, any collateral or other security for this Note.
6. Payee's Expenses. Maker also agrees to pay on demand all costs
and expenses (including fees and expenses of counsel) incurred by Payee in
determining its rights under this Note and any and all security agreements,
mortgages and guarantees securing this Note and under all subordination
agreements relating to this Note; in administering and/or enforcing this Note
and any and all security agreements, mortgages and guarantees securing this Note
and under all subordination agreements relating to this Note; and in taking,
holding, insuring, appraising, preparing for sale and selling, or otherwise
realizing on, any collateral securing this Note. All such costs and expenses
shall bear interest, payable on demand, form the date of payment thereof by
Payee until paid in full by Maker, at the rate(s) from time to time applicable
to the principal of this Note, including any rate applicable during the
existence of an Event of Default or any event which with notice or passage of
time or both would constitute an Event of Default.
2
<PAGE> 3
7. Governing Law. This note shall be governed by and construed in
accordance with the laws of the State of New York, applicable to contracts made
and to be performed wholly within the State of New York, without giving effect
to conflict of laws principles.
8. Notices. Any notice or other communication required or
permitted under this Note shall be in writing and shall be deemed to have been
duly served (i) upon hand delivery, or (ii) on the third day following delivery
to the United States Postal Service as certified or registered mail, return
receipt requested and postage prepaid, or (iii) on the first day following
delivery to a nationally recognized United States overnight courier service, fee
prepaid, return receipt or other confirmation of delivery requested, or (iv)
when telecopied or sent by facsimile transmission if an additional notice is
also delivered or mailed, or communication shall be delivered or directed to a
party at its address set forth above or, as to each such party or any holder
hereof, at the address set forth above or, as to each such party or any holder
hereof, at such other address as may be designated by such party or holder in a
notice given to the other parties hereto in accordance with the provisions of
this paragraph.
9. Maximum Interest. Notwithstanding any other provisions of this
Note, Payee does not intend to charge, and Maker shall not be required to pay,
any interest or other fees or charges in excess of the maximum permitted by
applicable law. Any payments in excess of such maximum shall be refunded to
Maker or credited against unpaid principal.
10. Security and Setoff. As security for this Note, and any
renewal or extension hereof, the Maker gives the Payee a security interest in
all sums now or hereafter standing to the Maker's credit on the books of Payee
and/or any affiliate of Payee, including, but not limited to, amounts due for
unpaid wages and expense reimbursements (the "Credit Amounts"). The Payee may at
its option and at any time(s), with or without notice to the Maker, after the
occurrence of an event of default hereunder, set off or realize upon any and all
Credit Amounts, and apply them to the payment or reduction of all or any of the
principal of and interest accrued upon this Note then due, whether by maturity,
acceleration or otherwise, in such manner as the Payee may determine, in its
sole discretion. The Payee shall not be obligated to assert or enforce any
rights under this paragraph or to take any action in reference thereto, and the
Payee may, in Payee's discretion, at any time(s) relinquish Payee's rights under
this paragraph without thereby affecting or invalidating Payee's right
thereafter to assert such rights.
11. Modifications; Waiver. No modification or waiver of this Note
or any part hereof shall be effective unless made in writing and signed by Maker
and Payee. No course of dealing between Maker and Payee, or between Payee and
any other party, will be deemed effective to modify, amend, waive or discharge
any part of this Note or of the rights or obligations of Maker hereunder.
12. Jurisdiction and Venue. In the event that any legal proceedings
are commenced in any court with respect to any matter arising under this Note,
Maker specifically consents and agrees that: (i) the courts of the State of
New York and/or the United States Federal Courts sitting in the State of New
York shall have exclusive jurisdiction over Maker and over the subject matter
of any such proceedings; and (ii) the venue of any such action shall be in
3
<PAGE> 4
Onondaga County, New York and/or the United States District Court for the
Northern District of New York and/or Nassau County, New York and/or the United
States District Court for the Eastern District of New York and/or New York
County, New York and/or the United States District Court for the Southern
District of New York.
13. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. Security. The Maker shall, within five (5) days of a written
demand from the Payee, execute a security agreement with the Payee or any other
documents required by the Payee in order for the Maker to pledge: (a) one
thousand four hundred (1,400) of the of the forty thousand (40,000) shares of
common stock of the Payee which are subject to and more particularly identified
in the Option Agreement by and among the Maker, NYSERNet.net, Inc., IXC Internet
Services, Inc., a Delaware corporation and Grumman Hill Investments III, L.P., a
Delaware limited partnership.
IN WITNESS WHEREOF, James D. Luckett has executed this Note as of the
date first above written.
/s/ James D. Luckett
--------------------------------
James D. Luckett
4
<PAGE> 1
Exhibit 10.14
ASSIGNMENT, SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
NYSERNET.ORG, INC.
AND
APPLIEDTHEORY COMMUNICATIONS, INC.
OCTOBER 1, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
I. DEFINITIONS
A. Assignment
B. Consideration
C. Representations, Warranties and Indemnification
D. Delivery of AJB Software
II. SOFTWARE DEVELOPMENT
A. Development
B. Progress Reports and Acceptance
C. Deficiency Letter
D. User Documentation
E. Payment
F. Transfer of the New AJB Software
G. Term
H. Termination
I. Noninfringement Warranty
J. Software Warranty
K. Year 2000 Standards
L. No Undocumented Features
III. LICENSE
A. Grant
B. Ownership of Derivatives Works
C. Indemnification
IV. MISCELLANEOUS PROVISIONS
A. Indemnification
B. Notices
C. Disputes, Choice of Law
D. Independent Contractor Status
E. Security, No Conflicts
F. Insurance, Indemnity
G. Miscellaneous
LIST OF SCHEDULES
-----------------
Schedule A List of AJB Software by Module or File
Schedule B America's Job Bank Contract Amendment with NYSDOL
Schedule C Software Development Specifications
Schedule D Software Development Fees
<PAGE> 3
This Agreement is made as of October 1, 1996 by and between NYSERNet.org, Inc.,
a not-for-profit corporation organized and existing under the laws of the State
of New York, with its principal offices at 125 Elwood Davis Road, Syracuse, New
York 13212, hereinafter referred to as "NYSERNet," and AppliedTheory
Communications, Inc., with its principal office at 40 Cuttermill Road, Great
Neck, New York 11201, hereinafter referred to as "AppliedTheory."
W I T N E S S E T H:
WHEREAS, NYSERNet has developed and authored the original and later
versions of the proprietary software known as RDBMS.a; and
WHEREAS, NYSERNet has developed and authored the original and later
versions of the proprietary software known as AJB WWW SERVER SOFTWARE and AJB
WWW SERVER/AGENT SOFTWARE including the additional modules listed on Schedule A
for the non-profit purpose of working with the New York State Department of
Labor ("NYSDOL") to establish a world wide web version of the America's Job
Bank system; and
WHEREAS, NYSERNet has entered into a further agreement with NYSDOL to
modify and update the AJB Software (as defined below), pursuant to America's
Job Bank Contract Amendment #3 dated October 25, 1996 that is attached as
Schedule B ("NYSDOL AMENDMENT"), under which NYSDOL agreed to pay NYSERNet
$446,600 for software development services; and
WHEREAS, NYSERNet must seek experienced personnel to aid in fulfilling
its obligations under the NYSDOL AMENDMENT; and
WHEREAS, NYSERNet is further interested in generating for its
non-profit purposes a stream of income from the AJB Software and later
versions, but does not want to spend its own funds to commercialize the AJB
Software; and
WHEREAS, AppliedTheory wishes to acquire the AJB Software for the
purpose of modifying the AJB Software for commercialization in other markets;
and
WHEREAS, AppliedTheory has developed expertise relating to the AJB
Software and has experienced personnel capable of aiding NYSERNet to fulfill
NYSERNet's obligations under the NYSDOL AMENDMENT; and
WHEREAS, AppliedTheory will have to expend a considerable amount of
its own financial and time resources to commercialize the AJB Software to suit
the needs of other markets;
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<PAGE> 4
NOW THEREFORE in consideration of the promises and the mutual covenants
herein contained, and for good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
DEFINITIONS
-----------
A. AJB SOFTWARE means the software application originally written by NYSERNet
that consists, as of October 1, 1996, of the files and modules identified on
Schedule A.
B. EFFECTIVE DATE - The effective date of this Assignment, Software
Development and License Agreement (this "Agreement") shall be October 1, 1996.
C. MATERIAL DEVIATION means a failure of the New AJB Software to perform a
function on Schedule B or C, such as to cause one or more of its functional
components not to perform or cause an important system not to work, or to
fail to adequately perform repetitively on a variety of data, or to reflect
inaccurate data.
D. NEW AJB SOFTWARE means the AJB Software plus any adaptations, derivatives,
or original works authored by AppliedTheory based upon the AJB Software and
any adaptations, derivatives, modifications and enhancements made by NYSERNet
pursuant to the license contained in Article III.
I. ASSIGNMENT
----------
A. Assignment. Subject to the further provisions of this Agreement, NYSERNet
hereby sells, assigns and transfers to AppliedTheory and its successors and
assigns the entire right, title and interest of NYSERNet in and to all versions
of the AJB Software, including but not limited to all rights in any and all
original authorship, copyrights, trade secrets, inventions, ideas, concepts,
algorithms, routines, screens, patentable ideas and information which relate to
the AJB Software. This assignment includes the right to sue and collect for any
and all past infringements of the AJB Software. NYSERNet hereby further agrees
that: (i) it will not execute any writing or do any act whatsoever conflicting
with these presents; (ii) NYSERNet and its assigns, successors and legal
representatives will at any time upon request without additional consideration,
but at the expense of AppliedTheory, execute any documents or applications that
AppliedTheory may determine as necessary or desirable in the enjoyment of this
grant; and (iii) NYSERNet will cooperate, at the expense of AppliedTheory, in
any proceedings or transactions involving the assigned AJB Software.
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<PAGE> 5
B. Consideration.
1. In consideration of the above assignment, AppliedTheory agrees to pay
NYSERNet two percent (2%) of all revenues derived from sales of licenses or
sublicenses of the AJB Software, in whole or in part, as well as such licenses
of the New AJB Software. AppliedTheory shall pay NYSERNet the required
percentage thirty (30) days after AppliedTheory receives payment from a
commercial corner. Payments shall cease when two (2) years have elapsed after
AppliedTheory first licenses the AJB Software to a commercial customer. The
revenues derived from sales, licenses or sublicenses of the AJB Software and the
New AJB Software shall be the gross revenues to AppliedTheory from the sale or
license of any product or service which includes the AJB Software or the New AJB
Software, in whole or in part, determined in accordance with generally accepted
accounting principles consistently applied; provided that the revenues from
bundled transactions, including the sales or licenses of such products or
services and other products or services, shall be prorated based upon the list
price (or, if there is no list price, the fair value) of the products and
services so bundled.
2. AppliedTheory is under no obligation to make any minimum payments. The
parties agree that if AppliedTheory's efforts to commercialize the AJB Software
fail to yield any license fees, then NYSERNet is not entitled to any additional
payments under this Agreement. Further, NYSERNet is not entitled to any
proceeds from the licensing of any AppliedTheory product that does not
incorporate or use any AJB Software code.
3. The parties agree that nothing in this payment arrangement indicates a
failure fully to assign all rights in the AJB Software or that NYSERNet has
retained any interest in the assigned AJB Software, except those license rights
set forth in Article III.
C. Representations, Warranties and Indemnification. NYSERNet represents and
warrants that, to the best of its knowledge, it has all right, title and
interest in the AJB Software, subject to the rights granted to the NYSDOL, and
that it has authority to assign these rights. NYSERNet further represents and
warrants that, to the best of its knowledge, the AJB Software does not infringe
upon any third party's intellectual property rights including copyrights,
trademarks, trade secrets or patents. NYSERNet shall have no liability under
this Agreement, including but not limited to this Section I.C., in excess of
the aggregate amounts paid to it by AppliedTheory under this Agreement.
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<PAGE> 6
D. Delivery of AJB Software. Upon execution of this Agreement, NYSERNet shall
deliver to AppliedTheory copies of the source code and executable object code of
the AJB Software on an appropriate medium, and a hard copy of each. NYSERNet
shall also deliver copies of any documentation, notes, charts or other materials
in its possession or under its control relating to or useful in connection with
the programming, functionality or instructions for use of the AJB Software.
II. SOFTWARE DEVELOPMENT
A. Development. AppliedTheory agrees to develop and provide software to
NYSERNet that meets the requirements and specifications of the NYSDOL
AMENDMENT, and which will meet the further specifications for phased work set
forth in the Software Development Specifications that are attached as Schedule
C. AppliedTheory will be solely responsible for, and will indemnify NYSERNet
and hold NYSERNet harmless with respect to, the performance of and any claims
made by the NYSDOL or any third party under or with respect to such agreement
and specifications.
B. Progress Reports and Acceptance. Immediately upon the completion of each
phase of development enumerated and described in Schedule C, AppliedTheory
shall deliver and install the software developed in that phase, and shall also
provide a progress report. In the progress report AppliedTheory shall inform
NYSERNet of the readiness for testing of the particular phase of software. The
progress report shall also contain a breakdown of costs expended to complete
the task in sufficient detail to satisfy the needs of the NYSDOL. The date of
the progress report shall be the installation date for that particular phase of
software. In addition, AppliedTheory shall provide all other reports which are
necessary to comply with NYSDOL requirements and any other such interim or
final reports which may be reasonably requested by NYSERNet.
1. Promptly after the installation date of each phase of development,
NYSERNet shall test the particular phase of software to determine if it meets
the specifications and requirements set forth in Schedule C. If and when the
acceptance tests establish that the developed software delivered upon
completion of any phase of development is performing in accordance with the
provisions of Schedules B and C, and the software is duly accepted by NYSDOL,
NYSERNet shall promptly notify AppliedTheory that it accepts the software
developed in that phase, and the date of such notification shall be the date on
which NYSERNet shall be obligated to make the applicable payment specified
below.
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<PAGE> 7
2. Unless NYSERNet provides a deficiency letter detailing Material Deviations
of the developed software from Schedule B or C within thirty (30) business days
after delivery and installation of that particular phase of the software, the
phase of New AJB Software so delivered shall be deemed accepted.
C. Deficiency Letter. Should NYSERNet provide a deficiency, letter to
AppliedTheory within the thirty (30) day period, AppliedTheory shall act
promptly to exert its best efforts to correct the perceived deficiency at no
extra cost to NYSERNet. At such time as AppliedTheory believes it has corrected
the reported deficiency, it shall so state in writing to NYSERNet and NYSERNet
shall again have a thirty (30) business day period to provide a deficiency
letter or else such phase of the New AJB Software shall be deemed accepted. This
process shall continue until NYSERNet does not provide a deficiency letter
within such period, at which point that particular phase of the New AJB
Software shall be deemed to have been accepted. NYSERNet shall not unreasonably
withhold or delay acceptance.
D. User Documentation. AppliedTheory shall, no later than sixty (60) calendar
days after final delivery and NYSERNet's acceptance of the New AJB Software,
provide NYSERNet five (5) copies of "Documentation" describing in reasonable
detail understandable by an operator of general proficiency the use and
operation of the New AJB Software. The Documentation shall be supplied in
magnetic and printed form and may be reproduced by NYSERNet for purposes
authorized herein.
E. Payment. NYSERNet agrees to pay AppliedTheory for delivery of the NEW AJB
Software in accordance with this section. Upon the acceptance of each phase of
the New AJB Software and receipt of the progress report provided for in Section
II.B, NYSERNet shall pay to AppliedTheory the price of such phase as specified
in Schedule D, Software Development Fees. In the event development of the
software is terminated by NYSERNet on account of AppliedTheory's default under
Section II.H, NYSERNet shall be under no obligation to make any further payments
for any undelivered phases of software. NYSERNet's rights under this Section
are in addition to such other remedies as it may have with respect to
AppliedTheory's default.
F. Transfer of the New AJB Software. AppliedTheory shall provide NYSERNet
with each phase of the New AJB Software in both source code and object code
formats on an appropriate medium, as well as a had copy of the source code.
-Pate 5-
<PAGE> 8
1. NYSERNet hereby acknowledges that the New AJB Software (including any
Documentation, source code, translations, compilations, partial copies and
derivative works) contains and will contain confidential and proprietary
information belonging exclusively to AppliedTheory or such third party as may be
identified on the New AJB Software or applicable Documentation ("AppliedTheory
Confidential & Proprietary Information"). AppliedTheory Confidential &
Proprietary Information does not include: (i) information in the public domain
through no wrongful act of NYSERNet of (ii) information received by NYSERNet
from a third party who was free to disclose it. NYSERNet agrees to protect the
AppliedTheory Confidential Information from disclosure to third parties by
taking all reasonable precautions not less than NYSERNet employs to protect its
own Confidential Information. NYSERNet acknowledges that violation of this
provision would cause irreparable harm not adequately compensable by monetary
damages. In addition to other relief, it is agreed that injunctive relief shall
be available without necessity of posting bond to prevent any actual or
threatened violation of such provision.
2. AppliedTheory owns and shall own all right, title, and interest to the New
AJB Software, subject to the provisions of this Agreement and the agreements
between NYSERNet and the NYSDOL, and NYSERNet expressly acknowledges and agrees
that none of the New AJB Software shall be deemed to be "work for hire" under
the Federal Copyright Laws (17 U.S.C. #101).
3. NYSERNet agrees to take all necessary measures, including use of a proper
copyright notice whenever appropriate, to protect and preserve AppliedTheory's
copyright in the AJB Software.
G. Term. The software development agreement described in this Section II and
the license described in Section III shall commence on the Effective Date and
shall continue in full force and effect in perpetuity, unless terminated earlier
in accordance with Section II.H.
H. Termination. Either party may, in addition to other relief, terminate this
Agreement if the other party breaches any material provision hereof and fails
within ten (10) days after receipt of notice of default to correct such default
or to commence corrective action reasonably acceptable to the aggrieved party
and proceed with due diligence to completion. Either party shall be in default
hereof if it becomes insolvent, makes an assignment for the benefit of its
creditors, and/or a receiver is appointed or a petition in bankruptcy is filed
with respect to the party and is not dismissed within thirty (30) days.
Termination shall have no effect on the parties' rights or obligations to
safeguard and respect Confidential & Proprietary Information under Section II.F.
In the event NYSERNet shall terminate this Agreement, title to the AJB Software
and the New AJB Software shall revert to NYSERNet, and AppliedTheory shall (a)
immediately upon such termination cease to use, sublicense or otherwise deal in
or with the AJB Software and the New AJB Software and (b) deliver to NYSERNet
all copies of AJB Software and the New AJB Software and all related
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<PAGE> 9
documentation in its possession or under its control. Notwithstanding the
provisions of the preceding sentence, any licenses granted by AppliedTheory
prior to the date upon which notice of termination is given by NYSERNet shall
remain in full force and effect.
I. Noninfringement Warranty. AppliedTheory represents and warrants that those
aspects of the New AJB Software which AppliedTheory authors (hereinafter
"AppliedTheory Authorship"), when properly used as contemplated herein, will not
infringe or misappropriate any United States copyright, trademark, patent, or
the trade secrets of any third persons. Upon being notified of such a claim,
AppliedTheory shall (i) defend through litigation or obtain through negotiation
the right of NYSERNet to continue using the AppliedTheory Authorship; (ii)
rework the AppliedTheory Authorship so as to make it noninfringing while
preserving the original functionality; or (iii) replace the AppliedTheory
Authorship with functionally equivalent software. If none of the foregoing
alternatives provides an adequate remedy, NYSERNet may terminate all or any part
of this agreement and recover amounts paid for the infringing AppliedTheory
Authorship. The above remedies do not apply to any of the code assigned by
NYSERNet pursuant to Section I.
J. Software Warranty. AppliedTheory warrants that, for twelve (12) months
following the acceptance, as described in Section II.B, of the New AJB Software:
(i) the New AJB Software shall be free from material programming errors and from
defects in workmanship and materials; (ii) the New AJB Software shall conform to
the performance capabilities, characteristics, specifications, functions and
other descriptions set forth in Schedules B and C; and (iii) the development
services to be performed by AppliedTheory shall be generally performed in a
timely and professional manner by qualified persons familiar with New AJB
Software. In the event that material defects are discovered during the warranty
period, AppliedTheory shall promptly remedy such defects at no additional
expense to NYSERNet.
K. Year 2000 Standards. AppliedTheory represents and warrants it will ensure the
New AJB Software records, stores, recognizes, interprets, processes and presents
both 20th and 21st century dates using four digit years substantially according
to formats and assumptions specified in the Documentation. This warranty is
subject to the conditions described in the preceding subsection, and does not
apply insofar as the New AJB Software derives date functions from other programs
(e.g., operating system run-time libraries, databases or firmware (nor does it
require AppliedTheory to work around or accommodate other programs that are not
compliant with year 2000 standards.
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<PAGE> 10
L) No Undocumented Features. AppliedTheory represents and warrants that (i)
the New AJB Software will not contain any timer, counter, lock or similar device
(other than security features specifically approved by NYSERNet in the
specifications) that inhibits or in any way limits its ability to operate, and
(ii) it will scan the New AJB Software with commercially available anti-virus
software and shall use due diligence to remove viruses capable of being detected
with such software. All corrections shall be as fully warranted as the original
work through expiration of the original warranty period.
III. LICENSE
A. GRANT. AppliedTheory hereby grants NYSERNet a non-exclusive, royalty-free,
perpetual license to: (1) install, store, load, execute and display
(collectively, "Use") as many copies of the New AJB Software, in whole or in
part, as NYSERNet deems necessary in support of its operations as a
not-for-profit corporation; (2) provide to any U.S. federal, state or local
government agency, including but not limited to, NYSDOL, a sublicense to the New
AJB Software, in whole or in part, and user documentation in machine-readable or
printed form as is necessary to support the government agency's or NYSDOL's use
of the New AJB Software pursuant to the terms of Schedule B; and (3) adapt,
modify or create derivative works, or sublicense others to do the same on its
behalf, with respect to the New AJB Software, and sublicense the New AJB
Software, related documentation and such adaptations, modifications and
derivative works, in whole or in part, in order to build upon and fulfill
government contracts and in order to engage in such other not-for-profit
business as NYSERNet, in its sole discretion, may deem appropriate.
B. Ownership of Derivatives Works. NYSERNet hereby acknowledges that it does
not have and shall not have an ownership interest or title in any adaptations,
modifications or derivative works. To that end, NYSERNet shall provide
AppliedTheory with all source and object code relating to NYSERNet derivative
authorship within ten (10) days of providing an executable version to the end
user.
C. Indemnification. AppliedTheory hereby agrees to indemnify and hold harmless
NYSERNet from all claims that the AppliedTheory Authorship when used within the
scope of this license infringes upon a patent, trademark, copyright, trade
secret or other proprietary right of any third party. AppliedTheory shall defend
at its own expense against any such infringement or misappropriation claim.
AppliedTheory shall pay all costs, damages, and any attorneys' fees awarded to
any such third party in an infringement action against NYSERNet; provided
NYSERNet promptly notifies AppliedTheory in writing of the lawsuit and gives
AppliedTheory sole conduct of the defense and all related settlement
negotiations.
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<PAGE> 11
IV. MISCELLANEOUS PROVISIONS
A. Indemnification.
a) AppliedTheory shall indemnify, defend and hold NYSERNet and its officers,
directors, agents, employees and sublicensees harmless from and against any and
all liabilities, damages, losses, expenses, claims, demands, suits, fines or
judgments, including reasonable attorney's fees and costs and expenses
incidental thereto, which may be suffered by, accrued against, charged to or
recoverable from any of them by reason the breach of any of its obligations or
the falsity of any of its [their] representations and warranties contained
herein.
b) AppliedTheory shall indemnify, defend and hold NYSERNet and its officers,
directors, agents and employees harmless from and against any and all
liabilities, damages, losses, expenses, claims, demands, suits, fines or
judgments, including reasonable attorneys' fees, costs and expenses incidental
thereto, which may be suffered by, accrued against, charged to or recoverable
from any of them arising out of a claim that any product sold, licensed or
sublicensed or any service provided by AppliedTheory infringes or
misappropriates any patent, copyright, trade secret or other proprietary right
of a third party. The foregoing obligation of AppliedTheory does not apply to
the extent that the alleged infringement would have occurred solely through the
use of unmodified version of the AJB Software as licensed to AppliedTheory,
without its combination with other hardware or software.
B. Notices. Notices set to either party shall be effective: (i) when delivered
in person or transmitted by telecopier ("fax") machine; (ii) one (1) day after
being sent by overnight courier; or (iii) two (2) days after being sent by first
class mail postage prepaid. A facsimile of this Agreement and notices generated
in good form by a fax machine (as well as a photocopy thereof) shall be treated
as "original" documents admissible into evidence unless a document's
authenticity is genuinely place in question.
C. Disputes, Choice of Law. Except for certain emergency judicial relief
authorized under Section III.F which may be brought at any time, the parties
agree that all disputes between them shall first be subject to the procedures
in Section III.H. Any remaining disputes shall be submitted to a panel of three
(3) arbitrators, with each party choosing one (1) panel member and the third
member chosen by the first two (2) panel members. The proceedings shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The award of the arbitrators shall be binding and
shall include a written explanation of their decision and be limited to
remedies otherwise available in court. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE UNITED STATES AND THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
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<PAGE> 12
D. INDEPENDENT CONTRACTOR STATUS. Each party and its agents are
independent contractors in relation to the other party with respect to all
matters arising under this Agreement. Nothing herein shall be deemed to
establish a partnership, joint venture, association or employment relationship
between the parties. Each party shall remain responsible, and shall indemnify
and hold harmless the other party, for the withholding and payment of all
federal, state and local personal income, wage, earnings, occupation, social
security, workers' compensation, unemployment, sickness and disability
insurance taxes, payroll levies or employment benefit requirements (under
ERISA, state law or otherwise) now existing or hereafter enacted and
attributable to the responsible party.
E. SECURITY, NO CONFLICTS. Each party agrees to inform the other party of
any information made available to the other party that is classified or
restricted data, agrees to comply with the security requirements imposed by any
state or local government, or by the U.S. Government, and shall return all such
material upon request. Each party represents and warrants that is participation
in this Agreement does not conflict with any contractual or other obligation of
the party or create any conflict of interest prohibited by the U.S. Government
or any other government and shall promptly notify the other party if any such
conflict arises during the term of this Agreement.
F. INSURANCE, INDEMNITY. Each party shall maintain adequate insurance
protection covering its respective activities hereunder, including coverage for
statutory workers' compensation, comprehensive general liability for bodily
injury and tangible property damage, as well as adequate coverage for vehicles.
Each party shall indemnify and hold the other harmless from liability for
bodily injury, death and tangible property damage resulting from the negligent
or willfully injurious acts or omissions of its officers, agents, employees or
representatives acting within the scope of their work.
G. MISCELLANEOUS. This document and the accompanying attachments
specifically referenced herein constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all other
communications, whether written or oral. This Agreement may be modified or
amended only by a writing signed by the party against whom enforcement is
sought. Except as specifically permitted herein, neither this Agreement nor any
rights or obligations hereunder may be transferred or assigned by NYSERNet
without AppliedTheory's prior written consent and any attempt to the contrary
shall be void. AppliedTheory reserves all rights not specifically granted
herein. Neither party shall be liable for delays caused by events beyond its
reasonable control. Any provision hereof found by a tribunal of competent
jurisdiction to be illegal or unenforceable shall be automatically conformed to
the minimum requirements of law and all other provisions shall remain in full
force and effect. Waiver of any provision hereof in one instance shall not
preclude enforcement thereof on future occasions. Headings are for reference
purposes only and have no substantive effect.
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<PAGE> 13
IN WITNESS WHEREOF, for adequate consideration and intending to be legally
bound, the parties hereto have caused this Agreement to be executed by their
duly authorized representatives.
NYSERNet.ORG, INC.
By: /s/ James D. Luckett
--------------------------------
JAMES D. LUCKETT
PRESIDENT
APPLIEDTHEORY COMMUNICATIONS, INC.
By: /s/ Richard Mandelbaum
--------------------------------
RICHARD MANDELBAUM
PRESIDENT
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<PAGE> 1
Exhibit 10.15
JOINT MARKETING AND SERVICES AGREEMENT
This JOINT MARKETING AND SERVICES AGREEMENT (this "Agreement") is made and
entered into as of the 26th day of January 1999 (the "Effective Date"), by and
between IXC Internet Services, Inc., a Delaware corporation ("IXC"), and Applied
Theory Communications, Inc., a New York corporation ("ATC").
WHEREAS, IXC has acquired a portion of the stock of ATC per a Stock
Purchase Agreement dated May 19, 1998, by and among IXC, Grumman Hill
Investments III, L.P., ATC, NYSERNet, Inc., and Richard Mandelbaum, David
Buckel, James Luckett, Denis Martin and Mark Oros, (the "Stock Purchase
Agreement");
WHEREAS, ATC is in the business of providing Internet connectivity and
related services to business, wholesale, and end-user customers;
WHEREAS, IXC is in the business of providing network-based information
delivery solutions to business, wholesale, and end-user customers;
WHEREAS, pursuant to the Stock Purchase Agreement, IXC and ATC have
agreed to work together in good faith to negotiate an agreement to cover the
resale by each company of the others' products and services;
WHEREAS, IXC and ATC desire to create and market various service
offerings to customers incorporating or consisting entirely of their respective
services and an Internet services component; and
WHEREAS, IXC and ATC are willing to provide their service offerings
each to the other; and are willing to purchase such services each from the other
on the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants of this Agreement, the Parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, certain terms have been defined below
and elsewhere in this Agreement (including the attached Schedules) to encompass
meanings that may differ from, or be in addition to, the normal connotation of
the defined word. Unless the context clearly indicates otherwise, any term
defined or used in the singular shall include the plural. A defined word
intended to convey its special meaning is capitalized when used.
"Affiliate" of a Party means any other party which directly or
indirectly controls, is under common control with, or is controlled by, such
entity, where "control" means the power and ability to direct the management and
policies of the controlled entity through the ownership of voting shares of the
controlled entity or by contract or otherwise. Notwithstanding the foregoing,
Trustees of General Electric Pension Trust and Grumman Hill Investments, L.P.
and Grumman Hill Associates, Inc. shall not be deemed to "control" or be "under
common control" with, or to be Affiliates of IXC and ATC shall not be deemed to
be "controlled by" or "under common control with" IXC.
"Agreement" has the meaning set forth in the preamble.
"ATC" has the meaning set forth in the preamble.
"Buying Party" means the party reselling the Services of the Supplying
Party to Customers.
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<PAGE> 2
"Claim" means any pending or threatened claim, action, proceeding or
suit by any Third Party.
"Confidential Information" has the meaning set forth in Section 10.1.
"Cure Period" has the meaning set forth in Section 9.2.1.
"Customer" means any purchaser of a service offering that includes
Services provided by the Selling Party under this Agreement. As used in
this Agreement, a "Customer" shall include (i) any customer with which
the Buying Party enters into an agreement relating to the sale of
services that include Services, (ii) any customer that purchases
Services for which billing is provided by the Buying Party, (iii) any
party that purchases Value-Added Services from the Buying Party, and
(iv) any purchaser of services that include Services from a Buying
Party Reseller. In cases where Buying Party uses Services provided by
Selling under the Agreement for is own internal purposes, Buying Party
shall be deemed a "Customer" for purposes of this Agreement.
"Customer Information" shall mean all information relating to each
Customer collected in connection with the provision of Services to such
Customer, including without limitation the name, address, usage,
features and services purchased, locations served, payment history and
all other information identifiable to a particular customer.
"Damages" means any loss, debt, liability, damage, obligation, claim,
demand, judgment or settlement of any nature or kind, known or unknown,
liquidated or unliquidated, including without limitation all reasonable
costs and expenses incurred (legal, accounting or otherwise).
"Documentation" shall mean Reseller Documentation and End User
Documentation.
"Documents" has the meaning set forth in Section 5.1.
"Effective Date" has the meaning set forth in the preamble.
"End-User Documentation" shall mean all documentation provided by a
Party for use by end-users of its services in connection with the use
and operation of the materials describing such services, as such
documentation may be amended, modified or supplemented from time to
time.
"Infrastructure" has the meaning set forth in Section 6.1.
"Intellectual Property Rights" shall mean all intangible property
rights protectable by law throughout the world including all copyrights
(including, without limitation, the exclusive right to reproduce,
distribute copies of, display and perform the copyrighted work and to
prepare derivative works), copyright registrations and applications,
trademark rights (including trade dress), trademark registrations and
applications, service mark rights, service mark registrations and
applications, patent rights (including the right to apply therefor),
patent applications therefor (including the right to claim priority
under applicable international conventions) and all patents issuing
thereon, and inventions, whether or not patentable, together with all
utility and design, know-how, specifications, trade names, mask-work
rights, trade secrets, moral right, author's rights, algorithms,
rights in packaging, goodwill and other intangible property rights, as
may exist now and/or hereafter come into existence, and all renewals
and extensions thereof, regardless of whether any of such rights arise
under the laws of the United States or of any other state, country or
jurisdiction.
"Internet" means the global collection of networks interconnected via a
cooperative infrastructure employing the TCP/IP suite of protocols.
"IXC" has the meaning set forth in the preamble.
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"IXC Point of Presence" shall mean one of the points of presence
representing a point of interconnection on the IXC network. The initial
IXC Points of Presence are listed in Schedule 6.2 to this Agreement,
and IXC shall promptly update such schedule during the Term on
reasonable notice to ATC. At any time during the term of this
Agreement, IXC Points of Presence could be collocated with points of
presence on the ATC network pursuant to Section 6.1. "Managed
Connectivity Services" or "MCS" has the meaning set forth in Section
2.1.1.
"Marks" shall mean trade names, logos, trademarks, trade devices, trade
dress, service marks, symbols, abbreviations or registered marks, or
contractions or simulations thereof, or any other indicia or origin as
well as VAS Marks and such other Marks as are used by a Party to
promote, advertise and market the Services, and such other Marks as the
Parties shall agree upon in writing.
"Material Provision" shall mean any provision of this Agreement
(including, without limitation, payment provisions) the breach of which
by one Party is determined by an arbitration pursuant to Section 9.2.1
to constitute a material adverse effect on the use and enjoyment by the
other Party of the benefits of this Agreement.
"Multiple End-User Restrictions" has the meaning set forth in Section
5.12.
"Network Communications Services" or "NCS" has the meaning set forth in
Section 2.1.4.
"Opportunity Consulting Services" or "OCS" has the meaning set forth in
Section 2.1.3.
"Party" means ATC, individually, or IXC, individually.
"Parties" means ATC and IXC, collectively.
"Releasing Party" has the meaning set forth in Section 12.2.
"Reseller" means a third party authorized and contracted by a Party to
sell to end-users on behalf of the Party.
"Reseller Documentation" shall mean all documentation made available by
either Party for use by any reseller or distributor of services of the
type comprising the Services to describe the methods and procedures
used by either Party in the provisioning and support of users of
services of the type comprising any of the Services provided under this
Agreement, as such documentation may be amended, modified or
supplemented from time to time.
"Sales Support Group" has the meaning set forth in Section 3.2.
"Sales Support Services" has the meaning set forth in Section 3.1.
"Selling Party" means the Party supplying Services to the Buying Party.
"Services" means Managed Connectivity Services, Value Added Services,
Opportunity Consulting Services, and Network Communications Services.
"Term" has the meaning set forth in Section 9.1.
"Third Party" means an entity other than a Party or any Affiliate of a
Party;
"Value Added Services" or "VAS" has the meaning set forth in Section
2.1.2.
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2. SERVICE DESCRIPTION(S).
2.1 Description of Services Provided by the Parties. From and after
the Effective Date, on the terms and subject to the conditions set forth in this
Agreement, The Parties shall provide to each other, and the Parties shall have
the right to purchase each from the other, the following services as more
specifically detailed in the attached Schedules (the "Service Descriptions")
which are incorporated herein by reference:
2.1.1 Managed Connectivity Services ("MCS"), consist of the
provision of dial-up and dedicated access to the Internet and data transport to
customers and all related products and services now or hereafter offered or
provided by the Parties that deliver or facilitate such access. The MCS shall
comply with the applicable descriptions so forth on Schedule 2.1.1.A as applies
to ATC and Schedule 2.1.1.B as applies to IXC, including, without limitation,
the functional, technical and performance requirements set forth in such
Schedules. From time to time, the Parties may agree on modifications to the
functional, technical and performance requirements for MCS as are necessary to
address Customer requirements. At such times Supplying Party provides enhanced
versions of MCS, Supplying Party shall make such enhanced versions of MCS
available to the Buying Party, and the Parties may agree, for purposes of this
Agreement, upon the functional, technical and performance requirements for such
services, which requirements shall, at a minimum, ensure that such services
comply with the applicable minimum requirements in Section 2.2.
2.1.2 Value Added Services ("VAS"), consist of services and
products now or hereafter offered by a Supplying Party or a controlled Affiliate
such as: (i) voice or fax over IP, (ii) Internet Security Services, (iii) World
Wide Web services, including web-enabled solutions and software development,
(iv) any other services or products developed jointly by the Parties, and (v)
any other services or products now or hereafter marketed or offered by a
Supplying Party as a generally available service or product offering other than
MCS which are not subject to exclusive marketing relationships with Third
Parties. The VAS shall comply with the applicable descriptions set forth on
Schedule 2.1.2.A as applies to ATC and Schedule 2.1.2.B as applies to IXC,
including, without limitation, the functional, technical and performance
requirements set forth in such Schedules. From time to time, the Parties may
agree on modifications to the functional, technical and performance requirements
for VAS as are necessary to address requirements of customers. At such times as
a Supplying Party provides enhanced versions of VAS, such Supplying Party shall
make such enhanced versions of VAS available to the Buying Party, and the
Parties may agree, for purposes of this Agreement upon the functional, technical
and performance requirements for such services, which requirements shall, at a
minimum, comply with the applicable minimum requirements in Section 2.2.
2.1.3 Opportunity Consulting Services ("OCS"), will consist of
pre-sales technical support and post-sales development and/or implementation
support to address specific market opportunities. At such times as the situation
warrants, the Parties may agree, for purposes of this Agreement, upon the
functional, technical and performance requirements for such services, which
requirements shall, at a minimum, comply with the applicable minimum
requirements in Section 2.2. Joint teaming efforts of the Parties shall be
conducted in accordance with the Master Teaming Agreement executed by the
Parties on May 11, 1998, attached hereto as Schedule 2.1.3.
2.1.4 Network Communications Services ("NCS"), consist of
services and products now or hereafter offered by a Supplying Party or a
controlled Affiliate such as: (i) voice communications, (ii) data
communications, (iii) communications value-added products; such as calling
cards, 800-service, etc., (iv) any other services or products developed jointly
by the Parties, and (v) any other services or products now or hereafter
marketed or offered by a Supplying Party as a generally available service or
product offering other than MCS or VAS which are not subject to exclusive
marketing relationships with Third Parties. The NCS shall comply with the
applicable descriptions set forth on Schedule 2.1.4.A as applies to ATC and
Schedule 2.1.4.B as applies to IXC, including, without limitation, the
functional, technical and performance requirements set forth in such Schedules.
From time to time, the Parties may agree on such modifications to the
functional, technical and performance requirements for NCS as are necessary to
address Customer requirements. From time to time, the Parties may agree on such
modifications to the functional, technical and performance requirements for NCS
as are necessary to address requirements of customers. At such
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times as a Supplying Party provides enhanced versions of NCS, such Supplying
Party shall make such enhanced versions of NCS available to the Buying Party,
and the Parties may agree, for purposes of this Agreement, upon the functional,
technical and performance requirements for such services, which requirements
shall, at a minimum, comply with the applicable minimum requirements in Section
2.2.
2.1.5 Either Party shall have the right and option to have any
other Service of the other included under this Agreement on terms and conditions
reasonably consistent herewith. In addition, unless specifically defined in
Schedules, Exhibits, Services Descriptions, and attachments hereto, upon such
time that a Supplying Party discontinues a service generally among its
customers, such Supplying Party may remove such service from this Agreement, but
only after providing the Buying Party with at least 90 days' prior written
notice of its intention to do so. If a Supplying Party so removes a service,
Such Supplying Party will continue to honor all existing Customer and Reseller
service agreements with end customers by continuing to make such service
available to such Customers through the shorter of (i) the end of the term of
their respective service agreements, and (ii) the end of the two-year period
commencing on the expiration of the 90-day notice period aforementioned.
2.1.6 Notwithstanding anything to the contrary contained
herein, the Parties reserve the right to modify, alter, improve or change any
and all of the services comprising the Services they offer each other which are
covered by this Agreement, and this Agreement will cover the sales of Services
as they may be modified, altered, improved or changed by either Party from time
to time. Subject to Section 2.1, in all cases where such modification,
alteration or change will reduce the functionality of any service component
comprising the Services, the Supplying Party will not effect such modifications,
alterations or changes without the Buying Party's specific written approval.
Such approval will not be unreasonably withheld, delayed or conditioned.
2.1.7 When both Parties agree to change a Service Description,
the initiating Party will prepare a written description of the agreed change (a
"Change Authorization"). Acceptance of the proposed change will be indicated by
authorized signature on the Change Authorization by both parties. The terms of a
Change Authorization prevail over those of the Service Description and any of
its previous Change Authorizations. Any change in the Service Description may
affect the charges or other terms. When additional charges are necessary, the
Supplying Party will provide a written estimate and begin work only if
authorized by Buying Party.
2.2 Minimum Requirements. The Services provided under this
Agreement, as described in Schedules 2.1.1.A, 2.1.1.B, 2.1.2.A, 2.1.2.B, 2.1.3,
2.1.4.A, and 2.1.4.B, as many be amended by mutual agreement from time to time,
shall at all times meet the following minimum requirements:
2.2.1 The Services provided under this Agreement shall be
offered and provided with features and a level of features that, on average and
taken as a whole, equal or exceed that provided by other leading providers of
services offering comparable services in a substantial portion of the geographic
area in which Services are available pursuant to this Agreement. The Parties
agree to work together on a broader range of service offerings and Service
functionality as needed to address market demand. For purposes of this
Agreement, Services shall be deemed to be available in any geographic area in
which a Supplying Party provides services to customers or, subject to the last
sentence of Section 2.7, in which a Supplying Party has an Affiliate, strategic
partner or other cooperating provider providing services in such area of the
type made available under this Agreement.
2.2.2 The Services provided under this Agreement shall be
offered and provided with features and an overall level of quality that equals
or exceeds that which a Supplying Party offers or provides any Customer.
2.2.3 The Services provided under this Agreement shall comply
with all stated service level guarantees relating to such Service as offered or
provided by a Supplying Party as of the Effective Date and as updated from time
to time; provided that no such update my operate to have a material adverse
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impact on (i) any Service (including without limitation the level or quality of
service provided to Customers), taken as a whole, without the prior written
consent of the Buying Party (which shall not be unreasonably withheld, delayed
or conditioned), except to the extent necessary to deal with network emergencies
and other circumstances beyond the control of the Supplying Party, in which case
the Supplying Party shall consult with the Buying Party concerning such change
as soon as reasonably practicable, or (ii) any other Services without providing
the Buying Party with advance written notice of such changes as soon as
reasonably practicable.
2.2.4 The Supplying Party shall not make any changes (i) to
any Service that may reasonably be expected to have a material adverse impact on
such Service (including without limitation the level or quality of service
provided to the Buying Party's Customers), taken as a whole, without the prior
written consent of the Buying Party, except to the extent necessary to deal with
network emergencies and other circumstances beyond the control of the Supplying
Party, in which case the Supplying Party shall consult with the Buying Party
concerning such change as soon as reasonably practicable, or (ii) to any OCS
Services provided without providing the Buying Party with advance written notice
of such changes as soon as reasonably practicable.
2.2.5 The OCS provided shall be performed by employees or its
subcontractors of Supplying Party as deemed by the Supplying Party to be best
qualified and available to perform the task at hand as identified by the Buying
Party. Under no circumstances may Supplying Party change subcontract
relationships in effect at the time of proposal submission without the Buying
Party's specific written approval. Such approval shall not be unreasonably
withheld, delayed or conditioned. A Supplying Party's officers supervising the
performance of the services will be empowered to commit the resources of that
Supplying Party to the extent and scope of such officer's authority.
2.2.6 In the event that Services, as defined herein, or
portions of Services, are provided to the Buying Party via a contractual
relationship with a Third Party, the Supplying Party is obligated to maintain
such a relationship to the extent practicable. Should such relationship require
that the Buying Party enter into a similar agreement with the Third Party, the
Supplying Party shall use commercially reasonable efforts to assist the Buying
Party in establishing the relationship and securing rates and levels of service
of at least those provided to the Supplying Party by the Third Party.
2.2.7 In the event Supplying Party determines the necessity to
interrupt Services for the performance of routine maintenance, Supplying Party
shall provide Buying Party with a minimum of 48 hours notice of such service
interruption and will conduct such maintenance during non-peak hours. In no
event shall interruption for system maintenance, if property performed to
Supplying Party standards, constitute a Failure of Performance by Supplying
Party. This Section 2.2.7 is limited exclusively to routine maintenance and in
no way limits the responsibility of Supplying Party to take necessary remedial
maintenance and corrective actions to restore service in the event of unplanned
outage. Such remedial actions may involve interruption of Services; in such
case, Supplying Party will use reasonable efforts to provide notification in
accordance with procedures as may be defined in applicable Service Descriptions.
2.2.8 Periodically, Buying Party may request maintenance
and/or trouble shooting of Buying Party's equipment and/or circuits in Supplying
Party's facilities. Provision of such services by Supplying Party shall be
governed by the following: (A) Maintenance services shall be defined as all work
performed by Supplier on equipment provided by or on behalf of the Buying Party,
or supervision of the Buying Party's work within Supplying Party's facilities,
specifically excluding troubles found within that facility provided by Supplying
Party, (B) Supplying Party may charge a fee not to exceed (1) $75 per hour (with
a four hour minimum when dispatch is required) Monday though Friday during
business hours of 8:00 a.m.-5:00 p.m. local time exclusive of national holidays
and Supplying Party's published Company holidays or (2) $95 per hour with a four
(4) hour minimum at any other time; (C) To enable addressing such maintenance
with telephone request, Buying Party shall supply Supplying Party with the names
of persons authorized to make such requests for service and shall bear all
responsibility for keeping supplying party aware of such authorization granting;
(D) Supplying Party shall provide Buying Party with a number to call to request
such
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service and shall be responsible for opening and closing the necessary
transactions to assure proper billing for such service. Except for emergencies,
Supplying Party shall not be obligated to dispatch personnel except as described
in this Section 22.8.
2.3 Documentation. The Parties represent that (i) Schedule 2.3.A - ATC
Theory Documentation and Schedule 2.3.B - IXC Documentation, contain a true and
complete list of all Documentation relating to the Services offered or provided
as of the Effective Date, and (ii) true and complete copies of all such
Documentation have been provided to prior to the Effective Date. In the event
Supplying Party amends, modifies or supplements any such Documentation, or
creates new Documentation in connection with enhanced versions of Services
pursuant to Section 1.1, this Supplying Party shall as soon as practicable
provide the Buying Party with written notice of any such amendments,
modifications, supplements or new Documentation, including copies of the
foregoing.
2.4 License to Documentation and Other Intellectual Property Rights.
2.4.1 Each Party grants the other and its Resellers a limited,
non-exclusive, royalty-free, license, in the geographic area in which Services
are available pursuant to this Agreement, throughout the Term, to (i) copy, but
not modify, sales literature and product descriptions (Schedule 2.3 list) in any
form, (ii) integrate the Documentation, or any part thereof, into catalogs,
price lists, brochures and related sales materials, and (iii) demonstrate,
market, distribute and solicit orders for the Services and warrants that it has
such right to grant. The grant of the foregoing license shall not entitle or in
any way be construed to entitle a Party to (a) use the other's Marks in
connection with it's sales, advertisements and promotion of the Services, except
in materials provided (or approved by the owning Party prior to use; (b)
distribute any Services outside the United States of America in violation of any
United States export restrictions; (c) distribute any Services outside of the
geographic areas in which Services are then available pursuant to this
Agreement; (d) sublicense any of its rights under this Agreement, except as
expressly permitted by this Agreement; or (e) make any agreement or incur any
liability for or on behalf of the other Party except as expressly contemplated
by this Agreement.
2.4.2 Except for the limited license specifically granted in
this Agreement, each Party shall at all times retain full and exclusive right,
title and ownership interest in and to the Services, its Marks and any and all
other Intellectual Property Rights or trade secret rights thereto. Each Party
shall notify the other Party of any action by any Third Party known or
suspected by a Party to constitute an infringement of the other's proprietary
rights. Each Party shall honor all reasonable requests by the other, other than
engaging as a party in litigation, to perfect and protect, at it's own expense,
any rights of the other Party in the Services or such Intellectual Property
Rights or trade secret rights.
2.4.3 The Parties represent that no further licenses to
Intellectual Property Rights are needed to market, offer, provision or use
Services as contemplated by this Agreement, in the geographic area in which
Services are available pursuant to this Agreement.
2.5 Liabilities for Affiliate Obligations. To the extent that a
Supplying Party's performance of its obligations hereunder causes it to assign
or delegate all or part of its liabilities, obligations and commitments
hereunder to any of its Affiliates, said Supplying Party covenants and agrees
that it shall cause any such Affiliate to perform such liabilities, obligations
and commitments in accordance with the terms and provisions hereof. In the event
of such an assignment or delegation, each Party shall remain liable for all of
its liabilities, obligations and commitments hereunder.
2.6 Forecasts. The Parties agree to coordinate in estimating the level
and location of demand and traffic for Services during the term of this
Agreement. In that connection, no later than the 15th day of the first month of
each calendar quarter during the term of this Agreement, Buying Party will
provide Supplying Party with its projected requirements for each Service,
indicating amounts, types and location during each of the following four
calendar months. In the event that there should be a material change in
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proposed requirements as set forth in the most recent forecast, the Buying
Party, as promptly as practicable, shall update such forecast in order to
reflect such change. These forecasts shall be used for the planning convenience
and shall not be binding upon the Parties, but the Parties intend to use the
forecasts to estimate needed staffing, network provisioning and product levels
for its performance of the terms of this Agreement and shall only be responsible
for using commercially reasonable efforts to satisfy demand to the extent it
materially exceeds such forecasts. The Parties shall provide their initial
projected requirements for Services within 15 business days after the Effective
Date. All forecasts provided under this Section 2.6 shall be treated as
Confidential Information pursuant to Section 10.
2.7 Geographic Scope. It is the intent of the Parties that the Buying
Party be permitted to provide Services to Customers, on the terms and subject to
the conditions of this Agreement, in all of the geographic areas in which the
Supplying Party is now, or at anytime during the Term is then, providing
services to its Customers. Notwithstanding the foregoing, the Parties
acknowledge and understand that each is not now capable of independently
providing certain services in certain geographic areas. To the extent that
either Party desires to provide Services to customers situated in such
geographic areas and the Supplying Party has an Affiliate, strategic partner or
cooperating provider offering services therein, the Buying Party may request
that the Supplying Party obtain a quote from such Affiliate, strategic partner
or cooperating provider for such Services. Within five business days after such
request, the Supplying Party shall contact the appropriate Affiliate, strategic
partner or cooperating provider for purposes of obtaining such quote. The
provision of services under this Section 2.7 by such Affiliate, strategic
partner or cooperating partner to the Buying Party shall be the subject of
negotiation and, if reached by such parties, agreement. In the event that such
an Affiliate, strategic partner or cooperating provider agrees to provide
services under this Section 2.7, the Supplying Party shall use its reasonable
efforts to cause any such Affiliate, strategic partner or cooperating provider
to provide such services to the Buying Party at a cost no more than that which
such services are typically provided by such Affiliate, strategic partner or
cooperating provider to the Supplying Party. Notwithstanding anything in Section
7 to the contrary, the Supplying Party shall make such services available to the
Buying Party at the Supplying Party's cost of obtaining the service from the
Affiliate, strategic partner or cooperating provider. Notwithstanding anything
in this Agreement to the contrary, the Supplying Party shall not be obligated to
provide Services to a Buying Party's customer or Third Party in those geographic
areas in which the Supplying Party is not offering services unless (i) it has an
Affiliate, strategic partner or cooperating provider in a particular geographic
area, and (ii) such Affiliate, strategic partner or cooperating provider agrees
to provide such services on terms and conditions to the Buying Party's
satisfaction.
2.8 Service Contracts. To the extent that the Services are standard and
not customized to the specifications of the other Party, each Party shall
execute the other Party's standard reseller agreement for services, on the terms
and subject to the conditions set forth in such agreement except that the terms
and conditions of this Agreement shall have precedence.
2.9 Credit Worthiness. So long as IXC is a shareholder in ATC, the
Parties shall deem each other credit worthy and no financial statements shall be
required of each other except as required by the Stock Purchase Agreement. In
the event that such shareholder relationship terminates, Buying Party shall
provide Supplying Party with financial statements including a consolidated
balance sheet of Buying Party as of the end of the most recent quarter and
consolidated statements of income and retained earnings of such quarter and the
fiscal year to date through such quarter, all in reasonable detail and certified
by Supplying Party's chief financial officer as having been prepared in
accordance with generally accepted accounting principles, consistently applied.
Buying Party shall provide updated financials as reasonably requested by
Supplying Party.
2.10 Additional Assurances. If at any time during the term of this
Agreement there is a material and adverse change in Buying Party's financial
condition or business prospects, which shall be determined by Supplying Party in
its sole and absolute discretion, then Supplying Party may demand that Buying
Party deposit with Supplying Party a security deposit (the "Security Deposit"),
pursuant to Supplying Party's standard terms and conditions, as security for the
full and faithful performance of Buying Party of the terms,
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conditions and covenants of this Agreement; provided, however, that in no event
shall the amount of the Security Deposit ever exceed the sum of the previous two
(2) months actual invoiced amount payable by Buying Party to Supplying Party.
2.11 Certification. Each Party hereby represents and warrants that it
is certified to do business in all jurisdictions in which it conducts business
and is in good standing in all such jurisdictions. Each Party further represents
and warrants that it is certified and licensed by the proper regulatory agencies
to provide services to End-Users in those jurisdictions where such services are
to be provided as Buying Party. Buying Party shall keep all such certificates
and licenses (the "Service Compliance Certificates") current. Supplying Party
may request copies of such certificates and licenses and Buying Party shall
furnish such documentation within ten (10) days of such request. In the case of
Certificates of Good Standing, the Supplying Party will request such
certificates from appropriate jurisdiction and will supply them to Buying Party
upon receipt. Supplying Party reserves the right to refuse or withhold service
in any jurisdiction for which such certifications and licenses are not current
or supplied. Buying Party shall defend and indemnify Supplying Party from any
losses, expenses, demands and claims in connection with Buying Party's failure
to provide Supplying Party with such Service Compliance Certificates. Such
Indemnification includes costs and expenses (including reasonable legal fees)
incurred by Supplying Party in settling, defending or appealing any claims or
actions brought against it relating to Buying Party's failure to provide such
Service Compliance Certificates.
2.12 Bankruptcy. In the event of the bankruptcy or insolvency of either
party hereto or if either party hereto shall make an assignment for the benefit
of creditors or take advantage of any act or law for relief of debtors, the
other party to this Agreement shall have the right to terminate this Agreement
without further obligation or liability on its part except for payments for all
services rendered.
2.13 Insurance. Throughout the term of this Agreement and any extension
thereof, each party shall maintain and, upon written request, shall provide to
the other proof of adequate liability insurance: (i) Worker's compensation
insurance up to the amount of statutory limit in the state or states where work
is to be performed; (ii) Employer's liability insurance with a limit of not less
than $200,000 per claim with an all-states endorsement; (iii) Comprehensive
general liability insurance with a limit of not less than $1,000,000 per
occurrence for bodily injury liability and property damage liability, including
coverage extensions for blanket contractual liability, personal injury liability
and products and completed operations liability; and, (iv) Comprehensive Auto
Liability insurance with a limit of not less than $1,000,000 per accident for
Bodily Injury Liability and Property Damage Liability arising out of the
ownership, maintenance or use of any vehicle in the performance of this
Agreement.
3. SALES SUPPORT SERVICES AND TRAINING.
3.1 Pre-Sale Support and Post-Sale Implementation Support. From the
Effective Date, the Supplying Party shall offer and provide pre-sale support and
post-sale implementation support services ("Sales Support Services") to the
Buying Party's sales and technical personnel as specified in Schedule 3.1.A as
applies to ATC and Schedule 3.1.B as applies to IXC.
3.2 Dedicated Sales Support Department. The Supplying Party shall
create and manage a sales support group ("Sales Support Group") for the purpose
of providing Sales Support Services under Section 3.1. The Sales Support Group
shall be adequately staffed with knowledgeable, experienced and trained
subject-area professionals capable of providing support to Buying Party's sales
and technical personnel and customer care to Customers consistent with Schedules
3.1.A and 3.1.B.
3.3 Funding the Sales Support Group. During the Term, each Party shall
staff their Sales Support Group with a minimum of three (3) full-time
professionals at no charge to the other Party. Any additional support requested
by Buying Party shall be considered as Opportunity Consulting Services as
defined in Section 2.1.3. Buying Party shall reimburse Supplying Party for
reasonable travel and other out-of-
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pocket expenses incurred in connection with Sales Support Services requested,
provided that the Supplying Party shall use good business judgement to minimize
such expenses.
3.4 Training. The Supplying Party shall provide training at reasonable
times and locations and at nominal expense to the Buying Party. The specific
training requirements, if any, for the Services will be addressed in the
applicable Service Description.
4. CUSTOMER SUPPORT SERVICES AND CUSTOMER SERVICE RATES.
4.1 Unless otherwise agreed to in the applicable Schedule, the Buying
Party will retain ownership of the Customer relationship, and will be
responsible for providing Customer Support services to end-user Customers. The
applicable Schedule for each Service will define procedures for escalation and
hand-off of Customer problems to the Supplying Party.
4.2 Should the Supplying Party Include Customer support in its
description for any Service, the Supplying Party will provide customer support
through its customer support group or through a Third Party (as determined by
the Supplying Party In its sole discretion) for the Services sold to Customers
as contemplated by this Agreement; provided that the Supplying Party will not be
responsible for providing customer support to any Customer purchasing Services
under a private label which exceeds the level of support which the Supplying
Party is obligated to provide to its customers pursuant to it's service
agreements for the applicable Services, as such agreements may be amended from
time to time.
4.3 Notwithstanding the foregoing, Buying Party shall be responsible
for all pricing and service plans, billing and collections with respect to
Customers.
5. RIGHTS AND RESPONSIBILITIES.
5.1 Buying Party's Use and Sales of Services.
5.1.1 Buying Party may use the Services made available to it
pursuant to this Agreement on the terms and subject to the conditions hereof,
(i) for its own account, (ii) subject to Section 5.1.2, for resale to Customers,
or (iii) subject to Section 5.1.2, for resale to Third Parties for further
resale or distribution (such Third Parties which, notwithstanding the definition
of "Third Parties" herein, include, without limitation Customers (including
those which are Affiliates of Buying Party) are referred to herein as
"Resellers"), either alone or in combination with any other products and
services. Services offered by Buying Party that incorporate MCS, VAS, and NCS
made available to it pursuant to this Agreement shall, at Buying Party's
discretion, be branded exclusively as Buying Party services or otherwise as
Buying Party shall determine. Buying Party shall specify the design of any user
interface associated with any MCS, VAS, or NCS, consistent with the preceding
sentence. Buying Party will have complete discretion to determine the prices to
be charged to Customers for the Services provided under this Agreement and
Buying Party shall be solely responsible for establishing and collecting
customer charges for services it or its Customers offer and for preparing and
mailing invoices to Buying Party's Customers. In addition, Buying Party shall be
responsible for payment of the total amounts invoiced it by Supplying Party
(except for any amounts disputed by Buying Party in good faith) regardless of
whether its customers pay Buying Party. Subject to the provisions of Section
5.4, Buying Party shall also have complete discretion to determine the other
terms and conditions on which Buying Party makes such Services available to
Customers; provided that neither Buying Party nor its customers may offer
warranties or representations for the Services that would obligate or otherwise
bind Supplying Party beyond those stated in the applicable service agreements.
Except as otherwise provided in this Agreement, except as reasonably necessary
for Supplying Party to assist Buying Party during the introduction of Services
under this Agreement, Buying Party shall provide the primary interface to its
Customers in connection with the marketing, offering or provision of Buying
Party services that incorporate the Services, including (a) providing first tier
support for non-MCS and non-VAS Buying Party services and (b) handling
communications to and business relations with Buying Party Customers related to
contractual
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agreements, handling invoicing and payment matters, and handling inquiries and
questions from Buying Party Customers about Services.
5.1.2 Notwithstanding anything In Section 5.1.1 to the
contrary, the Parties agree that the determination of customer interfaces,
marketing, provisioning and delivery for jointly developed new product or
services offerings incorporating Buying Party services or Services as described
herein will be determined by mutual agreement.
5.1.3 Periodic Audit Rights. Supplying Party shall have the
right, upon reasonable notice and at a date and time mutually agreed upon by the
Parties, to enter the premises of Buying Party for the purpose of auditing any
of Buying Party's books of accounts, documents, records (in any media), papers
and files (the "Documents") relating to its compliance with the provisions of
this Agreement. Supplying Party shall bear the expense of the audit unless the
audit reveals that (i) the amounts collected by Supplying Party from Buying
Party hereunder are more than two (2) percent less than that which should have
been paid by Buying Party to Supplying Party, or (ii) Buying Party has not
complied with either or both of the first two sentences of Section 5.1.2, in
which case, the entire cost of the audit shall be borne by Buying Party. Payment
of any amounts found due and owing Supplying party shall be made promptly by
Buying Party upon demand by Supplying Party.
5.2 Use of Marks. Except as provided herein or by advance written
consent of the other, each of ATC and IXC agrees not to (i) display or use, in
advertising or otherwise, any of the other's Marks, (ii) permit any Affiliate to
display or use any of the other's Marks, or (iii) give permission to display or
use any of the other's Marks to any Third Party. Any use by one Party of any of
the other's Marks shall be subject to such other Party's advance approval in
writing, in its discretion, subject to compliance with guidelines provided by
it. Neither Party shall claim ownership or any other rights in any of the
other's Marks. Upon termination or expiration of this Agreement, any and all
rights or privileges granted by ATC or IXC to use any Marks shall immediately
expire and each Party shall immediately discontinue the use of such Marks.
Nothing herein shall preclude either Party from making factual references to the
other in government filings, disclosure documents and other public statements.
5.3 Introductory Marketing Campaign. Buying Party shall have complete
discretion regarding its marketing of the Services provided that such Services
are offered under Buying Party's own brand, and provided that neither Buying
Party nor its customers may offer warranties or representations for the Services
that would obligate or otherwise bind Supplying Party beyond those stated in the
applicable standard service agreements or Schedule or to make any other
warranties, promises or representations with respect to the Services. In
connection with such private label marketing activities, Buying Party shall
prominently mention Supplying Party's role in the provision of such services in
an Introductory press release, the content of which shall be mutually agreed to
by the Parties.
5.4 Provisions Applicable to End-Users
5.4.1 Buying Party's Use of Services. Buying Party's use of
Services in Buying Party's capacity as end-user of Services for its own account
shall be governed by this Agreement and any additional terms and conditions of
the applicable Schedule.
5.4.2 Agreements with Buying Party Customers Other than Buying
Party. Buying Party's agreements with Buying Party Customers (other than Buying
Party) to provision Services shall comply with applicable Supplying Party
standard terms, rules, and conditions with respect to Services unless
specifically amended by mutual consent and the terms and conditions of this
Agreement generally.
6. INFRASTRUCTURE.
6.1 Use of IXC Equipment and Facilities. Except as otherwise agreed to
by the Parties, in providing the Services to IXC under this Agreement, ATC
grants IXC right of first refusal for infrastructure,
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equipment, facilities and services necessary for the transmission of data
(collectively, "Infrastructure") provided (i) ATC is not restricted from
purchasing such Infrastructure from IXC under contractual obligations binding on
ATC at the time the purchase decision is being considered, (ii) such
Infrastructure meets ATC's functional, technical and performance requirements,
and (iii) IXC offers such Infrastructure to ATC at a price and on terms and
conditions that, on average or taken as a whole, are competitive as compared to
those offered to ATC in good faith by other leading providers of infrastructure,
equipment, facilities, and services similar to those at the time IXC makes its
offer.
6.2 Use of ATC Support and Product Components. Except as otherwise
agreed to by the Parties, in providing the Services to ATC under this Agreement,
IXC grants ATC right of first refusal for support and product components
necessary for the delivery of Service provided (i) IXC is not restricted from
purchasing such support and product component from ATC under contractual
obligations binding on IXC at the time the purchase decision is being
considered, (ii) such support and product component meets IXC's functional,
technical and performance requirements, and (iii) ATC offers such support and
product component to IXC at a price and on terms and conditions that, on average
or taken as a whole, are competitive as compared to those offered to IXC in good
faith by other leading providers of support and product components similar to
those at the time ATC makes its offer.
6.3 Provisioning of Customers. The roles, responsibilities and
processes for the provisioning of Customer local loops and CPE will be
described in the appropriate Service Descriptions.
6.4 Interconnection of Facilities. ATC and IXC shall coordinate with
respect to (i) the definition of the interfaces between Customer, the ATC
network and the IXC network at Points of Presence, (ii) the management of
traffic routed from the premises of Customers to Points of Presence, and (iii)
access to each other's networks for the purposes of providing Services under
this Agreement. Each Party shall be responsible for the day-to-day management
of its network relating to the provision of Services, including monitoring and
taking actions necessary to remedy problems with, or disruption of, the
Services, establishment and maintenance of routing tables and routing policies
at Points of Presence, and establishment and maintenance of peering points with
the global Internet.
6.5 Customer Transfers. At any time, Buying Party shall have the right
to migrate its Customers to services as provided by itself or on its behalf by
a Third Party. The Parties shall provide all reasonable cooperation in support,
to the extent practicable, of a seamless, minimally disruptive migration of
such Customers in connection with such services (including without limitation
all Customer Information and, to the extent practicable, any necessary transfer
of customer addresses).
6.6. Interfaces. The Parties shall develop methods, procedures and
associated interfaces for cooperating on a "seamless" basis in all areas
relating to the marketing and provision of the Services, including without
limitation order processing, customer care, network monitoring and maintenance,
and problem escalation and resolution; provided, however, that, unless mutually
agreed upon, neither Party shall be obligated to provide services or support of
any kind to Customers which exceeds that which it is required to provide to its
own customers pursuant to its service agreements for the applicable comparable
services, as such agreements may be amended from time to time. The Parties
shall use commercially reasonable efforts to agree on an initial plan to
accomplish the foregoing, including appropriate training of each other's
employees, by no later than 30 days after the Effective Date. At any time
during the Term, the Parties will cooperate in good faith in connection with
inquiries concerning potential problems affecting any aspect of the provision
of Services.
7. PRICING AND PAYMENT
7.1 Services Pricing. The Parties shall at all times make sure that all
fees and other charges charged to the other Party for each of the individual
service components comprising the Services, are such that Buying Party may
maintain a gross margin when compared to normal competition. Notwithstanding
the foregoing, neither party shall be obligated to supply prices below cost.
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7.2 Independent End-Customer Pricing and Payments. Each of the Parties
will have complete discretion regarding the prices that it charges to its
customers for its services and will be completely responsible for billing
to and payment collection from its respective Customers. Supplying Party will
invoice the Buying Party in accordance with the terms and pricing contained in
the applicable Schedule. Buying Party assumes all bad debt associated with
non-payment of any of its respective Customers.
7.3 Credits/Adjustments. Customers shall be granted service disruption
credits and adjustments, quality of service commitment credits and adjustments,
and the like as may be established by the applicable Schedules. In the event
that Buying Party, as promptly as practicable, notifies Supplying Party after
learning of the failure of Supplying Party to deliver any of the Services to any
Customer, Buying Party will be entitled to a credit representing any reasonable
adjustment requested by Buying Party and approved in advance by Supplying Party
as a result of such failure to meet customer service expectations.
7.4 Late Payment. Supplying Party invoices for amounts payable under
this Agreement shall be due within 30 days of the date of invoice. Payments not
received within thirty (30) days of the date of invoice will be considered past
due. If a dispute arises as to any portion of an invoice, Buying Party shall pay
the undisputed amount of such invoice when due and shall notify Supplying Party
in writing of the disputed amount no later than 30 days from the date of
invoice. If Buying Party does not report a dispute within the thirty (30) day
period, Buying Party shall have waived its dispute rights for that invoice.
7.5 Billing Dispute Resolution. In the event Buying Party in good faith
disputes any portion of any Supplier invoice, the IXC Authorized Representative
and the ATC Authorized Representative (as such capitalized terms are defined
herein) will first attempt in good faith to promptly resolve the dispute. If the
dispute has not been resolved by the Authorized Representatives within 14 days
after notice, or if either Party will not agree to meet within such 14-day
period, the matter will be referred to the Chief Executive Officer of IXC and
the Chief Executive Officer of ATC who will in good faith attempt to resolve the
dispute. If the dispute remains unresolved within an additional 14-day period,
the dispute shall be submitted to arbitration. Any disputed amounts resolved in
favor of Buying Party shall be credited to Buying Party's account on the next
invoice following resolution of the dispute. Any disputed amounts determined to
be payable to Supplying Party shall be due within ten (10) days of resolution of
the dispute.
In the event that any amount remains unpaid after its due date, such
amount shall be subject to an interest charge equal to the lesser of one and
one-half percent of the unpaid balance per month or the maximum rate allowed
under applicable state law and, if such amount shall not have been paid in full
within five business days of the applicable due date when no bona fide dispute
exists, Supplying Party may, without any liability to Buying Party at its
option, suspend the provision of services under this Agreement until such amount
is paid in full.
8. NO RESTRICTIONS.
Notwithstanding any other provision of this Agreement, except as
provided in Section 2.7, nothing in this Agreement shall limit or in any way
affect (i) the performance of any Party's obligations under a binding agreement
in effect as of the Effective Date (and each Party shall disclose to the other
such agreements that, to such Party's knowledge, are in effect as of such date
to the extent possible consistent with any obligations of confidentiality owing
to Third Parties), (ii) IXC's right to provide Internet services for its own
account directly to any end user or wholesale customer (subject to section 10)
or otherwise to engage in services involving packet frame relay, asynchronous
transfer mode or other Internet services, (iii) ATC's right to build, operate
and maintain its own global network, and (iv) either Party's right in any way to
market, offer or provide any products and services that are not, generally,
marketed principally as Internet services.
9. TERM AND TERMINATION.
9.1 Term. The term of this Agreement shall commence on the Effective
Date and shall end on
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the earlier of (i) the disposition by IXC of 100% of its equity in ATC, and (ii)
such earlier date as of which this Agreement expires or is terminated pursuant
to Section 9.2. In the event of termination per 9.1.(i) preceding, IXC shall
provide ATC with written notification of such and continue to provide Services
it has committed to as Supplying Party for a period of one year from the date of
such notification.
9.2 Termination.
9.2.1 Notwithstanding paragraph 9.1 preceding, either Party
may deliver to the other Party a written "Notice of Default" in the event that
the other Party has breached any Material Provision hereunder. Such Notice of
Default must prominently contain the following sentences in capital letters:
"THIS IS A FORMAL NOTICE OF A BREACH OF CONTRACT. FAILURE TO CURE SUCH BREACH
WILL HAVE SIGNIFICANT LEGAL CONSEQUENCES." A Party that has received a Notice of
Default shall have thirty (30) days to cure the alleged breach (and, if the
defaulting Party shall have commenced actions in good faith to cure such
defaults which are not susceptible of being cured during such 30-day period,
such period shall be extended (but not in excess of 90 additional days) while
such Party continues such actions to cure (the "Cure Period"). If such Party
fails to cure the breach within the Cure Period, as long as such default shall
be continuing, the non-defaulting Party shall have the right to either (i)
suspend its performance or payment obligations under this Agreement and/or any
of the Transaction Documents, (ii) seek an order of specific performance, and/or
(iii) seek the award of compensatory damages.
9.2.2 Supplying Party shall terminate, or use commercially
reasonable efforts to terminate, the access rights of any Customer as soon as
is reasonably practicable upon written notice from Buying Party to do so or upon
mutually agreed upon electronic process with receipt confirmed, but shall have
no liability in connection therewith.
9.2.3 Supplying Party shall have the right to terminate any
Customer on written notice to Buying Party (or sooner, if required by law,
provided, however that Supplying Party should thereafter provide written notice
to Buying Party) in the event of any use or alleged use by such Customer of the
Services or the infrastructure supporting Services which is in violation of any
law, regulation or treaty, any of the Usage Restrictions, either Party's Net
Abuse Policy (available at their respective web sites), any community standard
or accepted Internet policy or which results in the receipt by either Party of
any formal or informal complaint.
10. CONFIDENTIAL INFORMATION.
10.1 Nondisclosure. If either Party acquires Confidential Information
of the other, such receiving Party shall maintain the confidentiality of the
disclosing Party's Confidential Information, shall use such Confidential
Information only for the purposes for which it is furnished and shall not
reproduce or copy it in whole or in part except for use as authorized in this
Agreement. Without limiting the generality of the foregoing, neither Party shall
use the Confidential Information of the other Party to solicit the other Party's
customers or to otherwise compete unfairly with the other Party. "Confidential
Information" shall mean all information of the disclosing Party which it treats
as confidential or proprietary including, without limitation, all of the
following: (i) information concerning customers and the contractual terms under
which services are being provided to such customer by a Party; and (ii) all
customer lists and other information regarding the customers of a Party.
Confidential Information shall not include information which is or hereafter
becomes generally available to others without restriction or which is obtained
by the receiving Party without violating the disclosing Party's rights under
this Article 10 or any other obligation of confidentiality. The terms and
conditions of this Agreement shall constitute Confidential Information. IXC and
ATC shall cooperate to request confidential treatment as may be mutually agreed
by them with respect to certain terms of this Agreement and the transactions
contemplated hereby in any filing with the Securities and Exchange Commission,
any other government authority or any securities exchange or stock market.
10.2 Duration. With respect to all Confidential Information, the
Party's rights and obligations under this Article shall remain in full force and
effect following the termination of this Agreement.
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10.3 Ownership. All materials and records which constitute Confidential
Information, other than service orders and copies of this Agreement, shall be
and remain the property of, and belong exclusively to, the disclosing Party, and
the receiving Party agrees either to surrender possession of and turn over or to
destroy and certify to the other Party the destruction of all such Confidential
Information which it may possess or control upon request of the disclosing Party
or upon the termination of this Agreement.
10.4 Injunctive Relief. The Parties acknowledge and agree that, in the
event of a breach or threatened breach by any Party of any provision of this
Article; the other Party will have no adequate remedy in money or damages and,
accordingly, shall be entitled to an injunction against such breach. However, no
specification in this Section of a specific legal or equitable remedy shall be
construed as a waiver or prohibition against any other legal or equitable
remedies in the event of a breach of this Section of this Agreement.
10.5 Legal Obligation to Disclose. Each Party shall be released from
its obligations under this Section 10 with respect to information which such
Party is required to disclose to others pursuant to obligations imposed by law,
rule or regulation or securities exchange or stock market rule; provided,
however, that prior to any such required disclosure, such Party shall, to the
extent practicable, provide written notice and consult with the other Party.
11. REPRESENTATIONS AND WARRANTIES.
11.1 By IXC. IXC represents and warrants to ATC that (i) it is a
corporation duly organized, validly existing and in good standing in the State
of Delaware; (ii) it has full corporate power and authority to own and operate
the Services it provides pursuant to this Agreement and the IXC network and to
carry on its business as presently conducted; (iii) it has, or has licensed,
sufficient right title and interest in and to the Services it provides pursuant
to this Agreement, the IXC Marks (within the United States) and the IXC network;
(iv) it has all requisite authority to execute and deliver this Agreement and to
carry out the transactions contemplated hereby, (v) this Agreement is a valid
and binding obligation of IXC, enforceable against IXC in accordance with its
terms except as such enforceability may be limited by laws relating to
creditors' rights generally and the exercise of judicial discretion in
accordance with general equitable principles; and (vi) the licenses granted and
obligations owed to ATC hereunder do not conflict with the rights granted or
obligations owed by IXC to any Third Party.
11.2 By ATC. ATC represents and warrants to IXC that (i) it is a
corporation duly organized, validly existing and in good standing in the State
of New York; (ii) it has full corporate power and authority to own and operate
the Services it provides pursuant to this Agreement and to carry on its business
as presently conducted; (iii) it has, or has licensed, sufficient night title
and interest in and to the Services it provides pursuant to this Agreement and
the ATC Marks (within the United States), (iv) it has all requisite authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby, (v) this Agreement is a valid and binding obligation of
ATC, enforceable against ATC in accordance with its terms except as such
enforceability may be limited by laws relating to creditors' rights generally
and the exercise of judicial discretion in accordance with general equitable
principles and (vi) the licenses granted or obligations owed to IXC hereunder do
not conflict with the rights granted or obligations owed by ATC to any Third
Party.
11.3 BY IXC AND ATC. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
SPECIFICALLY SET FORTH IN SECTIONS 11.1 By IXC AND 112 By ATC. THE PARTIES MAKE
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, WHETHER EXPRESS,
IMPLIED OR STATUTORY, AND THE PARTIES EXPRESSLY DISCLAIM AND EXCLUDE ALL OTHER
REPRESENTATIONS AND WARRANTIES OF ANY KIND. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY OR ANY OTHER
PERSON OR ENTITY, WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO THE DESCRIPTION,
QUALITY, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF
ANY INTERNET SERVICE OR ANY OTHER SERVICE PROVIDED
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HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH
WARRANTIES ARE HEREBY EXCLUDED AND DISCLAIMED.
12. LIMITATION OF LIABILITY.
12.1 Limitation of Liability. Except for direct damages otherwise
specifically provided for in this Agreement, in no event shall ATC or IXC be
liable for any special, incidental, direct, indirect, punitive, reliance or
consequential damages, whether foreseeable or not, arising under this Agreement
or from any breach or partial breach of the provisions of this Agreement or
occasioned by any defect in the Services or other service provided hereunder,
delay in availability of the Services or any service provided hereunder, failure
of the Services or other service provided hereunder, interruptions or outages of
the IXC network or any other cause whatsoever or arising out of any act or
omission by ATC or IXC, as applicable, its employees, servants and/or agents,
including but not limited to, damage or loss of data, property or equipment,
loss of profits or revenue, cost of capital, cost of replacement services, or
claims of customers for service interruptions or transmission problems.
12.2 Release; Indemnification. Each Party (each Party in such capacity
being referred to as the "Releasing Party) releases, assumes and agrees to
indemnify defend, protect and save the other Party harmless from and against any
claim, damage, loss, liability, cost and expense (including reasonable
attorneys' fees) in connection with any loss or damage to any physical property
or facilities of the Releasing Party or any injury to or death of any Person
arising out of or resulting in any way from the negligence or misconduct of the
Releasing Party or its employees, servants, contractors and/or agents.
13. INDEMNIFICATION.
13.1 Indemnification Obligations. ATC and IXC (hereinafter where either
has undertaken the action or inaction to be indemnified against shall be known
as the "Indemnifying Party") agree to assume all liability for and indemnify,
defend, release, and hold harmless the other Party or any third Party claiming
through the other Party, from and against all liability, loss, cost, damage,
expense or cause of action, of whatsoever character, or injury or death of any
Person and damage to or destruction of any property, including, without
limitation, third Parties and all related expenses, including, but not limited
to, reasonable attorneys' fees, investigators' fees and litigation expenses and
costs of enforcing this Section 13 arising out of or relating to, in whole or in
part, any of the following:
(i) claims for libel, slander, infringement of copyright
or unauthorized use of a trade secret, trade name or
service mark that results from the transmission of
material over the ATC or IXC network by the
Indemnifying Party, authorized representatives of the
Indemnifying Party or other Persons not associated
with, or related to, either ATC or IXC; or
(ii) claims of any Third Party arising out of the
negligent or willful act or omission of the
Indemnifying Party or its agents, servants,
employees, contractors or representatives (other than
ATC, if IXC is the Indemnifying Party, or IXC, if ATC
is the Indemnifying Party); or
(iii) claims for patent infringement arising out of the use
of the ATC or IXC network by the Indemnifying Party
or any Person authorized by the Indemnifying Party or
resulting from the acts of the Indemnifying Party or
the Indemnifying Party's representatives in combining
the ATC or IXC network with the facilities of the
Indemnifying Party or others, or using the ATC or IXC
network either alone or in connection with that of
the Indemnifying Party or others; or
(iv) claims, except as otherwise set forth herein, for the
material breach of or failure to comply, in any
material respect, with any term or condition of this
Agreement by the
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Indemnifying Party or its officers, employees or
invitees; or
(v) claims resulting from patent or trade secret
infringement or infringement or unauthorized use of
trade secrets or trade name by the Indemnifying
Party in connection with this Agreement.
In addition, IXC will defend, indemnify and hold ATC harmless
from and against any claim or threat of claim by an ATC Customer or an ATC
Reseller which is based on any warranty, promise or representation made by ATC
as part of a service agreement and for which IXC is responsible in accordance
with the terms of this Agreement. Similarly, ATC will defend, indemnify and hold
IXC harmless from and against any claim or threat of claim which is based on any
warranty, promise or representation made by ATC to a Third Party for which IXC
is not responsible in accordance with the terms of this Agreement.
PROVIDED, HOWEVER, NOTWITHSTANDING ANY PROVISION OF THIS
AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
(OR TO ANY THIRD PARTY CLAIMING THROUGH SUCH OTHER PARTY) FOR CONSEQUENTIAL
INCIDENTAL, EXEMPLARY OR PUNITIVE DAMAGES AND THE FOREGOING INDEMNITIES SHALL
NOT APPLY WITH RESPECT TO SUCH DAMAGES.
13.2 Notices and Defense. The Indemnifying Party shall provide the
other Party with notice of any such claim by a Third Party and assure the
defense of such claim, on the terms and subject to Sections 13.1 preceding.
14. NON-SOLICITATION:
a. From the date hereof until three years after the
termination of this Agreement, neither IXC nor any of its Affiliates will,
directly or indirectly, either alone or in association with others in any part
of the world induce, request, encourage or assist any employee of ATC or its
Affiliates to terminate his or her employment with ATC or to join with or become
employed by, render services to or otherwise be engaged by IXC or any of their
Affiliates in any direct or indirect capacity.
b. From the date hereof until three years after the
termination of this Agreement, neither ATC nor any of its Affiliates will,
directly or indirectly, either alone or in association with others in any part
of the world induce, request, encourage or assist any employee of IXC or its
Affiliates to terminate his or her employment with IXC, or to join with or
become employed by, render services to or otherwise be engaged by ATC or any of
its Affiliates in any direct or indirect capacity.
c. If, at the time of enforcement of Section 14, a court shall
hold that the duration, scope, geographic area or other restrictions stated
herein are unreasonable under circumstances then existing, the Parties agree
that the maximum duration, scope, geographic area or other restrictions deemed
reasonable under such circumstances by such court shall be substituted for the
stated duration, scope, geographic area or other restrictions.
d. In the case that a Party receives a legitimate,
self-initiated request for consideration of employment by any employee of the
other Party, the receiving Party shall immediately notify the other Party.
Nothing in this Section 14 shall be deemed to prohibit the employees of either
Party from free-will execution of their rights.
e. Notwithstanding the foregoing, in the event the authorized
representatives of the Parties determine that it is in their mutual best
interests to terminate an employee of one party so that such employee may be
hired by the other in a role furthering the purposes of this Agreement, and
agree to such actions in writing, such actions will not be construed as
violation of this Section 14.
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15. MISCELLANEOUS.
15.1 Independent Contractors. The Parties are acting as independent
contractors and under no circumstances shall any of the employees of one Party
be deemed the employees of the other for any purpose. Except as otherwise
expressly provided in this Agreement, this Agreement does not constitute ether
Party as the agent or legal representative of the other Party and does not
create a partnership or joint venture between the Parties. Except as otherwise
expressly provided in this Agreement, neither Party shall have any authority to
act for the other Party in any agency or other capacity, to make commitments of
any kind for the account of, or on behalf of, the other Party or to contract for
or bind the other Party in any manner whatsoever. This Agreement confers no
rights of any kind upon any Third Party.
15.2. Force Majeure. Notwithstanding any provision in this Agreement to
the contrary, neither Party shall be liable for failure to fulfill its
obligations hereunder (except with respect to payment or other monetary
obligation or as otherwise specifically set forth herein) if such failure is due
to causes beyond its reasonable control, including, without limitation, actions
or failures to act of the other Party or, acts of God, flood, fire, storm,
catastrophe, governmental prohibitions or regulations, viruses which did not
result from the acts or omissions of such Party, its employees or agents,
national emergencies, acts of public enemies, national emergency, insurrections,
riots or wars, breakdown of or damage to plants or equipment or facilities
(other than arising out of the neglect of or mishandling by such Party), the
relevant portion of the Internet is down due to a technology failure (other than
arising out of the neglect of or mishandling by such Party), failure of a
supplier to supply necessary materials or equipment in a timely manner,
destruction of property, embargoes, boycotts, governmental legislation or
regulations, orders or acts of civil or military authorities, governmental acts
or orders of courts or administrative agencies, or strikes, lockouts, work
stoppages or other labor difficulties. The time for any performance required
hereunder shall be extended by the delay incurred as a result of such act of
force majeure and each Party shall act with diligence to correct such force
majeure.
15.3 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to a Party under this Agreement shall impair any such
right, power or remedy of such Party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of either Party of any breach or default under this
Agreement, or any waiver on the part of either Party of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to a Party, shall be cumulative
and not alternative.
15.4 Binding Agreement. This Agreement shall be binding upon and shall
inure to the benefit of the Parties hereto and their respective successors and
permitted assigns. No Person or entity other than the Parties hereto (and their
respective successors and permitted assigns) is or shall be entitled to bring
any action to enforce any provision of this Agreement against either of the
Parties, and the covenants and agreements set forth in this Agreement shall be
solely for the benefit of, and shall be enforceable only by, the Parties or
their respective successors and assigns as permitted hereunder.
15.5 Additional Actions, Documents and Information. Each of the
Parties agrees that it will, at any time, prior to, at or after the date hereof,
take or cause to be taken such further actions, and execute, deliver and file or
cause to be executed, delivered and filed such further documents and instruments
and obtain such consents, as may be reasonably requested in order to fully
effectuate the purposes, terms and conditions of this Agreement
15.6 Notices. (a) All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by certified or
registered mail (return receipt requested), express air courier, charges
prepaid, or facsimile addressed as follows:
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TO IXC with a copy to:
IXC Internet Services, Inc. Riordan & McKinzie
1122 S. Capital 695 Town Center Drive, Suite 1500
Austin, TX 78746-6426 Costa Mesa, California 92626
Attn: Senior Counsel Attention: Michael P. Whalen
Facsimile: (512) 328-7902 Facsimile: (714)433-2637
To ATC: With copy to:
Applied Theory Communications, Inc. Dewey Ballantine LLP
125 Elwood Davis Road 1301 Avenue of the Americas
Syracuse, NY 13212 New York, NY 10019-6092
Attn: Contracts Manager Attention: Denis Fawley
Facsimile (315)453-3052 Facsimile: (212)259-6333
or to such other address as either Party shall have furnished to the other in
writing.
(b) If a notice is given by either Party by certified or
registered mail, it will be deemed received by the other Party on the fifth
business day following the date on which it is deposited for mailing. If a
notice is given by either Party by air express courier, it will be deemed
received by the other Party on the next business day following the date on which
it is provided to the air express courier. If a notice is given by facsimile, it
will be deemed received by the other Party after confirmation of receipt.
Notwithstanding the foregoing, any payments made under this Agreement shall be
deemed received only when actually received.
15.7 Attorneys' Fees. If any arbitration is commenced between the
Parties regarding the performance of this Agreement, the prevailing Party shall
be entitled, in addition to such other relief as may be granted, to a reasonable
sum for its attorneys' fees in such proceeding and for the expenses and costs of
such proceeding as the arbitrator may determine.
15.8 Assignment. No assignment of this Agreement or of any rights or
obligations hereunder may be made by either Party without the prior written
consent of the other Party hereto and any attempted assignment without the
required consent shall be void; provided, however, that notwithstanding the
foregoing, (i) each Party shall have the right to pledge, assign or otherwise
transfer this Agreement and its rights hereunder, in whole or in part, as
collateral security to any lender, and (ii) each Party shall have the right to
assign or transfer this Agreement and its rights hereunder, in whole or in part,
to any direct or indirect wholly-owned subsidiary of that Party or to any Person
into which that Party may be merged or consolidated or which purchases all or
substantially all of the assets of that Party, provided, however, that (a) such
subsidiary or Person agrees to be bound by the terms of this Agreement and (b)
any such assignment or transfer shall not relieve that Party from any liability
or obligation under this Agreement.
15.9 No Third Party Beneficiaries. No provision to this, Agreement is
intended, nor shall any be interpreted, to provide or create any Third Party
beneficiary rights or any other rights of any kind in any client, customer,
affiliate, shareholder, partner of any Party or any other Third Party; unless
specifically provided otherwise herein, and except as so provided, all
provisions hereof, shall be personal solely between the Parties to this
Agreement.
15.10 Export Controls. The Parties agree and acknowledge that any
export of the Services and the subsequent use thereof is subject to U.S. export
control laws and regulations. The Buying Party shall not
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directly or indirectly transfer the Services, or the documentation relating
thereto, to any country or location outside of the United States without
obtaining the prior written consent of the Supplying Party.
15.11 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, such provision shall be construed so as to
render it enforceable and effective to the maximum extent possible in order to
effectuate the intention of this Agreement; and the validity, legality and
enforceability of the remaining provisions hereof shall not in anyway be
affected or impaired thereby.
15.12 Public Announcements. Each Party shall have the right to review,
comment upon and approve any publicity materials, press releases or other public
statements by the other that refer to, or that describe any aspect of, this
Agreement made prior to, or within 90 days after, the Effective Date; provided,
however, that with respect to disclosure documents required under the Securities
Exchange Act of 1934, as amended, subject to the last sentence of this Section
15.12, each Party shall only have the right to prior review and to comment upon
the other Party's disclosure documents. Each Party agrees that it will not issue
any such publicity materials, press releases or public statements without the
prior written approval of the other Party. The provisions of this section shall
survive termination of this Agreement for a period of two years, except for the
last sentence hereof, which shall survive as may be mutually agreed by them for
the Term.
15.13 Expenses. Each Party shall pay its own legal and other costs
incurred in connection with this Agreement and in the preparation for and
consummation of the transactions provided for herein.
15.14 Taxes. Buying Party shall be liable for and shall reimburse
Supplying Party for all taxes and related charges, however designated, resulting
from the provision of Services as contemplated hereby, including federal, state,
provincial or local sales; use or value-added taxes (VAT); excise taxes, imposed
in connection with or arising from the provision of Services; Universal Service
Fund and Lifeline Assistance Charges (Presubscribed line charges) set forth in
the National Exchange Carrier Association (NECA) Tariff FCC#5; sections *.5,
8.5.2 and 17.1.4(A) & B), as the same may be amended from time to time, or any
successor tariffs or sections, with respect to any ANI's subscribed to; any
telecommunications relay service charges required by the Americans with
Disabilities Act or otherwise (both federal and state); interexchange carrier
fees payable to the FCC under the Omnibus Budget Reconciliation Act of 1993 or
otherwise; payphone service provider compensation as determined by the FCC in CC
Docket No. 96-128; universal service fund charges, intraLata compensation
charges; and other federal or state fees or charges imposed on Supplying Party.
Supplying Party shall furnish documentation to support the fees or charges
payable by Buying Party pursuant to this Section 15.14. In no event shall either
party be obligated to pay income taxes levied upon the other's not income or any
real or personal property assessed against Supplying Party or Supplying Party's,
property, including any gross receipts taxes asses in lieu of net income or
property taxes, provided that, if the terms of the relevant statute or ordinance
imposes such gross receipts tax upon Buying Party. then Buying Party shall be
liable for such tax.
15.15 Tax Exemption Certificates. Buying Party shall furnish to
Supplying Party valid and appropriate tax exemption certificates for all
applicable jurisdictions (federal, state and local) in which it performs
customer billing. Buying Party is responsible for properly charging tax to its
subscribers and for the proper and timely reporting and payment of applicable
taxes to the taxing authorities and shall defend and indemnity Supplying Party
from payment and reporting of all applicable federal, state and local taxes,
including, but not limited to, gross receipts taxes, surcharges, franchise fees,
occasional, excise and other taxes (and penalties and interest thereon),
relating to the Services. Such indemnification includes costs and expenses
(including reasonable attorneys fees) incurred by Supplying Party in settling,
defending or appealing any claims or actions brought against it relating to said
taxes. If Buying Party fails to provide and maintain the required certificates,
Supplying Party may charge Buying Party and Buying Party shall pay such
applicable taxes. The amounts payable by Buying Party under this Agreement do
not include any state or local sales or use taxes, or utility taxes, however
designated, which may be levied on the goods and services provided by Supplying
Party hereunder. With respect to such taxes, if applicable, Buying Party shall
furnish Supplying Party with an appropriate exemption certificate or pay to
Supplying Party upon, timely presentation
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of invoices therefore, such amounts thereof as Supplying Party may be by law
required to collect of pay. Any and all other taxes, including but not limited
to franchise, net or gross income, license, occupation, and real or personal
property taxes shall be timely paid by Supplying Party. Buying Party shall pay
to Supplying Party any such taxes that Supplying Party may be required to
collect or pay.
15.15 Survival of Obligations. The Parties' rights and obligations
that, by their nature, would continue beyond the termination, cancellation, or
expiration of this Agreement, shall survive such termination, cancellation or
termination.
15.16 Titles and Subtitles. The titles of the Articles and Sections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
15.17 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of Texas without reference to its principles of
conflicts of laws.
15.18 Subject to Laws. This Agreement and the Services provided are
subject to, and the parties agree to comply with, all applicable federal, state,
and local laws, and regulations, rulings and orders of governmental agencies,
including, but not limited to, the Communications Act of 1934, the
Telecommunications Act of 1996, the Rules and Regulations of the Federal
Communications Commission ("FCC") and state public utility or services
commissions ("PSC"), tariffs and the obtaining and continuance of any required
certification, permit, license approval or authorization of the FCC and PSC or
any governmental body, including, but not limited to regulations applying to
feature group termination and Letter of Agencies ("LOAs").
15.19 Permits, Authorizations and Filings. Supplying Party shall take
all necessary and appropriate steps, as soon as possible, to procure the
appropriate permits, approvals, and/or authorizations, if any, to deliver
Services hereunder to Buying Party from FCC, PSC or other federal or state
agency. In the event that Supplying Party cannot obtain all necessary federal,
state or local authority to provide Services hereunder, Supplying Party shall
promptly give written notice thereof to Buying Party and such notice shall
constitute termination, without liability of either party hereto, of obligations
to provide the affected Service(s).
15.20 Dispute Resolution
(a) If any controversy or claim arises out of or relates to
this Agreement or with respect to an alleged breach of the terms hereof, subject
to Section 15.11, above, ATC and IXC shall seek to resolve the matter amicably
through discussions between themselves. The parties shall attempt to resolve all
controversies, claims or breaches at the operational level, and in the event a
resolution cannot be reached, such controversy, claim or breach will be referred
progressively to higher levels within each party, to their respective
chairpersons. It the parties fall to resolve such controversy, claim or breach
within thirty (30) days by amicable arrangement and compromise, either party may
seek arbitration as set forth below but only within four years of the occurrence
of the events giving rise to, or the accrual of, such controversy, claim or
breach.
(b) Except as provided in Section 15.11, above, any
controversy or claim arising out of or in relating to this Agreement or a breach
of this Agreement, shall be finally settled by binding arbitration IN CHICAGO,
ILLINOIS in accordance with the J.A.M.S./ENDISPUTE Arbitration Rules and
Procedures ("Endispute Rules"), as amended by this Agreement. If possible, the
parties shall appoint by mutual agreement, as the arbitrator, an attorney
experienced in telecommunications, securities law and transactional matters. If
such agreement cannot be reached, the arbitrator shall be such type of attorney
and shall be chosen under the Endispute Rules. The parties shall share the costs
of arbitration, including the fees and expenses of the arbitrator, equally
unless the arbitration award provides otherwise or except as provided in Section
7.2. Each party shall bear the cost of preparing and presenting its case. The
parties agree that this provision and the arbitrator's authority to grant relief
shall be subject to the United States Arbitration Act, 9 U.S.C. 1-16 at seq.
("USAA"), the provisions of this Agreement, and the ABA-AAA
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Code of Ethics for Arbitrators in Commercial Disputes. The parties agree that
the arbitrator shall have no power or authority to make awards or issue orders
of any kind except as expressly permitted by this Agreement, and in no event
shall the arbitrator have the authority to make any award that provides for
punitive or exemplary damages. The arbitrator's decision shall follow the plain
meaning of relevant documents, and shall be final and binding. The award may be
confirmed and enforced in any court of competent jurisdiction. All post-award
proceedings shall be governed by the USAA.
15.21 Entire Agreement/Amendments. This Agreement and the Reciprocal
Confidentiality Agreement constitutes the full and entire understanding and
agreement between the Parties with regard to the subjects hereof and supersedes
all prior oral and written agreements, commitments and understandings with
respect to such matters. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instrument signed
by the Parties hereto.
15.22 Legal Construction. In the event one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. In the event of any conflict between the provisions
of these Terms & Conditions and the applicable Supplements, Exhibits, Schedules,
and Service Descriptions, the conflict shall be resolved by reference to the
following order of priority of interpretation: 1) Service Descriptions, 2)
Schedules, 3) Exhibits, 4) Supplements; and 5) Terms & Conditions. Not
withstanding the foregoing, no Exhibit requiring execution shall be binding
unless and until an officer of Buying Party has executed such Exhibit.
15.23 No Personal Liability. Each action or claim of any party arising
under or relating to this Agreement shall be made only against the other party
as a corporation, and any liability relating thereto shall be enforceable only
against the corporate assets of such party. No party shall seek to pierce the
corporate veil or otherwise seek to impose any liability relating to, or arising
from, this Agreement against any shareholder, employee, officer or director of
the other party. Each of such persons is an intended beneficiary of the mutual
promises set forth in this Section and shall be entitled to enforce the
obligations of this Section.
15.24 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each counterpart shall be deemed to be an original,
and all counterparts individually or together shall constitute one and the same
instrument.
15.25 Schedules. Schedules 2.1.1.A, 2.1.1.B, 2.1.2.A, 2.1.2.B, 2.1.3,
2.1.4.A, 2.1.4.B, 2.3.A, 2.3.B, 3.1.A, 3.1.B, and 6.2 to this Agreement,
attached hereto, and as may be modified from time to time by mutual consent, are
incorporated herein by reference,
BOTH Parties represent and warrant that the Person whose signature appears below
is duly authorized to enter into this Agreement on behalf of the Party.
IN WITNESS WHEREOF, THE PARTIES HAVE ENTERED INTO THIS AGREEMENT AS OF THE
EFFECTIVE DATE:
AppliedTheory Communications, Inc. IXC Internet Services, Inc.
By: /s/ Lawrence B. Helft By: /s/ Jeffrey D. Balling
------------------------------ ---------------------------
Name: Lawrence B. Helft Name: Jeffrey D. Balling
--------------------------- ---------------------------
Title: President and COO Title: Vice President
-------------------------- ---------------------------
Date: 1/26/99 Date: 1/26/99
-------------------------- ---------------------------
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Exhibit 10.16
RESALE AGREEMENT
This Agreement ("Agreement"), effective as of the 1st day of October,
1996, is entered into by and between NYSERNet.com, INC., having corporate
offices at 200 Elwood Davis Road, Liverpool, New York 13088-6147 (herein
referred to as "COM") and NYSERNet.org, INC., having corporate offices at 125
Elwood Davis Road, Syracuse, New York 13212-4311 (herein referred to as "ORG").
WHEREAS, ORG desires COM to provide various services and products, to
be resold by ORG to its Authorized Customers, as hereinafter defined; and
WHEREAS, COM desires to provide such services and products, on the
terms and conditions contained herein;
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, COM and ORG hereby mutually agree as follows:
Section 1 - DEFINITIONS
1.1 For the purpose of this Agreement, the following terms shall have
the following meanings:
1.1.1 "Authorized Customers" shall mean governmental, educational,
scientific and other not-for-profit organizations primarily located within the
State of New York.
1.1.2 "Products" shall mean those Internet access products and
services and other products and services related thereto which, at any time
during the term of this Agreement, are sold, installed and supported by COM or
any agent, distributor or reseller of COM.
Section 2 - APPOINTMENT
2.1 Subject to the terms and conditions contained herein, ORG shall
purchase the Products from COM and resell the Products to its Authorized
Customers. During the term hereof, ORG shall not purchase any product or service
which is the same as, or substantially similar to, the Products from any third
person, nor shall ORG offer any such product for sale to any third person.
Moreover, during the term hereof, ORG shall not purchase or sell to third
parties any products or services which provide Internet access, or which relate
to the providing of such access (even if COM does not then offer a competitive
Product) from any third party, unless ORG first gives notice to COM of its
intention to do so
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and COM fails to agree, within one hundred twenty (120) days of such notice, to
provide products or services which are substantially identical in terms of
functionality to the products or services proposed to be purchased or sold by
ORG, on the same or more favorable terms, and thereafter to provide such
Products within a reasonable period of time.
Section 3 - TERM
3.1 This Agreement shall be effective from the date set forth above
for a period of five (5) years. Thereafter, this Agreement will automatically
renew for successive one (1) year terms unless either party notifies the other
party of its intent not to renew at least sixty (60) days before the end of the
term then in effect.
Section 4 - OBLIGATIONS OF ORG
4.1 ORG shall negotiate with and market the Products to Authorized
Customers and, in furtherance thereof, shall
4.1.1 Diligently develop and increase the sale of the Products
during the term of this Agreement in accordance with the terms hereof.
4.1.2 Require its customers to complete an order form and agree to
the standard terms and conditions contained in COM's agreements relating to any
services to be provided by COM, as such agreements may exist from time to time,
ORG will be responsible for the collection and remittance of all applicable
sales tax.
4.2 ORG is an independent contractor and shall pay all of its expenses
incurred in connection with the Services. ORG accepts and assumes full and
exclusive liability for and shall hold COM harmless from the payment of all
contributions required under state and federal law, providing for state and
federal payroll taxes or contributions for unemployment insurance or old age
pensions, or annuities which are measured by the wages, salaries, or other
remuneration paid to ORG or by ORG to its employees for any and all activities
in connection with this Agreement.
Section 5 - OBLIGATIONS OF COM
During the term of this Agreement, COM shall provide ORG with the
Products according to the following conditions:
5.1 COM will cooperate with ORG in developing a marketing plan for the
marketing by COM, and for the joint marketing by ORG and COM, of the Products to
Authorized Customer.
5.2 COM shall provide ORG with all such sales support and assistance as
ORG may reasonably request, and, including but not limited to authorizing and
encouraging its
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sales personnel to sell the Products to Authorized Customers on behalf of ORG,
and providing them with all information, training and materials reasonably
necessary to enable them to do so. ORG hereby authorizes COM to use ORG's name
in marketing the Products on ORG's behalf and otherwise as COM deems reasonably
necessary in conjunction with other sales of COM's products and services,
subject to the reasonable approval of ORG.
5.3 COM shall sell the Products to ORG at a price which is not greater
than the average sales price by COM to third parties for the same Products at
approximately the same period of time, on similar terms, excluding for purposes
of determining the average sales price of a Product special promotions made for
a limited period of time to a limited group of prospective customers.
5.4 COM shall provide first tier support for customers, in the same
manner and to the same extent as it provides support to its own customers.
5.5 COM shall provide to ORG such support by way of information, advice
and assistance as ORG and COM deem reasonable and necessary, appropriate and
advisable in order for ORG to resell the Products.
5.6 COM will provide ORG with such advertising, product literature and
promotional support with respect to the Products as COM deems reasonable and
necessary, appropriate and advisable in order for ORG to remain knowledgeable of
the Products.
5.7 COM hereby authorizes ORG to use COM's name in marketing the
Products in conjunction with the resale of COM's products and services, subject
to the reasonable approval of COM.
5.8 COM shall supply product and related sales training to ORG
employees, in the same manner as it provides its own sales force. Such training
will occur at mutually agreeable times and locations, provided, however, that if
training sessions occur at a location other than a COM Facility, ORG shall pay
COM's reasonable travel expenses in connection with such sessions.
5.9 Regular updates and training for new ORG employees will be provided
by COM at no charge to ORG, at a mutually agreeable time and location, provided,
however, that if training sessions occur at a location other than a COM
Facility, ORG shall pay COM's reasonable travel expenses in connection with such
updates.
5.10 COM will provide ORG customers with the same products, of the same
quality and at the same times as they are provided by COM to its other resellers
or to its own customers.
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Section 6 - BILLING AND TERMS OF PAYMENT
6.1 ORG shall provide billing and collections services for its
customers for the Products.
6.2 COM will invoice ORG on a monthly basis for the Products provided
to ORG for resale during the previous month. ORG shall pay all such invoices
within thirty (30) days of receipt. Past due invoices shall be subject to
interest charges at the rate of 1.5% per month.
6.3 At ORG's request, COM will bill Authorized Customers for sales of
the Products, and, if requested to do so, will bill such Authorized Customers in
the name of ORG and require that payment be made to such address as ORG may
request.
Section 7 - CONFIDENTIALITY
7.1 It is understood that, in the performance of this Agreement, each
party may have access to private or confidential information relating to the
other party's customers and their respective businesses (collectively, the
"Information").
7.2 With respect to all Information and any other information or data
which is treated as proprietary by either party or its customers, the other
party agrees (i) that it will remain the disclosing party's exclusive property;
(ii) that it will not be copied, published or disclosed to others without the
disclosing party's express consent; (iii) that the disclosing party may conduct
such audits as it deems necessary to ensure compliance with this paragraph; (iv)
that the disclosing party is permitted to monitor any data access both on-line
and in person at the other party's premises; (v) that the Information will be
used solely in the performance of this Agreement; and (vi) any originals and all
copies of the Information will be returned to the disclosing party upon
termination or expiration of this Agreement.
Section 8 - MISCELLANEOUS
8.1 ORG and COM will perform their obligations pursuant to this
Agreement subject to (i) all applicable tariffs, if any; (ii) all applicable
existing and future laws; and (iii) rules, regulations, and orders of any
governmental authority.
8.2 Each party represents and warrants to the other that (i) it has all
the necessary power and authority to enter into and perform this Agreement in
accordance with its terms; and (ii) the making or performance of this Agreement
by such party does not violate the provisions of any other agreement to which
such party is a party or by which it is bound.
Section 9 - PERIODIC REVIEW
9.1 The parties shall periodically review their relationship to
determine if other services should be provided under this Agreement.
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9.2 The parties shall discuss in these periodic reviews proposed
revisions to procedures and changes to the scope of their relationship.
Section 10 - INDEMNIFICATION AND LIABILITY
10.1 Each party shall indemnify, defend and hold harmless each other
from and against any and all claims, loss, damage, cost or expense (including
attorneys fees) arising out of or alleged to have been caused by their
respective negligent, willful or unauthorized acts, failures to act or
misrepresentations.
Section 11 - FORCE MAJEURE
11.1 Neither party will be in default of this Agreement to the extent
failure or delay in performance is caused by an act of God, fire, flood, severe
weather conditions, material shortage or unavailability of transportation,
government ordinance, laws, regulations or restrictions, war or civil disorder,
or any other cause beyond the reasonable control of such party.
Section 12 - TERMINATION
12.1 Either party shall have the right to terminate this Agreement
effective upon delivery of written notice thereof if:
12.1.1 The other party makes an assignment for the benefit of
creditors, the other party is adjudicated a bankrupt, either through voluntary
or involuntary proceedings, or a trustee or receiver of any substantial part of
the other party's assets is appointed by any court, and, in any such event any
proceeding commenced against such party is not dismissed within thirty (30)
days; or
12.1.2 The other party (1) attempts to make an unauthorized
assignment of this Agreement, or (2) fails to make any payment due hereunder or
to comply with any provision of this Agreement and does not correct such failure
within thirty (30) days after written notice of such failure is delivered by the
other party, or (3) receives a notice of violation of the terms and conditions
of any license or permit required of that party of its employees in the conduct
of that party's business and falls to correct such violations within thirty (30)
days. No waiver by a party of any deficiencies in one or more instances shall
constitute a waiver of that party's right to terminate this Agreement in
subsequent instances.
12.2 In addition to its right to terminate this Agreement as provided
above, the nondefaulting party shall have the right to pursue any and all
remedies available at law or in equity upon the default of the other party.
12.3 Termination of this Agreement for any cause shall not release
either party from any liability which at the time of termination has already
accrued to the other party or which thereafter may accrue in respect of any ct
or omission prior to termination, or from any
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obligation which is expressly stated herein to survive termination.
12.4 Upon termination of this Agreement, COM shall continue to provide
and ORG shall continue to purchase the Products for the sole purpose of
reselling the Products to ORG customers for the remainder of the term of such
customers' agreements with ORG in effect as of the date of such termination, not
to exceed five (5) years. ORG shall not have the right to resell the Products to
any additional new customers after the effective date of the termination of this
Agreement.
Section 13 - GENERAL TERMS.
13.1 This Agreement shall be binding upon and inure to the benefit of
the parties hereto, their personal representatives, and permitted successors and
assigns.
13.2 This Agreement may not be assigned, in whole or in part, by either
party hereto without the prior written consent of the other.
13.3 This Agreement contains the entire understanding between the
parties hereto and supersedes any prior understanding, memoranda or other
written or oral agreements between them respecting the within subject matter.
There are no representations, agreements, arrangements or understandings, oral
or written, between them relating to the subject matter of this Agreement which
are not fully expressed herein.
13.4 No modification or waiver of this Agreement or any part hereof
shall be effective unless in writing and signed by the party sought to be
charged therewith. No waiver of any breach or condition of this Agreement shall
be deemed to be a waiver of any other or subsequent breach or condition, whether
of like or different nature. No course of dealing between the parties hereto
will be deemed effective to modify, amend or discharge any part of this
Agreement or the rights or obligations of either party hereunder.
13.5 None of the provisions of this Agreement shall be for the benefit
of, or enforceable by, any person or entity not a party hereto.
13.6 If any provision of this Agreement shall be held invalid or
unenforceable by competent authority, such provision shall be construed so as to
be limited or reduced to be enforceable to the maximum extent compatible with
the law as it shall then appear. The total invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
13.7 Any notice or other communication required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly given (i)
upon hand delivery, or (ii) on the third day following delivery to the U.S.
Postal Service as certified or registered mail, return receipt requested and
postage prepaid, or (iii) on the first day following delivery
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to a nationally recognized United States overnight courier service, fee prepaid,
return receipt or other confirmation of delivery requested, or (iv) when
telecopied or sent by facsimile transmission or by electronic mail if an
additional notice is also given under (i), (ii) or (iii) above within three days
thereafter. Any such notice or communication shall be delivered or directed to a
party at its address set forth below or at such other address as may be
designated by a party in a notice given to the other party in accordance with
the provisions of this paragraph.
Notice to NYSERNet.com, Inc. shall be sent to: NYSERNet.com, Inc.
125 Elwood Davis Road
Syracuse, NY 13212-4311
with a copy to: Underberg & Kessler LLP
1800 Chase Square
Rochester, NY 14606
Attn: Robert F. Mechur, Esq.
Notice to NYSERNet.org, Inc. shall be sent to: NYSERNet.org, Inc.
125 Elwood Davis Road
Syracuse, NY 13212-4311
with a copy to: Underberg & Kessler LLP
1800 Chase Square
Rochester, NY 14606
Attn: Robert F. Mechur, Esq.
13.8 This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York pertaining to contracts made and to be
wholly performed within such state, without taking into account conflicts of
laws principles.
13.9 The headings contained in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
13.10 This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and all of said counterparts together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement, as of the
date first set forth above.
NYSERNet.org, INC. NYSERNet.com, INC.
By: /s/ James D. Luckett By: /s/ Richard Mandelbaum
------------------------------- -------------------------------
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<PAGE> 1
Exhibit 10.17
RESOURCE SHARING AGREEMENT
AGREEMENT made the 1st day of October, 1996, between NYSERNet.com,
Inc., a New York corporation, having an office at 125 Elwood Davis Road,
Syracuse, New York 13212-4311 (hereinafter referred to as "COM") and
NYSERNet.org, Inc., a New York corporation, having an office at 125 Elwood Davis
Road, Syracuse, New York 13212-4311 (hereinafter referred to as "ORG").
WITNESSETH:
WHEREAS, COM, as lessee, entered into a lease with ___________________,
as lessor, dated ___________________, leasing certain space in a building
located at 125 Elwood Davis Road, Syracuse, New York and into a lease with
___________________, as lessor, dated ___________________, leasing certain space
on the first floor of the building at ___________________, Great Neck, New York;
and
WHEREAS, COM may hereafter lease other space, either in addition to or
in substitution for the premises currently being leased by COM (such additional
or substituted space, together with the space currently leased by COM being
referred to herein as the COM Premises and each lease relating to the COM
Premises being referred to herein as a "Prime Lease"); and
WHEREAS, COM wishes to permit ORG to use so much of such the COM
Premises as ORG requires for the operation of its business, subject to the
business requirements of COM with respect to such premises, subject to payment
by ORG for the use of such space as provided herein and to the adherence by COM
to the provisions of this Agreement; and
WHEREAS, COM has, and will in the future have, certain computers,
furniture, fixtures, equipment and supplies on the COM Premises (the
"Equipment") and wishes to permit ORG to use the Equipment in connection with
the operation of its business, subject to the business requirements of COM with
respect to the Equipment, the payment by ORG for the use of the Equipment as
provided herein and the adherence by ORG to the provisions of this Agreement;
and
WHEREAS, certain of the personnel now or hereafter employed by COM are
able to perform services required by ORG in the operation of its business, and
COM wishes to provide such personnel to ORG to perform such services, subject to
payment by ORG for such services and to the adherence by COM to the provisions
of this Agreement;
NOW, THEREFORE, the parties hereto hereby covenant and agree as
follows:
1. Sharing of COM Premises.
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<PAGE> 2
1.1. Availability of Premises. COM agrees that it shall provide ORG
with such office space within the COM Premises as ORG may reasonably require for
the conduct of its business. Such space shall be at such location within the COM
Premises as the parties may agree or, in the absence of such agreement, as COM
may in its sole judgment determine. Such space shall be exclusively dedicated to
the use of ORG or shared between ORG and COM, as the parties may agree or, in
the absence of such agreement, as COM may in its sole judgment determine.
Notwithstanding the foregoing, COM shall have no obligation to provide space to
ORG within the COM Premises to the extent that providing such space would unduly
interfere with the operation of the business of COM in the ordinary course. ORG
shall have no obligation to use any space within the COM Premises. Subject to
the foregoing, in the event COM shall provide to ORG and ORG shall use space
within the COM Premises, the terms and conditions set forth in this Section 1
shall apply to the payment for and use of such space.
1.2. Right to Use Premises. ORG shall have the right to use space
allocated within the COM Premises from and after the date upon which the parties
hereafter agree that it may do so, or from and after the date upon which it
actually occupies such space with the consent of COM, whichever is earlier. ORG
shall have the right to continue to use such space until the last day of the
month next succeeding the month in which ORG gives notice to COM that ORG will
not continue to occupy a portion of the COM Premises, specifying the portion of
the COM Premises which will no longer be occupied by ORG, and in the event such
notice is given, ORG's right to use such space and its obligation to pay
therefor shall terminate as of the date set forth in the notice given by ORG.
1.3. Payments. Each month, ORG shall pay COM its Pro Rata Share of all
rent, additional rent and other charges which COM is required to pay during such
month to the landlord of the COM Premises, or to any other person (including,
but not limited to, utility companies) with respect to the COM Premises. Such
payments shall be made at least five (5) days prior to the date upon which COM
must make such payments without incurring any penalty, provided that COM has
given ORG notice of the amount due at least ten (10) days prior to the date on
which it is obligated to make its payment to COM. For purposes of this Section
1.3, ORG's Pro Rata Share shall be calculated on a monthly basis, and shall be
determined by dividing the square footage occupied by ORG within the COM
Premises by the total number of square feet within the COM Premises. If any
portion of the COM Premises is occupied by both ORG and COM (or by employees of
COM who also render services to ORG pursuant to the provisions of Section 3 of
this Agreement), then the square footage in question shall be prorated based
upon the time during which each of them occupies such square footage (or, in the
case of shared employees, the time for which services are employed by each of
them), and the resulting amount attributable to ORG shall be employed in making
the calculation described in the preceding sentence. Notwithstanding the
foregoing, if any such rent or sums shall be due to additional use by ORG of
electrical current in excess's of ORG's proportionate use in of the COM
Premises, such excess shall be paid in entirety by ORG. If ORG shall procure any
additional services from the building, such as alterations or after-hour air
conditioning, ORG shall pay for same
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<PAGE> 3
at the rates charged therefor by the person providing such services, and shall
make such payment to COM or the person providing such services, as COM shall
direct. If COM shall receive any refund of rent, based upon recalculation of
payments due, contest of assessment or otherwise, ORG shall be entitled to the
return of so much thereof as shall be attributable to prior payments by ORG.
1.4. Use of Premises. ORG may use that portion of the COM Premises
which it may from time to time occupy for its operation of a not-for-profit
business which, among other things, provides Internet access to non-profit and
other similar organizations and engages in research and educational activities
relating to computer networking. Its activities may include, but shall not
necessarily be limited to, computer programming, marketing, sales and general
administrative purposes. ORG's rights to use the COM Premises are subject and
subordinate to each Prime Lease, and ORG shall comply with the terms of each
Prime Lease in connection with its use of any COM Premises. Without limiting the
generality of the foregoing, ORG shall promptly observe and comply with all
present and future laws, ordinances, requirements, orders, directives, rules and
regulations of the Federal, State, County and Town governmental authorities
affecting the COM Premises; shall not use or permit the COM Premises to be used
for any illegal or unlawful purpose; and shall not do anything in, or bring
anything into, the COM Premises which will in any way increase the rate of fire
insurance. The only services or rights to which ORG is entitled hereunder are
those to which COM is entitled under a Prime Lease, but COM will not be liable
for any failure of a lessor under a Prime Lease to provide any services.
Provided that ORG has received a copy of each Prime Lease, ORG shall neither do
nor permit anything to be done which would cause a Prime Lease to be terminated
or forfeited, and ORG shall indemnify and hold COM harmless from and against all
claims of any kind whatsoever by reason of any action or inaction on the part of
ORG by reason of which a Prime Lease may be terminated or forfeited. ORG
acknowledges receipt of a copy of each Prime Lease relating to the premises
currently occupied by COM and enumerated in the first recital to this Agreement.
1.5. Modifications and Improvements. ORG shall at all times during the
term of this Agreement, at its own cost and expense, keep and maintain, or cause
to be kept and maintained, that portion of the COM Premises occupied by ORG. ORG
shall not make any changes, alterations and improvements to the COM Premises
without written approval and authorization by COM. If any changes, alterations
or improvements are authorized by COM, ORG shall be responsible for the payment
of the cost thereof. All such alterations authorized by COM and made by ORG
shall be made in conformity with applicable code and insurance requirements. All
capital improvements installed in or on the COM Premises by ORG shall be the
property of COM (unless they become the property of the Lessor pursuant to a
Prime Lease) from the time of construction or installation and shall not be
removed or injured by ORG. If permitted by the applicable Prime Lease, trade
fixtures belonging to ORG may be removed from the Leased Premises by ORG, and if
any damage is done to the COM Premises, ORG shall repair the same. If ORG fails
to make such repairs, COM may do so, in which event ORG shall reimburse COM for
the cost thereof.
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<PAGE> 4
1.6. Indemnification. ORG shall indemnify COM from and against all
liability arising from any loss of life, personal injury or property damage
sustained in or about the COM Premises, to the extent such loss of life,
personal injury or property damage has been caused by the negligent or other
acts or ORG, its employees, agents or invitees. ORG shall maintain policies of
general liability insurance in amounts not less than One Million Dollars
($1,000,000.00) per person or occurrence for personal injury and Fifty Thousand
Dollars ($50,000.00) for property damage. COM shall be named as an additional
insured under said policies, and ORG shall furnish proof of such insurance
coverage to COM upon demand. Such policies shall provide for ten (10) days'
notice to COM of cancellation.
1.7. Insurance. ORG shall, throughout the term of this Agreement, keep
all of ORG's property located on or within the COM Premises insured against all
loss or damage by fire, with extended coverage, in an amount equal to the full
replacement cost thereof. ORG shall furnish COM with certificates evidencing
such insurance on demand. ORG shall use its best efforts to include in such fire
insurance policies appropriate clauses pursuant to which the insurance companies
waive all right of subrogation against COM and the lessors under each Prime
Lease with respect to losses payable under such policies and/or agree that such
policies shall not be invalidated should ORG waive in writing prior to a loss
any or all right of recovery against any party for losses covered by such
policies. If ORG is unable to obtain in such policies either of the clauses
described in the preceding sentence, ORG shall if possible have COM and the
lessor of each COM Premises named in such policies as an additional insured, at
ORG's own expense. Provided that ORG's right of full recovery under the
aforesaid policies is not adversely affected or prejudiced, ORG hereby waives
any and all right of recovery which it might otherwise have against COM or each
lessor of the COM Premises, their servants, agents and employees, for loss or
damage to ORG' property to the extent that same is covered by ORG' insurance,
notwithstanding that such loss or damage may result from the negligence or fault
of COM, such landlord or their servants, agents or employees. ORG shall notify
COM promptly of any cancellation or change of the terms of any policies referred
to in this Section 1.7. All such policies shall, to the extent available,
contain agreements by the insurers that such policies shall not be canceled
without at least ten (10) days' notice to COM, ORG and the applicable lessors of
the COM Premises. All such policies which name both COM and ORG as insureds
shall, to the extent available, contain agreements by the insurers to the effect
that no act or omission of any named insureds will invalidate the policies as to
the other named insureds.
1.8. Liability of COM. COM shall not be liable for any damage or injury
to any person, property or business or for any interruption of business of ORG
resulting from any condition relating to or event occurring in the COM Premises,
other than those conditions or events resulting from the gross negligence or
wilful conduct of COM, its agents, servants or employees.
1.9. Condemnation. In the event of the taking, condemnation, purchase
in lieu thereof or any similar proceeding with respect to any COM Premises, the
rights and obligations of ORG with respect to such COM Premises shall be the
same as the rights of
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<PAGE> 5
COM thereto; provided, that without regard to the terms of any Prime Lease, ORG
shall have no right to receive any portion or any award of proceeds resulting
from such a proceeding.
1.10. Estoppel Certificates. ORG shall at any time and from time to
time during the term hereof execute, acknowledge and deliver to COM or to the
lessor of any COM Premises such estoppel certificates as may be required by any
such lessor pursuant to the provisions of any Prime Lease.
2. Use of Equipment.
2.1. Access to Equipment. COM agrees that ORG may use such of the
Equipment as may, from time to time, be located within the COM Premises, in
connection with the conduct of ORG's business. It may use such Equipment at such
times and for such purposes as the parties may agree or, in the absence of such
agreement, as COM may in its sole judgment determine. Any item of Equipment
shall be used exclusively by ORG or shared between ORG and COM, as the parties
may agree or, in the absence of such agreement, as COM may in its sole judgment
determine. Notwithstanding the foregoing, ORG shall have no right to use any of
the Equipment to the extent its doing so would unduly interfere with the
operation of the business of COM in the ordinary course.
2.2. Payments. Each month, ORG shall pay COM its Pro Rata Share of (a)
the fair rental value of all Equipment used by ORG during the preceding month
and (b) the actual cost to COM of maintaining, or keeping maintenance contracts
in effect with respect to, such Equipment. Such payments shall be made within
ten (10) days of the date upon which COM submits to ORG its invoice for such use
of the Equipment, calculated in accordance with this Section 2.2. For purposes
of this Section 2.2, (x) ORG's Pro Rata Share of the fair rental value of the
Equipment used by it shall be determined by multiplying number of hours such
Equipment is used by ORG by the total number of hours such Equipment is used by
both ORG and COM and (y) the fair rental value of each item of equipment shall
be based upon the charge made by commercial lessors to unrelated third parties
for the rental of the same equipment for a term equivalent to its anticipated
useful life.
2.3. Manner of Use. ORG shall use the Equipment in accordance with good
business practices, and shall honor both the instructions of the manufacturers
of the Equipment and the reasonable instructions of COM. If any damage is done
to the Equipment as a result of the use thereof by ORG (other than reasonable
wear and tear to the equipment resulting from its proper use in the ordinary
course of business), ORG shall repair the same. If ORG fails to make repairs,
COM may do so, in which event ORG shall reimburse COM for the cost thereof.
3. Sharing of Employees
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<PAGE> 6
3.1. Availability of Employees. COM and ORG acknowledge that certain of
the employees or COM may be able to provide services which ORG requires. COM
agrees that it shall provide ORG with the services of such employees, at the
reasonable request of ORG, to render such services to or for the benefit of ORG
as ORG may reasonably require. ORG shall request the services of such employees
in advance of the dates upon, or periods for, which their services are required,
and COM shall promptly notify ORG whether such employees are available as
requested. During periods when services are being rendered by such employees for
either ORG or COM, they shall be under the exclusive control and direction or
ORG and COM, respectively. The parties acknowledge that there may be periods
when employees are rendering services to ORG and COM concurrently, and, for such
periods, ORG and COM shall use their best efforts to coordinate the services of
such employees. Notwithstanding the foregoing, COM shall have no obligation to
provide the services of any of its employees to ORG, to the extent that doing so
would unduly interfere with the operation of the business of COM in the ordinary
course. ORG shall have no obligation to use the services of any COM employee.
3.2. Compensation of Employees. COM shall be responsible for paying all
of the salary and benefits for each of its employees.
3.3. Payments to COM. ORG shall pay COM its Pro Rata Share of the
salary and benefits of each such employee who renders services to or for the
benefit of ORG. Such payments shall be made within ten (10) days of the date
upon which COM submits to ORG its invoice for the services of such employees,
calculated in accordance with this Section 3.3. For purposes of this Section
3.3, ORG's Pro Rata Share of the salary and benefits of each employee shall bear
the same relationship to the total salary and benefits of such employee as the
number of hours worked by such employee on matters for ORG bears to the total
number of hours worked by such employee for both ORG and COM during the period
in question.
4. General Terms.
4.1. Term and Termination. The term of this Agreement shall commence on
the date first set forth above and shall terminate on December 31, 1999. In the
event COM shall terminate this Agreement for any reason other than the failure
of ORG to make the payments required of it pursuant to the terms hereof, then,
in addition to such other remedies as ORG shall have resulting from such
termination, COM shall pay ORG, on demand, an amount equal to the sum of the
payments made by ORG to COM pursuant to this Agreement for the six (6) months
preceding the effective date of such termination.
4.2. Force Majeure. The period of time during which either party is
prevented or delayed in the performance of any obligation required under this
Agreement due to delays caused by fire, catastrophe, strikes or labor trouble,
civil commotion, acts of God or the public enemy, governmental prohibitions or
regulations, or inability or difficulty to obtain
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<PAGE> 7
materials, or other causes beyond such party's control, shall be added to its
time for performance thereof, and such party shall have no liability by reason
thereof.
4.3. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their personal representatives, successors
and permitted assigns.
4.4. Assignment. This Agreement may not be assigned, in whole or in
part, by either party hereto without the prior written consent of all other
parties.
4.5. Entire Agreement. This Agreement contains the entire understanding
between the parties hereto and supersedes any prior understanding, memoranda or
other written or oral agreements between them respecting the within subject
matter. There are no representations, agreements, arrangements or
understandings, oral or written, between the parties relating to the subject
matter of this Agreement which are not fully expressed herein.
4.6. Modifications: Waiver. No modification or waiver of this Agreement
or any part hereof shall be effective unless in writing and signed by the party
sought to be charged therewith. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature. No course of dealing between the
parties hereto will be deemed effective to modify, amend or discharge any part
of this Agreement or the rights or obligations of either party hereunder.
4.7. No Third Party Beneficiary. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any person or entity
not a party hereto.
4.8. Partial Invalidity. If any provision of this Agreement shall be
held invalid or unenforceable by competent authority, such provision shall be
construed so as to be limited or reduced to be enforceable to the maximum extent
compatible with the law as it shall then appear. The total invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
4.9. Arbitration. In the event that any disagreement or dispute should
arise between the parties hereto with respect to this Agreement, then such
disagreement or dispute shall be submitted to arbitration in accordance with the
rules then pertaining to the American Arbitration Association with respect to
commercial disputes. Judgment upon any resulting award may, after its rendering,
be entered in a court of competent jurisdiction by any party.
4.10. Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given (i) upon hand delivery, or (ii) on the third day following delivery to the
U.S. Postal Service as certified or registered mail, return receipt requested
and postage prepaid, or (iii) on the first day
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<PAGE> 8
following delivery to a nationally recognized United States overnight courier
service, fee prepaid, return receipt or other confirmation of delivery
requested, or (iv) when telecopied or sent by facsimile transmission if an
additional notice is also given under (i), (ii) or (iii) above within three days
thereafter. Any such notice or communication shall be delivered or directed to a
party at its address set forth below or at such other address as may be
designated by a party in a notice given to all other parties hereto in
accordance with the provisions of this paragraph.
Notice to NYSERNet.com, Inc. shall be sent to: NYSERNet.com, Inc.
125 Elwood Davis Road
Syracuse, NY 13212-4311
with a copy to: Underberg & Kessler LLP
1800 Chase Square
Rochester, NY 14604
Attention: Robert F. Mechur,
Esq.
Notice to NYSERNet.org, Inc. shall be sent to: NYSERNet.org, Inc.
125 Elwood Davis Road
Syracuse, NY 13212-4311
with a copy to: Underberg & Kessler LLP
1800 Chase Square
Rochester, NY 14604
Attention: Robert F. Mechur,
Esq.
4.11. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York pertaining to contracts
made and to be wholly performed within such state, without taking into account
conflicts of laws principles.
4.12. Headings. The headings contained in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
4.13. Fair Meaning. This Agreement shall be construed according to its
fair meaning, the language used shall be deemed the language chosen by the
parties hereto to express their mutual intent, and no presumption or rule of
strict construction will be applied against either party hereto.
4.14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of said
counterparts together shall constitute but one and the same instrument.
4.15. Further Assurances. The parties hereto shall execute and deliver
any and all additional writings, instruments and other documents and shall take
all such further actions
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<PAGE> 9
as shall be reasonably required in order to effect the terms and conditions of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
NYSERNet.com, Inc.
By: /s/ David A. Buckel
---------------------------
NYSERNet.org, Inc.
By: /s/ James D. Luckett
---------------------------
STATE OF NEW YORK)
COUNTY OF ONONDAGA) ss:
On this __________________ day of __________________, 1996, before me
personally came __________________ to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of NYSERNet.com, Inc. and that
he executed the foregoing instrument for and on behalf of said Corporation.
---------------------------
Notary Public
STATE OF NEW YORK)
COUNTY OF ONONDAGA) ss:
On this __________________ day of __________________, 1996, before me
personally came __________________ to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of NYSERNet.org, Inc. and that
he executed the foregoing instrument for and on behalf of said Corporation.
---------------------------
Notary Public
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<PAGE> 1
Exhibit 10.18
STATE OF NEW YORK
DEPARTMENT OF LABOR
STATE OFFICE BUILDING CAMPUS
ALBANY, NEW YORK 12240-0052
THIS AGREEMENT, made this twenty-seventh day of September in the year one
thousand nine hundred and ninety-four by and between New York State Education
And Research Network (NYSERNET) Suite 103, 200 Elwood Davis Road, Liverpool, NY
13088-6147, party of the first part and Department of Labor, State of New York
party of the second part.
WITNESSETH, that the party of the first part, in consideration of the
agreements made by the party of the second part, and the party of the second
part, in consideration of the agreements herein made by the first do hereby as
follows:
ARTICLE I. The party of the first part shall provide the party of the second
part Software, to establish an Internet connection for the national job bank
through the party of the second part, and to provide the necessary access,
technical support services, registration and other protocols related to The
Internet. The party of the first part shall also provide software
customization, consultation services, installation, training and on-going
software maintenance. (See Attachment "A")
ARTICLE II. It is hereby mutually agreed between the parties hereto that the
sum to be paid by the party of the second part to the party of the first part
for said services shall be as follows:
One hundred sixteen thousand four hundred sixty-eight dollars and no cents
($116,468.00). This amount will be adjusted to reflect additional costs for
software, customization, consultation and any additional training, if required,
as per Attachment "B".
ARTICLE III. The contract shall be in effect from Tuesday, September 27,
1994 and shall terminate in accordance with Article IV incorporated herein.
ARTICLE IV. This contract is subject to cancellation by the party of the
second part, upon fifteen (15) days notice in writing to the party of the first
part.
<PAGE> 2
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ARTICLE VII. It is agreed that this contract shall be void and of no effect
unless the party of the first part shall secure compensation for the benefit of
and keep insured during the life of the contract, such employees' engaged
thereon as are required to be insured by the provisions of the Workers'
Compensation Law.
IN WITNESS WHEREOF: the parties to these presents have set their hand and
seals, the day and year first above written.
STATE OF NEW YORK COUNTY OF, ONONDAGA ss:
ON the 30th Day of September, nineteen hundred 94 and before me personally came
James D. Luckett to me known, who being by me duly sworn, did depose and say
that he resides at Liverpool, NY that he is the Vice President of NYSERNet,
Inc. the corporation described in and which executed the foregoing instrument,
and that he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Patricia J. Foster
------------------------
NOTARY PUBLIC
(Signature)
County of Onondaga
Reg #01F04755760
<PAGE> 3
NEW YORK STATE DEPARTMENT OF LABOR
SIGNATURE SHEET
Contract Number: C000525
-------
Agency Certification
--------------------
"In addition to the acceptance
of this contract, I also certify
that original copies of this signature
page will be attached to all other
exact copies of this contract."
Contractor Signature Agency Signature
/s/ James Luckett
- ---------------------------- ----------------------------------
Dated: 9/29/94 Dated:
---------------------- ----------------------------
Attorney Generals Signature Comptrollers Signature
- ---------------------------- ----------------------------------
Dated: Dated:
---------------------- ----------------------------
<PAGE> 4
- --- --- STATE OF NEW YORK
| NYS | DEPARTMENT OF LABOR
| Dept of Labor |
| Logo | GOVERNOR W. AVERELL HARRIMAN
- --- --- STATE OFFICE BUILDING CAMPUS
ALBANY, NEW YORK 12240
APR 23 1996
March 19, 1996
Nysernet
200 Elwood Davis Road
Suite 103
Liverpool, New York 13088-6147
Re: Proposed Amendment to Contract #C000525
Internet T-1 Connection
Term: 9/27/94 through 9/26/00
Attention: James Luckett
Gentlemen:
Enclosed are five (5) copies of the subject amendment drawn for the current
years T-1 connection & one additional dial-up access. Please complete
acknowledgement which must be notarized.
Please sign and return all five (5) copies as soon as possible to:
NYS Department of Labor
Mrs. Laurel Dawson
State Campus, Bldg #12
Room 432
Albany, New York 12240
so that we may process them through various State Agencies involved.
When the Comptroller has approved the contract, a copy will be returned to you
for your file.
Very truly yours,
/s/ Laurel L. Dawson
--------------------
Laurel L. Dawson
Purchasing Agent
LLD:acb
Enclosure
<PAGE> 5
AMENDMENT TO C000525
This Amendment made this eighteenth day of March in the year nineteen
hundred and ninety-six by and between New York State Education and Research
Network (NYSERNET) and the New York State Department of Labor increases the
contract amount to $408,462.12.
This modification includes the annual service agreement to provide the TI
Connection to the Internet for the period 4/08/96 to 4/07/97 at a cost of
$26,694.12 for AJB and Dial up access for the Mine Safety Unit at $300.00 per
year. The scope of work statement, incorporated herein, describes the detailed
tasks, along with the associated costs, and becomes part of this agreement.
All other terms and conditions remain the same.
In Witness Whereof: The parties to these presents have set their hand and
seal, the day and year first above written.
STATE OF NEW YORK, COUNTY OF, ONONDAGA SS:
David A. Buckel
On the 24th Day of May ,Nineteen hundred and Ninety-six
to me known, who being by me duly sworn, did depose and say
that he/ resides at: Syracuse, New York;
that he/ is the Controller
Of NYSERNet, Inc.
the corporation described in and which executed the foregoing instrument, and
that he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Patricia J. Foster
----------------------
NOTARY PUBLIC (affix stamp)
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No. 4755760
My Commission Expires Sept. 30, 1996
Accepted by:
State of New York
Department of Labor
/s/ David A. Buckel
- -------------------------------- --------------------------------
Authorized Signature Authorized Signature
David A. Buckel
- -------------------------------- --------------------------------
Printed Name Printed Name
Controller
- ------------------------------- --------------------------------
Title Title
May 24, 1996
- -------------------------------- --------------------------------
Date Date
State Attorney General's Signature Office of State Comptroller's Signature
-------------------------------- -------------------------------
<PAGE> 6
AMENDMENT TO C000525
This Amendment made this twenty-seventh day of August in the year nineteen
hundred and ninety-five by and between New York State Education and Research
Network (NYSERNET) and the New York State Department of Labor increases the
contract amount to $381,468.00.
This modification includes support charges, hardware/software, consulting
services, development, programming, testing and installation of the new programs
for the Americas Job Bank. The scope of work statement, incorporated herein,
describes the detailed tasks, along with the associated costs, and becomes part
of this agreement.
All other terms and conditions remain the same.
In Witness Whereof: The parties to these presents have set their hand and
seal, the day and year first above written.
STATE OF NEW YORK, COUNTY OF, ONONDAGA SS:
On the 28th Day of August, Nineteen hundred and Ninety-Five before me personally
came JAMES D. LUCKETT
to me known, who being by me duly sworn, did depose and say that he/she resides
at: Liverpool, New York
that he/she is the Vice President
of NYSERNet, Inc.
the corporation described in and which executed the foregoing instrument, and
that he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Patricia J. Foster
----------------------
NOTARY PUBLIC (affix stamp)
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No. 4755760
My Commission Expires Sept. 30, 1996
Accepted by:
State of New York
Department of Labor
/s/ James D. Luckett
- -------------------------------- --------------------------------
Authorized Signature Authorized Signature
James D. Luckett
- -------------------------------- --------------------------------
Printed Name Printed Name
Vice President
- ------------------------------- --------------------------------
Title Title
8/28/95
- -------------------------------- --------------------------------
Date Date
State Attorney General's Signature Office of State Comptroller's
Signature
- -------------------------------- -------------------------------
DATE DATE
<PAGE> 7
AMENDMENT #3 TO C000525
This Amendment made this 25th day of October in the year one thousand nine
hundred and ninety-six by and between NYSERNET, Inc., party of the first part
and the New York State Department of Labor, party of the second part serves to
increase the contract amount to two million, eight hundred seventy thousand nine
hundred sixty-two dollars and twelve cents ($2,870,962.12) as per the attached
scope of work, which is hereby, incorporated and made part of this agreement.
All other terms and conditions remain the same.
<PAGE> 8
Page 2 of 2 C000525
IN WITNESS WHEREOF, the parties hereto, have set their hands and seals, the day
and year first written above.
STATE OF NEW YORK, COUNTY OF Onondaga , SS: On the 30th day Of October, nineteen
hundred and ninety- 96 before me personally came James D. Luckett to me known,
who being by me duly sworn, did depose and say that he/she resides at No.
Liverpool and that he/she is the President of NYSERNet, Inc. of the corporation
described in and which executed the foregoing instrument; and that he/she signed
his/her name thereto by like order of the Board of Directors of said
corporation.
/s/ Patricia J. Foster
--------------------------
NOTARY PUBLIC (affix stamp)
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No. 4755760
My Commission Expires Sept. 30, 1998
Agency Certification
"In addition to the acceptance of this contract, I also certify that original
copies of this signature page will be attached to all other exact copies of this
contract."
Contractor's Signature NYS Department of Labor
/s/ James D. Luckett /s/ Laurel Dawson
- -------------------- --------------------
Authorized Signature Authorized Signature
James D. Luckett LAUREL DAWSON
- -------------------- --------------------
Printed Name Printed Name
President PURCHASING AGENT
- -------------------- --------------------
Title Title
10/21/96 October 31, 1996
- -------------------- --------------------
Date Date
State Attorney General State Comptroller
- -------------------- /s/ Illegible
--------------------
- --------------------
--------------------
Date
---------------- --------------------
APPROVED AS TO FORM Date Jan 7, 1997
NYS ATTORNEY GENERAL -----------------
NOV 20 1996
/s/ Peter Favretto
------------------
PETER FAVRETTO
ASSOCIATE ATTORNEY
<PAGE> 9
Amendment No. 4 to C000525
This Amendment made this Thirty-first day of October in the year one
thousand nine hundred and ninety-seven by and between NYSERNET, Inc., party of
the first part, and the New York State Department of Labor, party of the second
part, serves to increase the contract amount to Five million, six hundred
thirty-seven thousand, two hundred thirty-seven dollars and twelve cents
$5,637,237.12 as per the attached Scope of Work, which is hereby incorporated
and made a part of this agreement.
All other terms and conditions remain the same.
IN WITNESS WHEREOF, the parties hereto, have set their hands and seals,
the day and year first written above.
STATE OF NEW YORK, COUNTY OF ONONDAGA, SS:
On the 14th day of November, nineteen hundred and ninety-seven before me
personally came David A. Buckel to me known, who being by me duly sworn, did
depose and say that resides at Syracuse, NY and that he/she is the Asst.
Secretary/Treasurer of NYSERNet. Inc. the corporation described in and which
executed the foregoing instrument; and that he/she signed his/her name thereto
by like order of the Board of Directors of said corporation.
/s/ Patricia J. Foster
----------------------
Notary Public (affix stamp)
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No. 4755760
My Commission Expires Sept. 30, 1996
Agency Certification
"In addition to the acceptance of this contract, I also certify that the
original copies of this signature page will be attached to all other exact
copies of this contract."
NYSERNET, INC. NYS DEPARTMENT OF LABOR
/s/ David A. Buckel /s/ Laurel Dawson
- ------------------------- -------------------------
Authorized Signature Authorized Signature
David A. Buckel
- ------------------------- LAUREL DAWSON
Printed Name -------------------------
Asst. Secretary/Treasurer Printed Name
- ------------------------- PURCHASING AGENT
Title
-------------------------
Date November 14 ,1997 Title
-------------------- Date Nov 17, 1997
---------------
APPROVED AS TO FORM
NYS ATTORNEY GENERAL
NOV 21 1997
/s/ Peter Favretto
- ------------------
PETER FAVRETTO
ASSOCIATE ATTORNEY
<PAGE> 10
Page 2 of 2
STATE ATTORNEY GENERAL OFFICE OF THE STATE COMPTROLLER
APPROVED AS TO FORM /s/ Illegible signature
NYS ATTORNEY GENERAL ------------------
NOV 21 1997
/s/ Peter Favretto FEB 26 1998
- ------------------ ------------------
PETER FAVRETTO Date
ASSOCIATE ATTORNEY
<PAGE> 11
AMENDMENT NO. 5 TO CONTRACT C000525
THIS AMENDMENT, made this Twenty-first day of May in the year one
thousand nine hundred and ninety-eight by and between NYSERNET and the State of
New York, Department of Labor, increases the Contract amount to $8,387,237.12.
WITNESSETH, that NYSERNET and the Department of Labor, in consideration
of the agreements incorporated herein, do hereby agree as follows:
ARTICLE I.
The party of the first part shall provide Consulting, Applications
Development, Systems Integration, Help Desk Services and Training as per the
April 1998 Scope of Work and the Software Licensing Agreement for AJB V 3.0
attached, which together with all appendices is hereby made a part of this
agreement.
ARTICLE II. Year 2000 Date Change Warranty
1. Definitions
For the purpose of this section, the term "Product" shall include
without limitation: any piece or component of equipment, hardware, firmware,
middleware, custom or commercial software, or internal components or subroutines
therein which perform any date/time data recognition function, calculation,
comparing or sequencing. Where services are being furnished, e.g. consulting,
systems integration, code or data conversion or data entry, the term "product"
shall include resulting deliverables. The term "Vendor's Product" shall include
all product delivered under this Agreement by Vendor other than Third party
Product. The term "Third Party Product" shall include product manufactured or
developed by a corporate entity independent from Vendor and provided by Vendor
on a non-exclusive licensing or other distribution Agreement with the third
party manufacturer. "Third Party Product" does not include product where Vendor
is: a) a corporate subsidiary or affiliate of the third party
manufacturer/developer; and/or b) the exclusive re-seller or distributor of
product manufactured or developed by said corporate entity.
2. Warranty Disclosure
At the time of Product quote, the Vendor is required to disclose the
following information in writing to Authorized User:
A. FOR VENDOR PRODUCT AND FOR PRODUCTS WHICH HAVE BEEN SPECIFIED TO
PERFORM AS A SYSTEM (INCLUDING, BUT NOT LIMITED TO, SYSTEMS
INVOLVING
<PAGE> 12
C000525
PAGE 2 OF 4
VENDOR AND/OR THIRD PARTY PRODUCTS AND/OR AUTHORIZED USER'S OTHER
INSTALLED PRODUCT): Compliance or non-compliance of the Products
individually or as a system with the Warranty Statement set forth
below; and
B. FOR THIRD PARTY PRODUCTS ONLY: Third Party manufacturer's statement
of compliance or non-compliance of any Third Party Product being
delivered with Third Party Manufacturer/Developer's Year 2000
Warranty. If such Third Party Product is represented by Third Party
Manufacturer/Developer as compliant with Third Party
Manufacturer/Developer's Year 2000 Warranty, Vendor shall pass
through said Third Party Warranty from the Third Party Manufacturer
to the Authorized User but shall not be liable for the testing or
verification of Third Party's compliance statement.
3. Warranty Statement
Year 2000 warranty 'compliance' shall be defined in accordance with the
following warranty statement:
Vendor warrants that Product(s) furnished pursuant to this Agreement
shall, when used in accordance with the Product documentation, be able to
accurately process date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and twenty-
first centuries, and the years 1999 and 2000, including leap year calculations.
Where a purchase requires that specific Products must perform as a package or
system, this warranty shall apply to the Products as a system.
In the event of any breach of this warranty, Vendor shall restore the
Product to the same level as warranted herein, or repair or replace the Product
with conforming Product so as to minimize interruption to Authorized User's
ongoing business processes, time being of the essence, at Vendor's sole cost and
expense. This warranty does not extend to correction of Authorized User's errors
in data entry or data conversion.
This warranty shall survive beyond termination or expiration of the
Agreement.
Nothing in this warranty shall be construed to limit any rights or
remedies otherwise available under this agreement.
<PAGE> 13
C000525
PAGE 3 OF 4
ARTICLE III.
It is hereby mutually agreed between the parties hereto that the sum to
be paid by the party of the second part to the party of the first part for said
services shall be as follows:
This Amendment increases the Contract amount by $2,750,000.00.
All other terms and conditions remain the same.
IN WITNESS WHEREOF, the parties hereto, have set their hand and seals,
the day and year written above.
STATE OF NEW YORK, COUNTY OF Onondaga SS:
On the 2nd Day of June, Nineteen Hundred and Ninety-eight before me
personally came Angelo A. Gencarelli III to me known, who being by me duty
sworn, did depose and say that he/she resides at: Liverpool, NY and that he/she
is the Controller of NYSERNet, Inc. the corporation described in and which
executed the foregoing instrument, and that he/she signed his/her name thereto
by order of the Board of Directors of said corporation.
/s/ Patricia J. Foster
-------------------------------------
NOTARY PUBLIC (affix stamp)
PATRICIA J. FOSTER
Notary Public, State of New York
Qualified in Onon. Co. No. 4755760
My Commission Expires Sept. 30, 1998
<PAGE> 14
C000525
PAGE 4 OF 4
Agency Certification
"In addition to the acceptance of this contract,
I also certify that original copies of this signature
page will be attached to all other exact copies of
this contract."
VENDOR NYS DEPARTMENT OF LABOR
/s/ Angelo A. Gencarelli III /s/ Laurel Dawson
- ----------------------------- -----------------------------
Authorized Signature Authorized Signature
Angelo A. Gencarelli III LAUREL DAWSON
- ----------------------------- -----------------------------
Printed Name Printed Name
Controller PURCHASING AGENT
- ----------------------------- -----------------------------
Title Title
6/2/98 June 4, 1998
- ----------------------------- -----------------------------
Date
STATE ATTORNEY GENERAL STATE COMPTROLLER
/s/ Peter Favretto /s/ illegible
- ----------------------------- -----------------------------
JUN 05, 1998 JUL 16 1998
- ----------------------------- -----------------------------
Date Date
<PAGE> 1
Exhibit 10.21
REVOLVING
NOTE AGREEMENT
$7,500,000 Dated as of January 20, 1998
At Syracuse, New York
(1) Subject to the terms of this Revolving Note Agreement ("Note"),
commencing on January 20, 1998 and continuing through January 19, 2001, (the
"Advance Period"), FLEET NATIONAL BANK, its successors and assigns with banking
offices at One Clinton Square, Syracuse, New York 13202 ("Bank") agrees to loan
to APPLIEDTHEORY COMMUNICATIONS, INC., a New York corporation with its offices
at 125 Elwood Davis Road, North Syracuse, New York 13212 ("Borrower") on a
revolving credit basis an amount not to exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000) (the "Loan") in the aggregate at any one time
outstanding. So long as no Event of Default has occurred and is then continuing,
the Borrower may obtain Loan advances(an "Advance" or the "Advances") from the
Bank during the Advance Period in accordance with the provisions of this Note.
Borrower unconditionally agrees that Loan amounts advanced by the Bank to the
Borrower hereunder shall be repaid by the Borrower as follows under the
provisions of this Note.
(2) Payment. Commencing on the first day of the first calendar month
following the date of the first Advance made by the Bank to the Borrower
hereunder and continuing on the first day of each succeeding calendar month
through and including January 1, 2001 (each a "Monthly Payment Date"), Borrower
shall pay to the order of the Bank interest on the then outstanding unpaid
balance of the amount of each Advance made under this Note at a rate of interest
equal to the "Applicable Interest Rate" (defined below), and on January 19, 2001
(the "Maturity Date"), Borrower shall pay to the Bank the then unpaid principal
balance of all amounts advanced under this Note plus all accrued and unpaid
interest.
(3) Advance Term and Interest Rates. At the time Borrower requests an
Advance, Borrower shall include in the Advance request the term of the requested
Advance and which of the following interest rate options Borrower elects with
respect to the Advance (the Applicable Interest Rate"). Under no circumstances
may the requested Advance term extend beyond the Maturity Date. If no term or
interest rate option is specified by the Borrower, or if the amount of the
requested Advance is less than $100,000, the Advance involved shall bear
interest at the Bank's Prime Rate of interest minus two hundred (200) basis
points.
(a) LIBOR Advance. The Borrower may obtain Advances by submitting
an Advance request, in the form attached hereto as Exhibit "A"
two (2) Business Days prior to date on which Advance is to be
made during the Advance Period at the "LIBOR Rate" (defined
below) for the "Applicable Interest Period" (defined below)
plus fifty (50) basis points. Each Advance requested under
this Section 3(a) shall be in the minimum amount of $100,000.
The term "LIBOR" or "LIBOR Rate" shall mean, as applicable to
any Advance under this Section 3(a) (a "LIBOR Advance"), the
rate per annum (rounded upward, if necessary,
<PAGE> 2
to the nearest 1/32 of one percent) as determined on the basis
of the offered rates for deposits in U.S. dollars, for an
Advance term as specified by Borrower of either thirty (30)
days, sixty (60) days, ninety (90) days, one hundred twenty
(120) days, one hundred eighty (180) days or three hundred
sixty (360) days (the "Applicable Interest Period") which
appears on the Telerate page 3750 as of 11:00 a.m. London time
on the day that is two London Banking Days preceding the first
day of such LIBOR Advance; provided, however, if the rate
described above does not appear on the Telerate System on the
interest determination date, the LIBOR Rate shall be the rate
(rounded upwards as described above, if necessary) for
deposits in dollars for a period substantially equal to the
Applicable Interest Period on the Reuters Page "LIBOR" (or
such other page as may replace the LIBOR Page on that service
for the purpose of displaying such rates), as of 11:00 a.m.
(London Time), on the day that is two (2) London Banking Days
prior to the beginning of such Interest Period. "Banking Day"
shall mean, in respect of any city, any date on which
commercial banks are open for business in that city.
If both the Telerate and Reuters system are unavailable, then
the rate for that date will be determined on the basis of the
offered rates for deposits in U.S. dollars for the number of
days in the Applicable Interest Period which are offered by
four major banks in the London interbank market at
approximately 11: 00 a.m. London time, on the date that is two
(2) London Banking Days preceding the first day of such LIBOR
Advance as selected by the Calculation Agent. The principal
London office of each of the four major London banks will be
requested to provide a quotation of its U.S. dollar deposit
offered rate. If at least two such quotations are provided,
the rate for that date will be the arithmetic mean of the
quotations. If fewer than two quotations are provided as
requested, the rate for that date will be determined on the
basis of the rates quoted for loans in U.S. dollars to leading
European banks for the number of days in the Applicable
Interest Period offered by major banks in New York City at
approximately 11:00 a.m. New York City time, on the date that
is two London Banking Days preceding the first day of such
LIBOR Advance. In the event that Bank is unable to obtain any
such quotation as provided above, it will be deemed that LIBOR
pursuant to a LIBOR Advance cannot be determined and the
Advance will be made at the rate provided for in Section 3(c)
below.
In the event that the Board of Governors of the Federal
Reserve System shall impose a Reserve Percentage with respect
to LIBOR deposits of Bank then for any period during which
such Reserve Percentage shall apply, LIBOR shall be equal to
the amount determined above divided by an amount equal to 1
minus the Reserve Percentage.
2
<PAGE> 3
(b) Cost of Funds Advance. If the term of a requested Advance is
to be for more than one (1) year, Borrower, by submitting an
Advance request two (2) Business Days prior to the date on
which the Advance is to be made, may obtain Advances during
Advance Period at a rate equal to the Bank's "Cost of Funds"
(defined below) for the term of the requested Advance, plus
fifty (50) basis points. Each Advance requested under this
Section 3(b) shall be in the minimum amount of $100,000.
For the purposes of this Note, the term "Cost of Funds" means
the per annum rate of interest which the Bank is required to
pay, or is offering to pay, for wholesale liabilities,
adjusted for reserve requirements and such other requirements
as may be imposed by federal, state or local government and
regulatory agencies, as determined by the Bank's treasury
funding group or treasury funding management.
(c) Prime Rate Advance. The Borrower, by submitting an Advance
request, may obtain Advances at any time during the Advance
Period at the Bank's "Prime Rate" of interest (defined below)
minus 200 basis points. Advances made by Bank to Borrower
under the Target Balance Service Agreement between Borrower
and Bank dated January 20, 1998 shall be deemed to be Advances
made under this Section 3(c). The term "Prime Rate" means the
variable rate per annum of interest so designated from time to
time by the Bank as its Prime Rate. The Prime Rate is a
reference rate and does not necessarily represent the lowest
or best rate being charged to any customer.
(d) With respect to any Advance made under Section 3(a) or 3(b)
above, Borrower must either repay such Advance at the end of
the Applicable Interest Period or Cost of Funds Period, as the
case may be or notify the Bank two banking days prior to the
expiration of the period involved that Borrower intends to
continue such borrowing in which event Borrower must at such
time notify the Bank as to whether the borrowing will be
continued as an Advance under Section 3(a) or 3(b) or 3(c) of
this Note. If at the end of an Applicable Interest Period or a
Cost of Funds Period, the Borrower has not given such two
banking day notice and does not repay the Advance in question,
then, so long as no Event of Default has occurred and is then
continuing, the Advance involved shall be repaid by making an
Advance under Section 3(c) for a period of 30 days.
(e) The term "Business Day" means a day on which commercial banks
are regularly open for business in the State of New York.
(4) Interest Computations. All computations of interest shall be made
by Bank on the basis of a 360-day year and the actual number of days elapsed.
3
<PAGE> 4
(5) Prepayment. In the event Borrower obtains an Advance under Section
3(a) or 3(b) above, the last day of the Advance term selected by the Borrower
shall be deemed to be and is referred to herein as the "Advance Maturity Date".
Borrower shall have the right at any time and from time to time to prepay in
whole or in part any Advance made under Section 3(c) above without penalty,
premium or yield maintenance fee. Borrower shall have the right at any time and
from time to time to prepay in whole or in part in advance made under Section
3(a) or 3(b) prior to the Advance Maturity Date with respect to the prepaid
Advance, and Borrower shall pay to the Bank a yield maintenance fee computed as
follows: The current rate for United States Treasury securities (bills on a
discounted basis shall be converted to a bond equivalent) with a maturity date
closest to the Advance Maturity Date for the Advance being prepaid following the
day the prepayment is made, shall be subtracted from the "Cost of Funds"
component of the rate in effect at the time of prepayment. If the result is a
positive number, then the resulting percentage shall be multiplied by the amount
of the principal balance being prepaid. The resulting amount shall be divided by
360 and multiplied by the number of days remaining until the Advance Maturity
Date for the Advance being prepaid. Said amount shall be reduced to present
value calculated by using the above-referenced United States Treasury security
rate and the number of days remaining until the Advance Maturity Date for the
Advance being prepaid. The resulting amount shall be the yield maintenance fee
due to Bank upon the prepayment.
If by reason of an event of default Bank elects to declare the Loan to
be immediately due and payable, then any yield maintenance fee with respect to
the loan shall become due and payable in the same manner as though Borrower had
exercised such right of prepayment with respect to all then unpaid Advances.
(6) U.S. Dollars. All payments shall be in lawful money of the United
States in immediately available funds.
(7) Participations. Bank shall have the unrestricted right at any time
and from time to time, and without the consent of or notice to Borrower, to
grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in Bank's obligation to lend hereunder
and/or any or all of the Loan. In the event of any such grant by Bank of a
participating interest to a Participant, whether or not upon notice to Borrower,
Bank shall remain responsible for the performance of its obligations hereunder
and Borrower shall continue to deal solely and directly with Bank in connection
with Bank's rights and obligations hereunder.
Bank may furnish any information concerning Borrower in its possession
from time to time to prospective Participants, provided that Bank shall require
any such prospective Participant to agree in writing to maintain the
confidentiality of such information.
(8) Certain Bank Rights. To secure all amounts due under this Note,
Borrower hereby grants to Bank, a lien, security interest and right of setoff as
security for all liabilities and obligations to Bank when due, whether now
existing or hereafter arising, upon and against all deposits and credits now or
hereafter in the possession, custody, safekeeping or control of Bank or any
entity under the control of Bank, or in transit to any of them. At any
4
<PAGE> 5
time, without demand or notice, Bank may set off the same or any part thereof
and apply the same to any liability or obligation of Borrower to the Bank
regardless of the adequacy of any other collateral securing the Loan. ANY AND
ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURED THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER
ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
(9) Lost or Destroyed Documents. Upon receipt of an affidavit of an
officer of Bank as to the loss, theft, destruction or mutilation of the Note or
any other security or loan document which is not of public record, and, in the
case of any such loss, theft, destruction or mutilation, upon surrender and
cancellation of such Note or other security or loan document, Borrower will
issue, in lieu thereof, a replacement Note or other security or loan document in
the same principal amount thereof and otherwise of like tenor. The Bank agrees
to indemnify Borrower from liability in the event Borrower is required to make
any payment on account of any Note or other Loan Document replaced by the
Borrower at the Bank's request under this Section 9.
(10) Bank Pledge. Bank may at any time pledge all or any portion of its
rights under the loan documents including any portion of this Note to any of the
twelve (12) Federal Reserve Banks organized under Section 4 of the Federal
Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall
release Bank from its obligations under any of the loan documents.
(11) Defaults. The occurrence of any of the following shall constitute
an "Event of Default" under this Note:
(a) Failure by Borrower to make any payment within ten (10) days
of the date when due under this Note;
(b) The occurrence and continuation beyond the applicable space
period, if any, of an event of default with respect to any
other indebtedness of Borrower to Bank;
(c) Any representation or warranty contained in this Note any
other loan document or in any certificate delivered to Bank by
Borrower shall have been incorrect or false in any material
respect as of the date as to which the facts set forth were
asserted;
(d) If Borrower or NYSERNet.net, Inc. ("NYSERNET") shall file a
voluntary petition in bankruptcy or a voluntary petition
seeking reorganization or to effect a plan, composition or
other arrangement with creditors under any federal or state
law relating to bankruptcy, insolvency. or relief of debtors;
(e) If Borrower or NYSERNet shall have filed against either of
them an involuntary petition in bankruptcy or an involuntary
petition seeking reorganization or to effect a plan,
composition or other arrangement with creditors under any
federal or state law relating to bankruptcy, insolvency or
5
<PAGE> 6
relief of debtors and such petition is not dismissed within
thirty (30) days of the date of filing;
(f) The entry of a judgment against Borrower not fully covered by
insurance less normal deductibles, and the failure to either
satisfy or stay the enforcement of such judgment, within
fifteen (15) days of the date of such entry;
(g) The acceleration before stated maturity of any indebtedness
for borrowed money owed by Borrower where the amount involved
exceeds $10,000;
(h) Failure by NYSERNet to maintain the "Required Value" of the
"Collateral" [as those quoted terms are defined in the Pledge
Security Agreement between NYSERNet and the Bank dated January
20, 1998] as required by the terms of such Pledge Security
Agreement;
(i) Failure by Borrower to perform any of Borrower's other
obligations under this Note or the documents securing amounts
due under this Note within fifteen (15) days after notice from
the Bank.
(12) Acceleration. Upon the occurrence of an Event of Default the then
unpaid amount of this Note, together with all accrued and unpaid interest, shall
be and become due and payable.
(13) Late Fee. Further, and not in lieu of any other remedy, Borrower
shall pay to Bank a late charge equal to five percent (5%) of the amount of any
payment due under this Note which is not made within ten (10) days of the date
when due.
(14) Default Rate. Upon default or after maturity or after judgment has
been rendered on this Note, or in the Event of Default as defined above, the
unpaid principal of all advances shall, at the option of the Bank, bear interest
at a rate which is four (4) percentage points per annum greater than the rate in
effect when the Banks exercise this option.
(15) Financial Statements. Borrower shall furnish to Bank within one
hundred fifty (150) days of Borrower's fiscal year end, annual audited year-end
financial statements of Borrower, prepared in accordance with generally accepted
accounting principles consistently applied and certified by an independent
certified public accounting firm acceptable to Bank.
(16) No Usury. All agreements between Borrower and Bank are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Bank for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however, that in the event there
is a change in the law which results in a higher permissible rate of interest,
then this Note shall be governed by such new law as of its effective date. In
this regard, it is expressly agreed that it is the intent of Borrower and in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of New York from time to time in effect. If, under or
from any circumstances whatsoever, fulfillment of any provision hereof or of any
of the loan documents at the time of
6
<PAGE> 7
performance of such provision shall be due, shall involve transcending the limit
of such validity prescribed by applicable law, then the obligation to be
fulfilled shall automatically be reduced to the limits of such validity, and if
under or from circumstances whatsoever Bank should ever receive as interest and
amount which would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the principal balance
evidenced hereby and not to the payment of interest. This provision shall
control every other provision of all agreements between Borrower and Bank.
(17) Certain Waivers. Borrower expressly waives any presentment,
demand, protest or notice in connection with this Note, now or hereafter
required by applicable law.
(18) Costs of Collection. Borrower promises and agrees to pay the costs
of collection and any reasonable attorneys fees incurred by Bank after the
occurrence of an Event of Default under this Note.
(19) New York Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York, exclusive of New
York's conflicts of laws rules and public policies.
(20) Business Purpose. Borrower represents that the proceeds of this
Note will be used for business or commercial purposes.
(21) Merger Clause. This Note constitutes the complete understanding
between the parties and supersedes all prior or contemporaneous understandings,
agreements, commitment letters and negotiations, all of which are merged into
this Note. This Note may not be changed, altered or amended absent the execution
and delivery by Borrower and Bank of a writing intended for such purpose.
(22) Jury Waiver. BORROWER AND BANK MUTUALLY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR
ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS
7
<PAGE> 8
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR BANK TO ACCEPT THIS NOTE AND MAKE THE LOAN.
APPLIEDTHEORY COMMUNICATIONS, INC.
By: /s/ David A. Buckel
DAVID A. BUCKEL
VP & Chief Financial Officer
FLEET NATIONAL BANK
By: /s/ Christopher P. Papayanakos, SVP
CHRISTOPHER P. PAPAYANAKOS
Sr. Vice President
8
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated January 29, 1999 accompanying the
financial statements and schedule of AppliedTheory Corporation and Predecessor
contained in the Registration Statement and Prospectus. We consent to the use of
the aforementioned reports in the Registration Statement and Prospectus, and to
the use of our name as it appears under the captions "Selected Financial Data"
and "Experts."
GRANT THORNTON LLP
New York, New York
February 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996<F1>
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 6,226,306
<TOTAL-REVENUES> 6,226,306
<CGS> 5,741,604
<TOTAL-COSTS> 5,741,604
<OTHER-EXPENSES> 4,404,424
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 4,870
<INCOME-PRETAX> (3,924,592)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,924,592)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,924,592)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The operating activities prior to October 1, 1996 were conducted as a Non
Incorporated "Division" of NYSERNet.org Inc. and are considered to constitute a
predecessor business. The financial statements presented for the nine months
ended September 30, 1996 reflect these activities on a "carved-out" basis from
the Historical Financial Statements of NYSERNet.org as if the predecessor had
been organized as of January 1, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,785,682
<SECURITIES> 0
<RECEIVABLES> 3,741,391
<ALLOWANCES> 157,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,625,131
<PP&E> 6,812,335
<DEPRECIATION> 2,609,164
<TOTAL-ASSETS> 10,517,635
<CURRENT-LIABILITIES> 8,873,697
<BONDS> 8,936,476
1,500,000
0
<COMMON> 100,629
<OTHER-SE> (9,107,666)
<TOTAL-LIABILITY-AND-EQUITY> 10,517,635
<SALES> 22,562,990
<TOTAL-REVENUES> 22,562,990
<CGS> 13,315,568
<TOTAL-COSTS> 13,315,568
<OTHER-EXPENSES> 14,448,393
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 608,068
<INCOME-PRETAX> (5,766,571)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,766,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,766,571)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 135,179
<SECURITIES> 0
<RECEIVABLES> 1,333,323
<ALLOWANCES> 122,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,533,684
<PP&E> 5,043,048
<DEPRECIATION> 1,132,642
<TOTAL-ASSETS> 5,444,090
<CURRENT-LIABILITIES> 5,113,247
<BONDS> 6,805,165
1,500,000
0
<COMMON> 13,080
<OTHER-SE> (8,638,863)
<TOTAL-LIABILITY-AND-EQUITY> 5,444,090
<SALES> 15,171,714
<TOTAL-REVENUES> 15,171,714
<CGS> 10,796,095
<TOTAL-COSTS> 10,796,095
<OTHER-EXPENSES> 9,876,273
<LOSS-PROVISION> 120,000
<INTEREST-EXPENSE> 346,713
<INCOME-PRETAX> (5,847,367)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,847,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,847,367)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996<F1>
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 3,076,311
<TOTAL-REVENUES> 3,076,311
<CGS> 2,331,050
<TOTAL-COSTS> 2,331,050
<OTHER-EXPENSES> 2,507,698
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,762,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,762,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,762,437)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
<FN>
<F1>APPLIED THEORY CORPORATION IS A SUCCESSOR TO APPLIED THEORY COMMUNICATIONS,
INC., WHICH WAS INCORPORATED IN THE STATE OF NEW YORK AND COMMENCED OPERATIONS
ON OCTOBER 1, 1996.
</FN>
</TABLE>
