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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-29828
NORTHPOINT COMMUNICATIONS GROUP, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 52-2147716
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
222 Sutter Street
San Francisco, California 94108
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (415) 403-4003
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ ] Yes [X] No
The number of shares of Common Stock, par value $.001 per share, of NorthPoint
Communications Group, Inc. outstanding as of July 28, 1999 was 121,403,370.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements............................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 30
Item 2. Changes in Securities and Use of Proceeds.................... 30
Item 3. Defaults Upon Senior Securities.............................. 30
Item 4. Submission of Matters to a Vote of Security Holders.......... 31
Item 5. Other Information............................................ 31
Item 6. Exhibits and Reports on Form 8-K............................. 32
</TABLE>
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
NORTHPOINT COMMUNICATIONS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in 000's, except share and per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $291,655 $ 10,956
Short-term investments 111,097 ---
Accounts receivable, net 1,431 523
Inventories 683 ---
Prepaid expenses and other assets 8,042 2,649
-------- --------
Total current assets 412,908 14,128
Property and equipment:
Networking equipment 51,783 26,041
Central office collocation space improvements 32,576 15,599
Computers and software 6,477 2,489
Leasehold improvements 1,999 1,366
Furniture, fixtures and office equipment 2,497 1,927
-------- --------
Total property and equipment 95,332 47,422
Less accumulated depreciation and amortization (5,544) (1,344)
-------- --------
Property and equipment, net 89,788 46,078
Deposits 410 296
-------- --------
Total assets $503,106 $ 60,502
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts Payable $ 2,684 $ 9,379
Accrued expenses 17,149 5,481
Deferred revenue --- 189
Capital lease obligations, current portion net of unamortized debt discount
of $265 and $265, respectively 975 925
Line of credit borrowings, net of unamortized debt discount of $2,303 --- 48,422
-------- --------
Total current liabilities 20,808 64,396
Capital lease obligations, long-term portion, net of unamortized debt discount
of $465 and $598, respectively 2,089 2,640
Line of credit borrowings, long-term portion 55,201 ---
-------- --------
Total liabilities 78,098 67,036
Commitments and contingencies (Note 6)
Stockholder's equity (deficit):
Convertible preferred stock, $0.001 par value; 101,250,000 and 49,060,250 shares authorized at
June 30, 1999 and December 31, 1998, respectively; 38,499,054 shares issued and outstanding at
December 31, 1998 --- 38
Common stock, $0.001 par value; 281,250,000 and 112,500,000 shares authorized at June 30, 1999
and December 31, 1998, respectively; 123,758,925 (including 2,466,724 shares of Class B common
stock) and 24,592,950 shares issued and outstanding at June 30, 1999 and December 31, 1998,
respectively 124 25
Warrants 9,763 5,232
Additional paid-in capital 523,341 31,480
Deferred stock compensation (16,679) (13,022)
Accumulated deficit (91,541) (30,287)
-------- --------
Total stockholders' equity (deficit) 425,008 (6,534)
-------- --------
Total liabilities and stockholders' equity (deficit) $503,106 $ 60,502
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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NORTHPOINT COMMUNICATIONS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in 000's, except share and per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 2,504 $ 128 $ 3,787 $ 163
Operating expenses:
Network expenses 7,801 263 11,733 408
Selling, marketing, general and administrative 23,914 2,565 38,294 4,107
Amortization of deferred stock compensation 1,215 334 2,807 534
Depreciation and amortization 2,813 195 4,200 272
----------- ----------- ----------- -----------
Total operating expenses 35,743 3,357 57,034 5,321
----------- ----------- ----------- -----------
Loss from operations (33,239) (3,229) (53,247) (5,158)
Interest income 3,026 50 3,264 156
Interest expense (7,689) (75) (11,271) (122)
----------- ----------- ----------- -----------
Net loss $ (37,902) $ (3,254) $ (61,254) $ (5,124)
=========== =========== =========== ===========
Net loss per common share - basic and diluted $(0.44) $(0.13) $(1.10) $(0.21)
=========== =========== =========== ===========
Weighted average shares used in computing net loss per
common share - basic and diluted 86,113,944 24,345,000 55,680,075 24,345,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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NORTHPOINT COMMUNICATIONS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in 000's)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
---------------------
1999 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(61,254) $(5,124)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 4,200 272
Amortization of deferred stock compensation 2,806 534
Amortization of debt discount 4,347 50
Changes in assets and liabilities:
Accounts receivable (908) (112)
Prepaid expenses and other assets (6,076) (525)
Deposits (114) (173)
Accounts payable (6,695) 597
Accrued expenses 11,869 560
Deferred revenue (189) 36
-------- -------
Net cash used in operating activities (52,014) (3,885)
Cash flows from investing activities:
Purchase of short-term investments (111,097) ---
Purchase of property and equipment (47,910) (4,938)
-------- -------
Net cash used in investing activities (159,007) (4,938)
Cash flows from financing activities:
Proceeds from issuance of common and preferred stock 482,478 ---
Borrowings on line of credit 55,000 724
Payments on line of credit (50,725) ---
Proceeds from convertible promissory note 5,600 ---
Principal payments on capital lease obligations (633) (125)
-------- -------
Net cash provided by financing activities 491,720 599
Net increase (decrease) in cash and equivalents 280,699 (8,224)
Cash and cash equivalents at beginning of period 10,956 9,448
-------- -------
Cash and cash equivalents at end of period $291,655 $ 1,224
======== =======
Supplemental cash flow information and noncash activities:
Fixed assets obtained through capital lease $ --- $ 4,085
======== =======
Warrants issued for bridge loan, capital lease and with issuance of equity (Microsoft investment) $ 4,530 $ 1,061
======== =======
Conversion of convertible promissory note to Class B common stock $ 5,600 $ ---
======== =======
Income taxes paid $ 7 $ 1
======== =======
Interest paid $ 5,795 $ 58
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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NORTHPOINT COMMUNICATIONS GROUP, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company
NorthPoint Communications Group, Inc. provides high speed network and data
transport services, allowing internet service providers (ISPs), broadband data
service providers and long distance and local phone companies (collectively,
network service providers or NSPs) to meet the rapidly increasing information
needs of small and medium-sized businesses, people who work in home offices and
telecommuters.
Basis of Presentation
The consolidated financial statements include the accounts of NorthPoint
Communications Group, Inc. and its wholly-owned subsidiary NorthPoint
Communications, Inc., together with its wholly-owned subsidiary NorthPoint
Communications of Virginia, Inc. Effective March 22, 1999, NorthPoint
Communications, Inc. consummated a reorganization pursuant to which it became a
wholly-owned subsidiary of NorthPoint Communications Group, Inc., a newly
created holding company. The reorganization was effected by a merger of
NorthPoint Communications, Inc., with and into NorthPoint Merger Sub, Inc., a
wholly-owned subsidiary of NorthPoint Communications Group, Inc., with
NorthPoint Communications, Inc., as the surviving corporation of such merger. As
a result of the reorganization, the stockholders of NorthPoint Communications,
Inc. immediately before the reorganization became the only stockholders of
NorthPoint Communications Group, Inc. immediately after the reorganization. All
material intercompany accounts and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations for the periods shown. The
results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
The Company considers all highly liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates market.
Short-term investments are accounted for in accordance with Statement of
Financial Accounting Standards No. 115 (SFAS 115) "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires that
securities be classified as "held to maturity," "available for sale" or
"trading," and the securities in each classification be accounted for at either
amortized cost or fair market value, depending upon their classification. The
Company has the intent and the ability to hold investments until maturity.
Therefore, all such investments are classified as held to maturity investments
and carried at amortized cost in the accompanying consolidated financial
statements.
All share and per-share amounts in the accompanying consolidated financial
statements have been restated to give retroactive effect for all periods to a
three-for-two stock split effective April 9, 1999, and a three-for-two stock
split effective April 16, 1999.
These financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Registration
Statement on Form S-1, as amended (File No. 333-73065), for the year ended
December 31, 1998. Certain prior period balances have been reclassified to
conform to current period presentation.
2. EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
The Company computes net loss per share pursuant to Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic net loss per share is
computed by dividing income or loss applicable to holders of common stock by the
weighted average number of shares of the Company's common stock outstanding
during the period after having given consideration to shares subject to
repurchase. Diluted net loss per share is determined in the same manner as basic
net loss per share except that the number of shares is increased assuming
exercise of dilutive stock options and warrants using the treasury stock method
and conversion of the Company's convertible preferred stock. See Condensed
Consolidated Statements of Operations for computed amounts.
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The dilutive effect of options, warrants and convertible preferred stock has
not been considered because the Company has a net loss and the impact of their
assumed exercise would be antidilutive.
3. COMMON STOCK AND WARRANTS
The Company sold 17,250,000 shares of common stock at $24 per share in its
initial public offering on May 5, 1999. Net of underwriting discounts and
commissions, the proceeds to the Company were $388,500,000.
From April 1, 1999 to June 30, 1999, the Company granted to certain directors
and employees options to purchase an aggregate of 3,339,575 shares of common
stock at an exercise price of $18.00 to $43.25 per share, which was determined
to be the fair value of the stock at the time of the grants.
Upon the initial public offering of the Company's stock, a convertible
promissory note in the amount of $5,600,000 was converted into 311,111 shares
of Class B common stock. The Class B common stock has rights that are identical
to the Company's common stock except that the Class B common stock is non-voting
stock. Commencing in March 2000, the Class B common stock may be converted into
common stock on a one-for-one basis at the election of the holder, provided that
such holder and its affiliates would not hold more than 10% of the voting stock
of the Company, or will automatically convert into common stock upon transfer
after such date to a third party.
At the time of the initial public offering, Microsoft purchased common shares
for $30,000,000 and the Company granted Microsoft a warrant to purchase
$30,000,000 of Class B common stock at an exercise price per share of $36 in
conjunction with this investment. This warrant is exercisable immediately and
will expire in May 2004. The Company recorded the fair value of the Microsoft
warrant of $2,619,000 using the Black-Scholes pricing model.
4. PREFERRED STOCK
In April 1999, NorthPoint Communications Group, Inc. issued 2,239,768 shares
of Series D-1 preferred stock with total proceeds of $21,900,000. At the time of
the Company's initial public offering, these shares, along with 1,728,408 shares
of Series D-1 preferred stock issued in March 1999, automatically converted into
2,155,613 shares of Class B common stock of the Company at a conversion price of
$18.
Upon the initial public offering of the Company's common stock, each one of
the Company's 37,014,122 shares of Series B preferred stock and 40,521,164
shares of Series C preferred stock converted into an equal number of shares of
common stock.
5. CREDIT FACILITY
On April 5, 1999, the Company paid off a bridge loan and recognized all
remaining unamortized debt discount of $2,862,000 as interest expense.
On April 5, 1999, the Company entered into a secured credit facility
consisting of:
. a $10,000,000 senior first priority secured term loan, all of which was drawn
down on the closing date;
. a $50,000,000 senior first priority secured revolving credit facility that
will convert into a senior first priority secured term loan within six
months, $5,000,000 of which was drawn down on the closing date; and
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. a $40,000,000 second priority secured term loan, all of which was drawn down
on the closing date.
The secured credit facility matures on the fifth anniversary of its closing
date. On April 27, 1999, the Company entered into an amendment to the secured
credit facility to increase the amount available under the senior first priority
secured revolving credit facility to $60,000,000.
The total amounts outstanding under the senior first priority secured loans
bear interest, in the absence of an event of default, at our option at:
. the LIBOR rate plus four and one-half percent per year; or
. the greater of the prime rate or the federal funds rate as announced by The
Wall Street Journal plus four percent per year.
For the first year that the senior first priority secured loans are outstanding,
a portion of the interest payable on the loans equal to 2% per annum of the
loans outstanding is being added to the outstanding loan balance, rather than
being paid.
The total amounts outstanding under the second priority secured term loan bear
interest, in the absence of an event of default, at the Company's option at:
. the LIBOR rate plus eight percent per year; or
. the greater of the prime rate or the federal funds rate as announced by The
Wall Street Journal plus seven and one-half percent per year.
Borrowings under the senior secured credit facility are restricted based upon
the Company's leverage ratio and the value of the Company's telecommunications
assets from time to time.
The capital stock of NorthPoint Communications, Inc., held by NorthPoint
Communications Group, Inc. is pledged as collateral under the credit facility,
as are substantially all of the Company's consolidated assets.
6. CONTINGENT WARRANTS
The Company has agreed to issue warrants to purchase up to 212,568 shares of
its common stock at a price of $1.5689 per share to one of its stockholders,
contingent on the introduction of DSL services in certain markets by the Company
and the placement of a purchase order by this stockholder for a certain number
of DSL end users in those markets prior to September 30, 1999. No warrants have
been issued under this agreement.
If these warrants are issued they will be valued using a Black-Scholes pricing
model and the corresponding deferred value will be amortized over a three year
period.
7. SUBSEQUENT EVENTS
On July 22, 1999, the Company repaid $5,000,000 outstanding under the credit
facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the condensed consolidated
unaudited financial statements and the related notes thereto included elsewhere
in this Form 10-Q and the consolidated audited financial statements and notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 1998 included in the
Company's Registration Statement on Form S-1, as amended (File No. 333-73065).
8
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Certain statements set forth below constitute "forward-looking statements."
Such forward-looking statements involve certain risks and uncertainties
including, but not limited to, those discussed herein under "Risk Factors" that
may cause actual results to differ materially from those expressed or implied in
any forward-looking statement. Investors and prospective investors are
cautioned not to place undue reliance on such forward-looking statements. We
disclaim any obligation to update the forward-looking statements contained
herein to reflect future events or developments. See "Forward-Looking
Statements."
Overview
We are a national provider of high speed, local data network services. Our
networks use digital subscriber line, or DSL, technology to enable data
transport over telephone company copper lines at guaranteed speeds up to 25
times faster than common dial-up modems. We market our network and data
transport services to internet service providers, long-distance and local
telephone companies and data service providers, whom we call network service
providers. Our customers can use our fast, secure and reliable data networks to
provide continuously connected, economical Internet access and other data-
intensive applications to end users. These end users are typically small- and
medium-sized businesses with up to 500 employees, people who work in home
offices, and telecommuters.
We are currently providing services in 24 metropolitan areas in the United
States and intend to offer service in a total of 29 metropolitan areas by the
end of this year. We have been and expect to be the first, or one of the first,
to offer DSL services in these markets. Our networks consist principally of
digital communications equipment that we own and install in telephone company
offices known as "central offices" and existing copper telephone lines that we
lease to connect our equipment with end users' premises. We will initially
install our equipment in the central offices with the highest density of small-
and medium-sized businesses in our 29 markets. We have already secured space in
over 1,025 of those central offices and paid for collocation space improvements
in these offices. We intend to expand the coverage of our networks in these
markets over time by installing equipment in additional central offices.
Upon completion of our planned expansion, our networks will be able to reach
approximately four million businesses and 30 million households, including more
than 80% of the small- and medium-sized businesses in our 29 markets. We have
already obtained required regulatory approvals, including competitive local
exchange carrier authorizations, to offer services in each of those markets. We
are currently providing or have entered into agreements to provide our services
to more than 150 network service providers and have connected over 7,000 of
their end users to our networks.
Since inception on May 16, 1997 and through the quarter ended June 30, 1999,
our principal activities have included:
. developing our business plans;
. procuring governmental authorizations and space in central offices;
. raising capital, hiring management and other key personnel;
. working on the design and development of our network architecture and
operations support systems;
. acquiring equipment and facilities; and
. negotiating interconnection agreements.
As a result of our development activities, we have experienced operating losses.
We expect to experience increasing operating losses as we expand our operations.
We introduced our commercial services in March 1998 in the San Francisco Bay
Area. We subsequently launched service in 23 additional markets, including the
greater Los Angeles area, Boston, New York, Chicago, San Diego, Washington,
D.C., Dallas, Detroit, Denver, Houston, Cleveland, Austin, Atlanta, Baltimore,
Philadelphia, Pittsburgh, Miami/Fort Lauderdale, St. Louis, Tampa/St.
Petersburg, Raleigh/Durham, Seattle, Portland, Oregon, and Denver. We intend to
offer our services in 5 additional metropolitan areas by year-end. Deployment
of our networks will require significant upfront capital expenditures. We have
targeted for this year an initial 900 central offices necessary to roll out
services in our 29 targeted markets and, subsequently, an additional 350 central
offices that will allow us to achieve blanket coverage in these markets.
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The principal capital expenditures we incur when we enter any market include:
. the establishment of a metropolitan node -- a facility at which we aggregate
and disseminate data traffic in each metropolitan area -- and the purchase
and installation of electronic switching equipment for that node;
. the procurement, design and construction of the collocation cage in each
central office;
. the purchase and installation of the network management and network test
equipment in those cages; and
. the capitalized cost of the installation of such equipment.
In addition, we incur operating, sales and market development expenses in
order to enter a new market. Once we have deployed our network in a market, the
majority of our additional capital expenditures are dependent upon orders to
connect new end users. These success-based capital expenditures include DSL line
cards, incremental digital subscriber line access multiplexers and network test
equipment, and line cards for our electronic switches in our metropolitan node.
In addition to the capital expenditures required to enter a market, we are
required to fund each market's cash flow deficit as we build our customer base.
Financial performance will vary from market to market, and the time when we
will achieve positive EBITDA, if at all, will depend on factors such as:
. the size of the addressable market;
. the level of upfront sales and marketing expenses;
. the number and sequencing of central offices built out;
. the cost of the necessary infrastructure;
. the timing of market entry; and
. the commercial acceptance of our services.
EBITDA is a measure of financial performance commonly used in the
telecommunications industry. It is defined as earnings before interest, taxes,
amortization of deferred stock compensation, depreciation and amortization. In
accordance with the Company's definition, EBITDA was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
EBITDA $(29,207) $(2,697) $(46,186) $(4,341)
======== ======= ======== =======
</TABLE>
Other companies' definition of EBITDA may differ from ours. You should not
construe it as an alternative to operating income as an indicator of our
operating performance or as an alternative to cash flows from operating
activities as a measure of liquidity.
Factors Affecting Future Operations
Revenues
We derive our revenues from monthly recurring and nonrecurring charges to
internet service providers, long-distance and local telephone companies and data
service providers, whom we call network service providers. Monthly recurring
revenues consist of end user line fees, based upon the number of installed
lines, for the network service providers' end users connected to our networks
and interconnection fees for each connection to our metropolitan node in each
market. Nonrecurring revenues include charges for the installation and
activation of new end users and in some cases, for end-user modems or other
electronic equipment. Our revenues consist almost exclusively of service
revenues. We currently sell only minimal amounts of end user modems or other
electronic equipment.
We seek to price our services competitively in relation to those of the
traditional telephone companies and other competitive telecommunications
companies in each market. Current standard end user line prices that we charge
to our network service providers for our services generally range from $75 per
month for 160 kilobits per second service to $250 per month for 1.5 megabits per
second service, before volume discounts. Although pricing will be an important
part of our strategy, we believe that customer relationships, customer care and
consistent quality will be the key to generating customer loyalty. During the
past several years, market prices for many telecommunications services have been
declining, which is a trend that we believe will likely continue. As prices
decline for any given speed of service, we expect that the total number of end
users and the proportion of our end users purchasing our higher-speed, higher-
priced services will increase. The cost to upgrade an end user's speed is
generally minimal.
We accelerated our deployment during the course of this calendar year into
additional geographic markets, successfully enabling us to sign more network
service provider partners than previously planned. We plan to continue this
strategy. We believe this strategy leaves us well-positioned to capitalize on
the demand for our products. In view of this rapid deployment, we need to
continue to enhance our abilities to develop the markets where we offer service.
Specifically, this accelerated deployment plan requires us to introduce
provisioning processes and interfaces with six of the eight major local
telephone companies simultaneously. We also must increase and enhance training
of our employees as well as our existing and new network service provider
partners. While we anticipate continuing strong increases in end-user line
installations in the next two to three quarters, we anticipate that line
installations will accelerate as we gain efficiencies through more advanced
provisioning processes and interfaces as well as anticipated growing demand for
DSL services from our expanded partner base in existing and new geographic
markets.
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Network Expenses
Our network expenses consist of nonrecurring and monthly recurring charges for
the commodity transport elements we choose to lease rather than own.
Nonrecurring network expenses include transport and loop installation fees. We
expect these costs will be largely related to the activation of new central
offices and new end users. Monthly recurring network expenses include loop fees,
rent, power and other fees charged by traditional telephone companies,
competitive telecommunications companies and other providers. As our customer
and end user base grows, we expect the largest element of network expenses to be
traditional telephone company charges for leased copper lines, which have
historically been $3 to $40 per line per month, depending on the identity of the
traditional telephone company and the location of the lines.
Selling, Marketing, General and Administrative Expenses
Our selling, marketing, general and administrative expenses primarily consist
of costs related to selling, marketing, customer care, provisioning, billing,
regulatory, corporate administration, network engineering and maintenance.
Additionally, we incur other costs associated with administrative overhead,
office leases and bad debt. We expect that our selling, marketing, general and
administrative costs will grow significantly as we expand our operations and
that administrative overhead will be a large portion of these expenses during
the start-up phase of our business. However, we expect these expenses to decline
as a percentage of our revenues as we build our customer base and the number of
end users connected to our networks increases.
We plan to employ a regional sales team in each market we enter. To attract
and retain a highly qualified sales force, we plan to offer our sales and
customer care personnel a compensation package consisting of commissions and
stock options. We expect to incur significant selling and marketing costs as we
continue to expand our operations. In addition, we plan to offer sales
promotions, especially in the first few years as we establish our market
presence.
Amortization of Deferred Stock Compensation
Deferred stock compensation arises as a result of the granting of stock
options to employees with exercise prices per share subsequently determined to
be below the fair values per share for financial reporting purposes of our
common stock at dates of grant. The deferred compensation is being amortized
over the vesting period of the associated options.
Depreciation and Amortization
We expect depreciation and amortization expense to increase significantly as
more of our network becomes operational and as we increase capital expenditures
to expand our network. Depreciation and amortization expense includes:
. depreciation of network infrastructure equipment;
. depreciation of information systems, furniture and fixtures;
. amortization of improvements to central offices, network control center
facilities and corporate facilities;
. amortization of central office collocation space improvements; and
. amortization of software.
Taxation
We have not generated any taxable income to date and therefore have not paid
any federal income taxes since inception. State taxes were limited to nominal
amounts. Use of our net operating loss carryforwards, which begin to expire in
2003, may be subject to limitations under Section 382 of the Internal Revenue
Code of 1986, as amended. We have recorded a full valuation allowance on the
deferred tax asset, consisting primarily of net operating loss
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carryforwards, because of uncertainty regarding its recoverability.
Results of Operations
As a result of the development and rapid growth of the Company's business
during the periods presented, the period-to-period comparisons of the Company's
results of operations are not necessarily meaningful and should not be relied
upon as an indication of future performance.
Revenues
We commercially introduced our services in March 1998 and recognized $128,000
in revenues for the quarter ended June 30, 1998. Revenues for the quarter ended
June 30, 1999 were approximately $2,504,000, 67% of which consisted of recurring
revenues. For the six months ended June 30, 1998 and June 30, 1999, revenues
were $163,000 and $3,787,000, respectively, of which 71% consisted of recurring
revenues for the six months ended June 30, 1999. The increase in revenues is due
to the expansion of our installed end user base that has occurred over the past
year.
Network Expenses
Network expenses were approximately $263,000 for the quarter ended June 30,
1998 and $7,801,000 for the quarter ended June 30, 1999. For the six months
ended June 30, 1998 and June 30, 1999, network expenses were $408,000 and
$11,733,000, respectively. These costs consisted primarily of monthly rental
costs for lines between end users and central offices, between central offices
and our metropolitan nodes, between our metropolitan nodes and our network
service providers, end user line installation and costs charged to us by the
traditional telephone companies. The increase in network expenses reflects the
growth in our network as we expand into new markets and connect new end users.
Selling, Marketing, General and Administrative Expenses
Selling, marketing, general and administrative expenses were approximately
$2,565,000 for the quarter ended June 30, 1998 and $23,914,000 for the quarter
ended June 30, 1999. For the six months ended June 30, 1998 and June 30, 1999,
selling, marketing, general and administrative expenses were $4,107,000 and
$38,294,000, respectively. These expenses consisted primarily of salaries and
related expenses for the development of our business, network architecture and
software, the establishment of our management team and the development of
corporate identification, promotional and advertising materials. As the staffing
levels and operations of the Company have expanded over the past year, so have
these operating expenses to support such growth.
Amortization of Deferred Stock Compensation
Amortization of deferred stock compensation was $334,000 for the quarter ended
June 30, 1998 and $1,215,000 for the quarter ended June 30, 1999. For the six
months ended June 30, 1998 and June 30, 1999, amortization of deferred stock
compensation was $534,000 and $2,807,000, respectively. This increase in
deferred stock compensation expense is due to the recruitment of new employees.
The unamortized balance of $16,679,000 at June 30, 1999 will be amortized over
the remaining vesting period of each grant.
Depreciation and Amortization
Depreciation and amortization expenses were approximately $195,000 for the
quarter ended June 30, 1998 and $2,813,000 for the quarter ended June 30, 1999.
For the six months ended June 30, 1998 and June 30, 1999, depreciation and
amortization was $272,000 and $4,200,000, respectively. Such expenses consisted
primarily of depreciation of network equipment, information systems, office
equipment, furniture and fixtures and amortization of leasehold improvements.
The increase in depreciation and amortization is primarily due to the additional
property and equipment that has been acquired and placed into service as we
continue to build out our networks.
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Interest Income and Expense
The interest income for the quarter ended June 30, 1998 was $50,000 and was
earned primarily from the proceeds raised in the Series B preferred stock
financing in August 1997. The interest income for the quarter ended June 30,
1999 was $3,026,000 and was earned primarily from the proceeds raised in the
initial public offering in May 1999. Interest income was $156,000 for the six
months ended June 30, 1998 and $3,264,000 for the six months ended June 30 1999.
We incurred minimal interest expense for the quarter ended June 30, 1998.
Interest expense for the quarter ended June 30, 1999 was approximately
$7,689,000. Interest expense for the quarter ended June 30, 1999 includes
amortization of $2,862,000 related to debt discount recorded in conjunction with
the issuance of bridge loan warrants and equipment lease warrants. The remainder
of the interest expense primarily represents the interest associated with the
credit facility and bridge loan. Interest expense was $122,000 for the six
months ended June 30, 1998 and $11,271,000 for the six months ended June 30,
1999.
Liquidity and Capital Resources
Our operations have required substantial capital investment for the
procurement, design and construction of our central office collocation space
improvements and cages, the purchase of telecommunications equipment and the
design and development of our networks. Capital expenditures were approximately
$4,938,000 for the six months ended June 30, 1998 and $47,910,000 for the six
months ended June 30, 1999.
Although we have no material commitments for capital expenditures during 1999,
we plan to make total capital expenditures in 1999 estimated at $130,000,000 to
$160,000,000 to develop our networks. In each market, we will initially target
the central offices with the highest density of small- and medium-sized
businesses. We will expand into other central offices when we obtain adequate
demand or volume commitments from our customers. We will also incur capital
expenditures for building a metropolitan node in each market and for expanding
our network control center in San Francisco.
As of June 30, 1999, we had an accumulated operating deficit of $91,541,000
and cash and cash equivalents of $291,655,000.
Net cash used in operating activities was $3,885,000 for the six months ended
June 30, 1998 and $52,014,000 for the six months ended June 30, 1999. The net
cash used in operations was primarily due to net losses, offset in part by
increases in accrued expenses and accounts payable in 1998, and by an increase
in accrued expenses in 1999. The net cash used in investing activities was
$4,938,000 for the six months ended June 30, 1998 and $159,007,000 for the six
months ended June 30, 1999, due to purchase of short-term investments and
acquisitions of property and equipment. Net cash provided by financing
activities was $599,000 for the six months ended June 30, 1998 and was primarily
due to borrowings on a line of credit. Net cash provided by financing activities
was approximately $491,720,000 for the six months ended June 30, 1999, of which
$482,478,000 related to the issuance of common and preferred stock, $55,000,000
related to borrowings, and $5,600,000 related to proceeds from a convertible
promissory note, offset primarily by the repayment of a $50,000,000 bridge loan.
On April 5, 1999, we entered into a secured credit facility with Goldman Sachs
Credit Partners L.P. and Newcourt Commercial Finance Corporation consisting of:
. a $10,000,000 senior first priority secured term loan, all of which we drew
down on the closing date;
. a $50,000,000 senior first priority secured revolving credit facility that
will convert into a senior first priority secured term loan within six
months, $5,000,000 of which we drew down on the closing date; and
. a $40,000,000 second priority secured term loan, all of which we drew down on
the closing date.
On April 27, 1999, we entered into an amendment to the secured credit facility
under which the senior first priority secured revolving credit facility was
increased by $10,000,000. The secured credit facility matures on the fifth
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anniversary of its closing date. The total amounts outstanding under the senior
first priority secured loans bear interest, in the absence of an event of
default, at our option at:
. the LIBOR rate plus four and one-half percent per year; or
. the greater of the prime rate or the federal funds rate as announced by The
Wall Street Journal plus four percent per year.
For the first year that the senior first priority secured loans are outstanding,
a portion of the interest payable on the loans equal to 2% per annum of the
loans outstanding is being added to the outstanding loan balance, rather than
being paid.
The total amounts outstanding under the second priority secured term loan bear
interest, in the absence of an event of default, at our option at:
. the LIBOR rate plus eight percent per year; or
. the greater of the prime rate or the federal funds rate as announced by The
Wall Street Journal plus seven and one-half percent per year.
Borrowings under the secured credit facility are restricted based upon our
leverage ratio and the value of our telecommunications assets from time to time.
We pledged to the lenders under the secured credit facility all of the capital
stock of NorthPoint Communications, Inc. held by NorthPoint Communications
Group, Inc. We and our subsidiaries also pledged as additional collateral under
the secured credit facility all of our personal property.
In March and April 1999, we issued and sold an aggregate of 3,968,174 shares
of Series D-1 preferred stock with total proceeds of approximately $38,800,000.
Purchasers of our Series D-1 preferred stock included ICG Services, Inc. (an
affiliate of ICG Communications, Inc.), At Home Corporation, Verio Inc., Cable &
Wireless USA, Inc., Concentric Network Corporation, ALC Communications
Corporation (an affiliate of Frontier Corporation), Network Plus Corporation and
Netopia, Inc.
In May 1999, we sold 17,250,000 shares of our common stock at $24 per share in
our initial public offering. Net of underwriting discounts and commissions, the
proceeds to us were $388,500,000. Microsoft Corporation and Tandy Corporation
purchased $30,000,000 and $20,000,000, respectively, of our stock in this
offering.
We have used and intend to use the proceeds of this offering and from the
secured credit facility to:
. to continue building our networks;
. to repay certain indebtedness;
. to fund working capital; and
. for general corporate purposes.
We believe that our existing capital resources will be sufficient to fund our
expansion and operating deficits through the middle of 2000. However, we may
decide to seek additional capital earlier than the middle of 2000, the timing of
which will depend upon market conditions, among other things. The actual amount
and timing of our future capital requirements may differ materially from our
estimates as a result of, among other things, the demand for our services and
regulatory, technological and competitive developments, including additional
market developments and new opportunities, in our industry. We may also need
additional financing if:
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. we alter the schedule, targets or scope of our network rollout plan;
. our plans or projections change or prove to be inaccurate; or
. we acquire other companies or businesses.
We may obtain additional financing through commercial bank borrowings, equipment
financing or the private or public sale of equity or debt securities.
We may be unsuccessful in raising sufficient additional capital. In
particular, we may be unable to raise additional capital on terms that we
consider acceptable, that are within the limitations contained in our financing
agreements and that will not impair our ability to develop our business. If we
fail to raise sufficient funds, we may need to modify, delay or abandon some of
our planned future expansion or expenditures, which could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Impact of Year 2000 Issue
We believe that our computer systems and software are year 2000 compliant.
However, we cannot assess the impact of potential year 2000 problems on
operators of traditional telephone systems or other service providers (such as
electric and utility) in the markets in which we operate. Because our systems
will be interconnected with -- and thus are dependent on -- those of traditional
telephone companies who operate these traditional telephone systems and other
service providers, any disruption of operations in the computer programs of
these service providers would likely have an impact on our systems in our
markets. We cannot assure you that this impact will not have a material adverse
effect on our business, prospects, financial condition and results of
operations.
We have inventoried and tested our enterprise application systems, including
internally-developed and vendor-developed applications and off-the-shelf
software and hardware relating to our internal information systems, and believe
that such systems are year 2000 compliant. We have not reviewed our non-
information technology systems, such as fire alarms, elevators and badge access
systems, for year 2000 issues relating to embedded microprocessors. To the
extent that year 2000 issues exist, these systems may need to be replaced or
upgraded. Because our systems were implemented within the last two years, we do
not anticipate significant year 2000 issues to arise, although we cannot be
certain about this.
In the provision of our DSL services, we use third party equipment and
software and interact with traditional telephone companies that have equipment
and software that may not be year 2000 compliant. We have requested assurances
regarding year 2000 compliance from our equipment and software vendors and the
traditional telephone companies. We currently have received assurances from most
of our vendors and anticipate receiving assurances soon from the remaining
vendors. We have learned that the traditional telephone companies have informed
the Federal Communications Commission that they are year 2000 compliant. We are
in the process of requesting that they provide assurances of their year 2000
compliance directly to us. We plan to test our system interfaces with at least
one traditional telephone company if we are able to obtain traditional telephone
company cooperation. However, failure of our third-party or traditional
telephone company software and equipment to be year 2000 compliant could cause
us to incur significant expense in correcting any problems that arise, impacting
our business, prospects, operating results and financial condition.
We acknowledge the criticality and importance of year 2000 compliance within
our organization. We are currently gathering year 2000 compliance and
preparedness statements from all of our business partners. We plan to test and
validate our system interfaces with partners and to develop a contingency plan
prior to the end of the third quarter of 1999. However, if our partners' systems
are not year 2000 compliant, our business, prospects, operating results and
financial condition could be adversely affected.
In the normal course of doing business with our partners and suppliers, we
establish manual back-up processes (fax, phone, e-mail, etc.) for all critical
interconnections and business functions. These manual processes are designed to
replace our automated interfaces and processes in the event of a failure. We
plan to test these contingency procedures on a frequent basis to ensure that
they work properly in support of our business. Our contingency procedures will
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be available if year 2000 problems occur in any of our partner or supplier
environments. In addition, we plan to conduct back-ups of all of our mission-
critical systems in advance, with the ability to revert to previous day
transactions to ensure minimal loss of corporate data if year 2000 problems
occur in our systems.
Our aggregate historical costs for year 2000 analysis, planning and
remediation have not been material to date and we do not expect them to be
material in the future. However, we cannot assure that these costs will not be
greater than we currently expect. If these costs increase significantly, our
business, prospects, operating results and financial condition could be
adversely affected. Our complete internal review of and planning for year 2000
issues is anticipated to be completed by November 1, 1999.
Forward Looking Statements
The statements contained in this report which are not historical facts may be
deemed to contain forward-looking statements. Such statements are indicated by
words or phrases such as "anticipate," "estimate, "projects," "believes,"
"intends," "expects" and similar words and phrases. Actual results may differ
materially from those expressed or implied in any forward-looking statement as a
result of certain risks and uncertainties, including, without limitation, the
company's dependence on strategic third parties to market and resell its
services, intense competition for the company's service offerings, dependence on
growth in demand for DSL-based services, ability to raise additional capital and
other risks and uncertainties detailed herein under "Risk Factors" and in our
Securities and Exchange Commission filings. Prospective investors are cautioned
not to place undue reliance on such forward-looking statements. We disclaim any
obligation to update any of the forward-looking statements contained herein to
reflect future events or developments.
Risk Factors
In addition to the other information contained herein, you should carefully
consider the following risk factors in evaluating our company.
Because We Have a Limited Operating History, It Is Difficult to Evaluate Our
Business
We were formed in May 1997 and began offering commercial services in the San
Francisco Bay Area in March 1998. Because of our limited operating history,
investors have limited operating and financial data about our company upon which
to base an evaluation of our performance and an investment in our common stock.
Investors should consider the risks, expenses and difficulties we may
encounter, including those frequently encountered by early stage companies in
new and rapidly evolving markets. As a result, we may be unable to:
. develop our operational support systems and other information technology
systems;
. obtain central office space and suitable copper wire loops;
. expand our customer base;
. raise additional capital;
. maintain adequate control of our expenses;
. attract and retain qualified personnel;
. enter into and implement interconnection agreements with traditional
telephone companies, some of which are our competitors or potential
competitors;
. expand the geographic coverage of our network;
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. obtain governmental authorizations to operate as a competitive
telecommunications company in new markets;
. continue to upgrade our technologies and enhance our product features; and
. respond to technological changes and competitive market conditions.
We Expect Our Losses and Negative Cash Flow to Continue
To date, we have incurred substantial operating losses, net losses and
negative cash flow on both an annual and quarterly basis. For the year ended
December 31, 1998, we had operating losses of approximately $25,362,000, net
losses of $28,847,000, and negative cash flow from operating and investing
activities of $52,913,000. For the six months ended June 30, 1999, we had
operating losses of approximately $53,247,000, net losses of $61,254,000, and
negative cash flow from operating and investing activities of $211,021,000. We
cannot assure our investors that we will ever achieve profitability or generate
positive cash flow.
We expect our operating expenses will increase significantly, especially in
the areas of operations, sales and marketing, as we develop and expand our
business and, as a result, we will need to increase our revenue to become
profitable. If our revenue does not grow as expected or increases in our
expenses are not in line with our plans, there could be a material adverse
effect on our business, prospects, financial condition and results of
operations.
We Cannot Predict Whether We Will be Successful Because Our Business Model is
Unproven and Our Market Is Developing
Our business strategy is unproven. To be successful, we must, among other
things, develop and market data networks and services that are widely accepted
by our customers and their end users at prices that will yield a profit. Because
our business and the overall market for high speed data communications services
are in the early stages of development, we are unsure whether or when our DSL
services will achieve commercial acceptance.
Our Failure to Achieve or Sustain Market Acceptance at Desired Pricing Levels
Could Impair Our Ability to Achieve Profitability or Positive Cash Flow
Prices for digital communication services have fallen historically, a trend we
expect will continue. Accordingly, we cannot predict to what extent we may need
to reduce our prices to remain competitive or whether we will be able to sustain
future pricing levels as our competitors introduce competing services or similar
services at lower prices. Our failure to achieve or sustain market acceptance at
desired pricing levels could impair our ability to achieve profitability or
positive cash flow, which would have a material adverse effect on our business,
prospects, financial condition and results of operations.
Our Quarterly Operating Results Are Likely to Fluctuate Significantly, Causing
Our Stock Price to be Volatile or to Decline
We cannot accurately forecast our revenue because of our limited operating
history and the emerging nature of the data communications industry in our
markets. Our revenue could fall short of our expectations if we experience
delays or cancellations by even a small number of our customers. A number of
factors are likely to cause fluctuations in our operating results, including:
. the rate at which we are able to attract and retain customers, and whether
larger customers fulfill their volume commitments to us;
. the ability of our customers to generate significant end user demand;
. the timing and willingness of traditional telephone companies to provide
and construct the required central office facilities;
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. the timing and willingness of traditional telephone companies to provide
suitable copper wire loops at favorable prices;
. the prices our customers and, in turn, their end users pay for our
services;
. availability of financing to continue to fund our expansion;
. our ability to deploy our services on a timely basis to satisfy end user
demand;
. the mix of line orders between lower priced and higher priced lines;
. the amount and timing of capital expenditures and operating costs as we
expand our network;
. the announcement or introduction of new or enhanced services by our
competitors; and
. technical difficulties or network downtime.
As a result, it is likely that in some future quarters our operating results
will be below the expectations of securities analysts and investors. If this
happens, the trading price of our common stock would likely be materially
adversely affected.
A Limited Number of Customers Account for a High Percentage of Our Revenue and
the Loss of a Significant Customer Could Harm Our Business
We currently provide or have agreements to provide data transport solutions to
more than 150 network service providers. For the quarter ended June 30, 1999,
our two largest customers accounted for approximately 40% of our revenue. We
anticipate that, as we expand our business, we will continue to rely upon a
limited number of customers for a high percentage of our revenue and end-user
lines. As a result of this concentration of our customer base, a loss of or
decrease in business from one or more of our customers could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Similarly, if our customers are unsuccessful in competing for end users in
their own intensely competitive markets or experience other financial or
operating difficulties, our business, prospects, financial condition and results
of operations would be materially adversely affected.
Many of our agreements with our customers are non-exclusive, and many of our
customers are also customers of, or have invested in, our competitors. To the
extent our significant customers strengthen their commercial relationships with
our competitors, our business would be materially adversely affected.
We May Not Be Able to Continue to Grow Our Business If We Do Not Obtain
Significant Additional Funds By the Middle of 2000
We believe our current capital resources will be sufficient for our funding
and working capital requirements and for the deployment and operation of our
networks in targeted markets through the middle of 2000. We will need
significant additional funds beyond then. We expect that the actual amount and
timing of our future capital requirements will depend upon the demand for our
services and regulatory, technological and competitive developments, including
additional market developments and new opportunities, in our industry. We may
seek additional financing earlier than the middle of 2000 if:
. we alter the schedule, targets or scope of our network rollout plan;
. our plans or projections change or prove to be inaccurate;
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. we acquire other companies or businesses; or
. market conditions allow us to raise public or privately financed capital on
attractive terms.
We may be unsuccessful in raising sufficient additional capital at all or on
terms that we consider acceptable. If we are unable to obtain adequate funds on
acceptable terms, our ability to deploy and operate our networks, fund our
expansion or respond to competitive pressures would be significantly impaired.
Such limitation could have a material adverse effect on our business, prospects,
financial condition or results of operations.
Our Business Activities and Our Ability to Raise Additional Funds Are Limited by
Covenants Contained in Our Financing Agreements
Our debt agreements and other financing agreements contain and will contain
restrictions on our activities and financial covenants with which we will be
required to comply. If we fail to comply with these requirements, we would be in
default and our obligations could be declared immediately due and payable. We
may be unable to make such required payments, or to raise sufficient funds from
other sources.
In addition, the terms of proposed new indebtedness or other funding may not
be permitted by the terms of our current financing agreements. This may impair
our ability to develop our business. If we fail to raise sufficient funds, we
may be required to modify, delay or abandon some of our expansion plans, which
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We Need to Make Capital Expenditures, and the Amounts, Timing and Returns are
Uncertain
In 1999, we will have to make significant capital expenditures estimated at
$130,000,000 to $160,000,000 to develop our business and deploy our services and
systems. The amount and timing of these expenditures are uncertain and will
depend upon our ability to execute our plans in a timely and cost-effective
manner. We will need to increase our revenue in order to earn a return from our
capital expenditures. If our revenue does not grow as expected, or capital
expenditures exceed our estimates, there could be a material adverse effect on
our business, prospects, financial condition and results of operations.
Our Failure to Manage Our Growth Effectively Could Impair Our Business
If we are successful in implementing our business plan, our operations will
expand rapidly. This rapid expansion could place a significant strain on our
management, financial and other resources. Our ability to manage future growth,
if it occurs, will depend upon our ability to:
. control costs;
. maintain regulatory compliance;
. implement and significantly expand our financial and operating systems;
. maintain our operations support systems; and
. expand, train and manage our employee base.
We may be unable to do these things successfully. In addition, we may not
successfully obtain, integrate and use our employees and management, operating
and financial resources. Our business, prospects, financial condition and
results of operations will be materially adversely affected if we are unable to
manage our growth effectively.
The Data Communications Industry is Undergoing Rapid Technological Changes and
New Technologies May Be Superior to the Technology We Use
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The data communications industry is subject to rapid and significant
technological change, including continuing developments in DSL technology, which
does not presently have widely accepted standards, and alternative technologies
for providing high speed data communications such as cable modem technology. As
a consequence:
. we will rely on third parties, including some of our competitors and
potential competitors, to develop and provide us with access to
communications and networking technology;
. our success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and
. we expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, our products and technologies.
If we fail to adapt successfully to technological changes or obsolescence or
fail to obtain access to important technologies, our business, prospects,
financial condition and results of operations could be materially adversely
affected.
Our Success in Attracting and Retaining Customers Significantly Depends on Our
Ability to Obtain Central Office Space From Traditional Telephone Companies
We believe the growth and success of our business will depend upon securing
physical central office space for our equipment in the central offices of
traditional telephone companies in our target markets. We have experienced
initial rejections of our applications to obtain space in some central offices.
We believe we will continue to receive rejections of requested physical central
office space as we expand our existing and planned networks. Although to date a
majority of our applications to obtain physical central office space that were
initially rejected have subsequently been accepted, we cannot assure you that we
will be successful in reversing the pending rejections or any other rejected
applications for space in desired central offices. Nor can we predict the extent
of these rejections or their impact on our ability to provide service in our
target markets. The rejection of our applications for central office space has
in the past and could in the future result in delays and increased costs as we
expand our services in our target markets. This may materially adversely affect
our business, prospects, financial condition and results of operations.
As we grow, we may be unable to secure central office space on a timely basis
or at all. In some cases, although physical central office space is available,
traditional telephone companies have claimed that they must refurbish space to
make it suitable for our equipment--for example, by adding separate entrances,
removing asbestos or obsolete machinery, or increasing power supply and air
conditioning--which in some cases has made the cost to obtain that physical
central office space prohibitively expensive. The FCC recently adopted new rules
designed to make it easier and less expensive for competitive telecommunications
companies to obtain central office space and to require traditional telephone
companies to provide them with alternative arrangements for obtaining central
office space. We cannot be certain of how effective these rules will be or
whether our competitors will benefit to a greater extent from these rules than
we will. We expect physical central office space to become increasingly scarce
due to increasing demand from a growing number of competitive telecommunications
companies.
Even when space is available, we may face delays ranging from four months to
more than a year after we place an order before space for our equipment is made
available. If our applications for physical central office space are rejected,
or the costs or delays associated with obtaining central office space become too
expensive, our expansion plans could be adversely affected, which could have a
material adverse effect on our business, prospects, financial condition and
results of operations.
Broad service availability is also important to our customers and potential
customers that want to provide Internet access or other data services on a
national or regional basis. Our inability to obtain physical central office
space in a timely manner could have a material adverse effect on our ability to
attract and retain customers.
Any disputes with traditional telephone companies over the types of equipment
we seek to install in the central office space could also delay our installation
and even impair our ability to provide service in the manner we deem
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appropriate. These delays or refusals could have a material adverse effect on
our business, prospects, financial condition and results of operations.
Our Success Depends on Interconnection Agreements with Traditional Telephone
Companies in Each of Our Markets
The success of our strategy depends on our ability to enter into and renew
interconnection agreements with traditional telephone companies in each of our
target markets on a timely basis. Delays in obtaining additional interconnection
agreements would postpone our entry into a market, which could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Interconnection agreements have limited terms of two to three years and we
cannot assure you that existing or new agreements will be extended or negotiated
on terms favorable to us. Interconnection agreements are also subject to state
commission, FCC and judicial oversight. These government bodies may modify the
terms or prices of our interconnection agreements in ways that adversely affect
our business, prospects, financial condition and results of operations.
Our Business Could Suffer if High Quality Copper Lines Are Not Available or Cost
Us More Than We Expect
We significantly depend on the quality of the copper lines and the traditional
telephone companies' maintenance of such lines. We cannot assure you that we
will be able to obtain the copper lines and the services we require from the
traditional telephone companies at quality levels, prices, terms and conditions
satisfactory to us. Our failure to do so would have a material adverse effect on
our business, prospects, financial condition and results of operations.
Under federal law, traditional telephone companies have an obligation to
negotiate with us in good faith to enter into interconnection agreements,
including agreements on the price at which we can obtain suitable lines from
these telephone companies. If no agreement can be reached, either side may
petition the applicable state commission to arbitrate remaining disagreements.
These arbitration proceedings can last up to nine months. Moreover, the state
commission must approve any interconnection agreement resulting from negotiation
or arbitration, and any party may appeal an adverse decision by the state
commission to federal district court. The potential cost in resources and delay
from this process could harm our ability to compete in certain markets, and
there is no guarantee that a state commission would resolve disputes, including
pricing disputes, regarding our access to suitable lines in our favor. Moreover,
the FCC rules governing pricing standards for access to the networks of the
traditional telephone companies are currently being challenged in federal court.
If the courts overturn the FCC's pricing rules, the FCC may adopt a new pricing
methodology that would require us to pay a higher price to traditional telephone
companies for access to suitable lines. This could have a detrimental effect on
our business.
We have not yet established a history of ordering and obtaining the
provisioning and repair of very large volumes of lines from any traditional
telephone company. We also depend on cooperation from traditional telephone
companies for repair of transmission facilities. The traditional telephone
companies in turn rely significantly on unionized labor. Labor-related issues
and actions on the part of the traditional telephone companies have in the past,
and may in the future, adversely affect traditional telephone companies'
provision of services and network components that we order.
Our dependence on the traditional telephone companies has caused and could
continue to cause us to encounter delays in establishing our networks,
provisioning lines and upgrading our services. These delays could adversely
affect our relationships with our customers, harm our reputation or could
otherwise have a material adverse effect on our business, prospects, financial
condition and results of operations.
We Depend on Market Acceptance for DSL-Based Services
The market for small- and medium-sized business, telecommuter and residential
Internet access is in the early stages of development. Because we offer services
to a new and evolving market and because current and future competitors are
likely to introduce competing services, it is difficult for us to predict the
rate at which these markets will grow. Various providers of high-speed digital
communications services are testing products from various suppliers
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for various applications, and it is unclear if DSL will offer the same or more
attractive price-performance characteristics. If the markets for our services
fail to develop, grow more slowly than anticipated or become saturated with
competitors, our business, prospects, financial condition and results of
operations could be materially adversely affected.
We Depend on Our Billing, Customer Service and Information Support Systems,
Which Need Further Development
Sophisticated information and processing systems are vital to our growth and
ability to monitor costs, bill customers, process customer orders and achieve
operating efficiencies. Our plans for the development and implementation of our
operations support systems rely, for the most part, on acquiring products and
services offered by third-party vendors and integrating those products and
services in-house to produce efficient operational solutions. However, we may
not successfully identify all of our information and processing needs or
implement these systems on a timely basis or at all, and these systems may not
perform as expected.
In addition, our right to use these systems is dependent upon license
agreements with third-party vendors. Some of those agreements may be cancelable
by the vendor and the cancellation or nonrenewal of these agreements may have a
material adverse effect on our business, prospects, financial condition and
results of operations.
Similar issues are applicable to the operations support systems and other
systems of our customers, and to the interface between our systems and those of
our customers. Therefore, failures at our customers could also have a material
adverse effect on our business, prospects, financial condition and results of
operations.
If We Do Not Adequately Address Year 2000 Issues, We May Incur Significant Costs
and Our Business Could Suffer
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, our computer
programs that have date-sensitive software and software of companies into which
our network is interconnected may recognize a date using "00" as the year 1900
rather than the year 2000. 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. If the systems of other companies on
whose services we depend or with whom our systems interconnect are not year 2000
compliant, it could have a material adverse effect on our business, prospects,
financial condition and results of operations. See "Impact of Year 2000 Issue."
We May Be Unable to Expand Our Network Services Effectively and Provide High
Performance to a Substantial Number of End Users
Due to the limited deployment of our services, the ability of our DSL network
to connect and manage a substantial number of end users at high transmission
speeds is still unknown. While peak digital data transmission speeds across our
DSL network to and from the central office and the end user can exceed 1.5
megabits per second, the actual data transmission speeds over our network could
be significantly slower due to:
. the type of DSL technology deployed;
. the distance an end user is located from a central office;
. the configuration of the telecommunications line being used;
. the existence of and number of data transmission impediments on the
telephone company copper lines;
. the gauge of the copper lines; and
. the presence and severity of interfering transmissions on nearby lines.
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For example, we are not certain whether we can successfully deploy higher DSL
speeds through digital loop carrier systems which, because they connect copper
lines to a fiber link, currently limit DSL service to a maximum speed of 144
kilobits per second.
Because we rely on traditional telephone companies to overcome technical
limitations associated with loop carrier systems, we cannot assure investors
that we will be able to successfully deploy high speed DSL service to all areas
in our markets. As a result, our network may not be able to achieve and maintain
the highest possible digital transmission speed. Our failure to achieve or
maintain high speed digital transmissions would have a material adverse effect
on our business, prospects, financial condition and results of operations.
Our Success Depends on Our Retention of Executive Officers and Other Key
Personnel and Our Ability to Hire Additional Key Personnel
We are managed by a small number of executive officers. Competition for
qualified executives in the data communications services industry is intense,
and there are a limited number of persons with comparable experience. We depend
upon our executive officers because we believe there are few managerial
personnel with qualifications to swiftly implement a business plan integrating
DSL technology with the existing telephone infrastructure. We do not have
employment agreements with any of our executive officers, so any of these
individuals may terminate his or her employment with us at any time. We do not
have "key person" life insurance policies on any of our executive officers.
The loss of these key individuals could have a material adverse effect on our
business, prospects, financial condition and results of operations.
We believe that our success will depend in large part on our ability to retain
and attract qualified technical, marketing, managerial and other personnel.
Additionally, we believe an effective sales force is critical to our success.
The industry in which we compete is characterized by a high level of employee
mobility and aggressive recruiting of skilled personnel. We may be unable to
hire or retain necessary personnel in the future. Our inability to attract and
retain key personnel would have a material adverse effect on our business,
prospects, financial condition and results of operations.
The Market in Which We Operate is Highly Competitive, and We May Not Be Able to
Compete Effectively, Especially Against Established Industry Competitors with
Significantly Greater Financial Resources
We face competition from many competitors with significantly greater financial
resources, well-established brand names and larger customer bases. We also
expect competition to intensify in the future. We expect significant competition
from traditional and new telephone and telecommunications companies, including
national long distance carriers, cable modem service providers, Internet service
providers, on-line service providers, and wireless and satellite data service
providers.
Other Competitive Telecommunications Companies, Some with Greater Financial
Resources, Compete in the Same Markets for the Same Customers. Other competitive
telecommunications companies have entered and may continue to enter the market
and offer high speed data services using a business strategy similar to ours.
Some competitors, including those focusing on data transport such as Rhythms
NetConnections Inc., Covad Communications Group, Inc., HarvardNet Inc., Dakota
Services Limited, Prism Solutions, Inc. and Network Access Solutions
Corporation, have begun to offer DSL-based access services, and others are
likely to do so in the future. Certain of our customers have made investments in
our competitors, which may enhance their relationships with these competitors at
our expense. The Telecommunications Act of 1996 specifically grants any
competitive local exchange carrier, or competitive telecommunications company,
the right to negotiate interconnection agreements with traditional telephone
companies, or incumbent local exchange carriers. The Telecommunications Act also
allows competitive telecommunications companies to enter into interconnection
agreements which are identical in all respects to ours. In addition, some
competitive telecommunications companies have extensive fiber networks in many
metropolitan areas primarily providing high speed digital and voice circuits to
large corporations, and have interconnection agreements with traditional
telephone companies pursuant to which they have acquired space in traditional
telephone companies' central offices in many of our markets. As a result, our
customers may contract with other competitive telecommunications companies,
which may decrease our customers' demand for our services.
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Traditional Telephone Companies With Greater Resources Than Ours May Directly
Compete in Our Markets. The traditional telephone companies have an established
brand name and reputation for high quality in their service areas, possess
significant capital to deploy DSL equipment rapidly, have their own copper lines
and can bundle digital data services with their existing analog voice services
to achieve economies of scale in serving customers. In addition, most
traditional telephone companies have established or are establishing their own
Internet service provider businesses, and all of the largest traditional
telephone companies that are present in our target markets are conducting market
trials of or have commenced offering DSL-based access services. For example,
Pacific Bell and Southwestern Bell are offering commercial services in some
territories in which we offer services, U S WEST is offering commercial DSL
services and Ameritech has announced commercial DSL services in some areas of
Michigan and Illinois. We recognize that the traditional telephone companies
have the potential to quickly deploy DSL services and are in a position to offer
service from central offices where we may be unable to secure space in
traditional telephone companies' central offices. In addition, the FCC is
considering establishing requirements for separate subsidiaries through which
the traditional telephone companies could provide DSL service on a largely
deregulated basis. As a result, we expect traditional telephone companies to be
strong competitors in each of our target markets.
National Long Distance Carriers May Begin to Compete for Our Small- and
Medium-Sized Business Customers. Many of the leading traditional national long
distance carriers, including MCI WorldCom, Inc., AT&T Corp. and Sprint
Corporation, are expanding their capabilities to support high speed, end-to-end
data networking services. They also have interconnection agreements with many of
the traditional telephone companies and a number of spaces in traditional
telephone companies' central offices from which they could begin to offer
competitive DSL services. The newer national long distance carriers, such as
Level 3 Communications, Inc., The Williams Companies, Inc., IXC Communications,
Inc. and Qwest Communications International, Inc. are building and managing high
speed fiber-based national data networks and partnering with Internet service
providers to offer services directly to the public. These companies could modify
their current business focus to include small- and medium-sized business
customers using DSL or other technologies in combination with their current
fiber networks.
Cable Modem Service Providers May Offer High Speed Internet Access at More
Competitive Rates Than Ours, Forcing Us to Lower Our Prices. Cable modem service
providers, such as At Home Corporation and Road Runner, Inc. (with their cable
partners), are deploying high speed internet access services over hybrid fiber
coaxial cable networks. Where deployed, these networks provide similar and in
some cases higher speed Internet access than we provide. They also offer these
services at lower price points than our services. Actual or prospective cable
modem service provider competition may have a significant negative effect on our
ability to secure customers and may create downward pressure on the prices we
can charge for our services.
Internet Service Providers, Our Targeted Customers, May Begin to Provide DSL
Services Directly. Internet service providers, such as GTE Internetworking,
UUNET (a subsidiary of MCI WorldCom, Inc.), Sprint, Concentric Network
Corporation, MindSpring Enterprises, Inc. and PSINet, Inc., provide Internet
access to residential and business customers, generally using the existing
telephone system. Some regional Internet service providers, such as HarvardNet
Inc., InterAccess Co., Vitts Networks Inc. and Prism Solutions, Inc., have begun
offering DSL-based services. Internet service providers could become competing
DSL service providers if they attain certification as competitive
telecommunications companies in the states in which they planned to operate.
On-line Service Providers, Our Targeted Customers, May Begin to Provide DSL
Services Directly. On-line service providers, such as America Online, Inc.,
Compuserve (a subsidiary of America Online), Microsoft Network, Prodigy, Inc.,
and WebTV Networks, Inc. (a subsidiary of Microsoft), provide, over the Internet
and on proprietary on-line services, content and applications ranging from news
and sports to consumer video conferencing. These services are designed for broad
consumer access over telecommunications-based transmission media, which enable
digital services to be provided to the significant number of consumers who have
personal computers with modems. In addition, on-line service providers provide
Internet connectivity, ease-of-use and consistency of environment. Many of these
on-line service providers have developed their own access networks for modem
connections. AOL has announced that it will purchase DSL services from Bell
Atlantic and SBC Communications. If these on-line service providers were to
extend their owned access networks to DSL, they would be our competitors.
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Wireless and Satellite Data Service Providers May Begin to Offer Wireless and
Satellite-Based Internet Connectivity, Also Competing Against Us. Wireless and
satellite data service providers are developing wireless and satellite-based
Internet connectivity. We may face competition from terrestrial wireless
services, including multi-channel multipoint distribution system, local
multipoint distribution system, wireless communication service and point-to-
point microwave systems. The FCC recently adopted new rules to permit multi-
channel multipoint distribution system licensees to use their systems to offer
two-way services, including high speed data, rather than solely to provide one-
way video services. The FCC also has auctioned local multipoint distribution
system licenses in all markets for wireless systems, which can be used for high
speed data services. In addition, companies such as Teligent, Inc., Advanced
Radio Telecom Corp., WNP (which recently agreed to be acquired by NEXTLINK) and
WinStar Communications, Inc. hold point-to-point and/or point-to-multipoint
microwave licenses to provide fixed wireless services such as voice, data and
video conferencing.
We also may face competition from satellite-based systems. Motorola Satellite
Systems, Inc., Hughes Communications, Inc. (a subsidiary of General Motors
Corporation), Teledesic LLC and others have filed applications with the FCC for
global satellite networks which can be used to provide broadband voice and data
services.
In January 1997, the FCC allocated 300 MHz of spectrum in the 5 GHz band for
unlicensed devices to provide short-range, high speed wireless digital
communications. These frequencies must be shared with incumbent users without
causing interference. Although the allocation is designed to facilitate the
creation of new wireless local area networks, it is too early to predict what
kind of equipment might ultimately be manufactured and for what purposes it
might be used.
The telecommunications industry is subject to rapid and significant changes in
technology, and we cannot predict the effect of technological changes on our
business, such as continuing developments in DSL technology and alternative
technologies for providing high speed data communications. These technological
developments in the telecommunications industry could have a material adverse
effect on our competitive position and therefore on our business, prospects,
financial condition and results of operations.
Industry Consolidation Could Make Competing More Difficult
Consolidation of companies offering high speed local data transport is
occurring through acquisitions, joint ventures and licensing arrangements
involving our competitors and our customers' competitors. As a company with
limited operating history, we cannot assure that we will be able to compete
successfully in an increasingly consolidated industry. Any heightened
competitive pressures that we may face may have a material adverse effect on our
business, prospects, financial condition and results of operations.
Additionally, because we rely on our customers' marketing channels to provide
our services to business and residential end users, if our customers are
adversely affected by consolidation and integration in the market, our business,
prospects, financial condition and results of operations could be materially
adversely affected.
Our Services are Subject to Uncertain Government Regulation, and Changes in
Current or Future Laws or Regulations Could Restrict the Way We Operate Our
Business
We are subject to federal, state and local regulation of our
telecommunications business. With the passage of the Telecommunications Act in
1996, Congress sought to foster competition in the telecommunications industry
and to promote the deployment of advanced telecommunications technology.
Implementation of the Telecommunications Act is the subject of ongoing
administrative proceedings at the federal and state levels, litigation in
federal and state courts, and legislation in federal and state legislatures. We
cannot predict the outcome of the various proceedings, litigation and
legislation or whether or to what extent these proceedings, litigation and
legislation may adversely affect our business and operations.
As a competitive telecommunications company, we are subject to FCC regulation
for our contractual, or interconnection, arrangements with the traditional
telephone companies, or incumbent local exchange carriers, in our markets, but
the scope of this regulation is uncertain because it is the subject of ongoing
court and administrative proceedings. Several parties have brought court
challenges to the FCC's interconnection rules, including the rules that
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establish the terms under which a competitive telecommunications company may use
portions of a traditional telephone company's network. Although the Supreme
Court recently held that the FCC has the authority to adopt interconnection
rules and specifically upheld several of these rules, other rules are still
being considered by the courts. If a rule that is beneficial to our business is
struck down, it could harm our ability to compete. In particular, the courts
have not yet resolved the lawfulness of the methodology that the FCC established
to determine the price that competitive telecommunications companies would have
to pay traditional telephone companies for use of the traditional telephone
companies' networks. The courts may determine that the FCC's pricing rules are
unlawful, which would require the FCC to establish a new pricing methodology. If
this occurs, the new pricing methodology that the FCC adopts may result in our
having to pay a higher price to traditional telephone companies if we were to
use a portion of their networks in providing our services, and this could have a
detrimental effect on our business.
Although the Supreme Court upheld most of the FCC's rules that the Court
reviewed, it struck down the rule specifying the various portions of the
traditional telephone companies' networks that the traditional telephone
companies were required to make available to competitive telecommunications
companies. As a result, the FCC will have to develop a new standard for
determining which portions of the traditional telephone companies' networks must
be made available to competitive telecommunications companies. This new standard
may reduce the number of network components to which competitive
telecommunications companies will have access. If this occurs, this may harm our
ability to compete.
Recently, various traditional telephone companies have requested the FCC grant
them regulatory relief in the provision of data transmission services, including
DSL services, which would allow the traditional telephone companies to compete
more directly with DSL providers such as NorthPoint. In response, the FCC issued
a decision that data services generally are telecommunications services that,
when provided by traditional telephone companies, are subject to the FCC's
interconnection rules, including the rule requiring that a traditional telephone
company's data services be subject to unbundling and resale requirements. This
issue is still pending before the FCC, and we cannot be certain that the FCC
will not reconsider its decision. Moreover, although the FCC recently adopted
new rules designed to provide greater access to central office space at less
cost, these new rules may benefit our competitors to a greater extent than they
benefit us, which could harm our competitiveness. Additionally, since the FCC
issued its decision, various traditional telephone companies have again asked
the FCC for regulatory relief with respect to their provision of data
transmission services. The FCC has not yet resolved these later requests. We
would expect that an FCC decision in favor of the traditional telephone
companies could have a material adverse effect on our business, prospects,
financial condition and results of operations.
Our Debt Creates Financial and Operating Risk That Could Limit the Growth of Our
Business
As of June 30, 1999, we had approximately $58,995,000 of indebtedness and
$425,008,000 of stockholders' equity.
The degree to which we are leveraged could have important consequences to
holders of our common stock, including, but not limited to, the following:
. our ability to obtain additional financing or refinancing in the future for
capital expenditures, repayment of outstanding indebtedness, working
capital, acquisitions, general corporate or other purposes may be
materially limited or impaired;
. our cash flow, if any, may be unavailable for building our business, as a
substantial portion of our cash flow may be dedicated to the payment of
principal and interest on our indebtedness or other indebtedness that we
may incur in the future, and our failure to generate sufficient cash flow
to service such indebtedness could result in a default;
. our debt agreements will contain restrictions and financial covenants
which, if we fail to meet them, could result in our indebtedness being
declared due prematurely, at a time when we could not make the required
payments;
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. our leverage may make us more vulnerable to economic downturns, may limit
our ability to withstand competitive pressures and may reduce our
flexibility in responding to changing business and economic conditions; and
. we may from time to time be more highly leveraged than many of our
competitors, which may place us at a competitive disadvantage.
We Rely on Our Intellectual Property Which We May Be Unable to Protect, or We
May Be Found to Infringe the Rights of Others
Our success depends in part on our ability to protect our proprietary
intellectual property. In addition, we may be sued over intellectual property
rights. These lawsuits, or our inability to protect our intellectual property
rights, could have a material adverse effect on our business, prospects,
financial condition and results of operations.
In April 1999 we received a letter from one of our competitors, Covad
Communications Group, Inc., indicating that it has been informed of allowance of
a United States patent application. This means that Covad can expect a United
States patent will issue in the near future. According to Covad's letter, their
patent application relates to digital subscriber loop implementations supporting
(a) a bandwidth of 128 kbps or 144 kbps combined with (b) a bandwidth greater
than 128 or 144 kbps. Although the Covad letter quoted an allegedly allowed
patent claim, the allowed patent application remains secret until issuance of
the patent, and we have no other pertinent information about this patent
application. To our knowledge, the patent has not been issued. As a result, we
are unable to evaluate fully the validity or relevance of this patent
application. If the patent application results in an issued patent that is
valid, and if we infringe this patent, we could be required to obtain a license
under the patent. While Covad has indicated that we may be interested in
obtaining a license from them at the appropriate time, we cannot be certain that
such a license, if needed, would be available on commercially acceptable terms
if at all. If our services or portions of our services infringe a valid patent,
and if we are unwilling or unable to obtain a license, then we will be unable to
offer the infringing services. This could have a material adverse effect on our
business, prospects, financial condition and results of operations.
A System Failure or Breach of Network Security Could Delay or Interrupt Service
to Our Customers
The reliability of our transmission services in our markets would be impaired
by a natural disaster or other unanticipated interruption of service or damage
at any of our facilities. Additionally, failure of a traditional telephone
company or other service provider to provide communications capacity required by
us, as a result of a natural disaster, operational disruption or for any other
reason, could cause interruptions in our services. Damage or failure that causes
interruptions in our services could have a material adverse effect on our
business, prospects, financial condition and results of operations.
Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Unauthorized access could also potentially jeopardize
the security of confidential information stored in the computer systems of our
customers, which might result in liability to our customers, and also might
deter potential customers. Although we intend to implement security measures
that are standard within the telecommunications industry, we may be unable to
implement such measures in a timely manner or, if and when implemented, our
security measures may be circumvented. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our customers and these customers' end users. Any of the
foregoing factors relating to network security could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
Our Business Could Suffer From a Reduction or Interruption From Our Equipment
Suppliers or Other Third Parties On Whom We Rely for Installation and Provision
of Field Service
We plan to purchase all of our equipment from various vendors and outsource
the installation and field service of our networks to third parties. We also
depend on the availability of fiber optic transmission facilities from third
parties to connect our equipment within and between metropolitan areas. Any
reduction of or interruption from our equipment suppliers, such as Copper
Mountain Network, Inc., from which we purchase most of our digital subscriber
line access
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equipment, or interruption in service from any significant installer or field
service provider, such as Lucent Technologies, Inc., which has installed and
maintained our equipment in all of our markets, could have a disruptive effect
on our business, prospects, financial condition and results of operations.
In addition, the pricing of the equipment we purchase may substantially
increase over time, increasing the costs we pay in the future, or decrease over
time, providing later market entrants with a cost advantage over us. The
availability and pricing of the equipment we purchase would be adversely
affected if our suppliers were to compete with us, or if our competitors enter
into exclusive or restrictive arrangements with our suppliers. It could take a
significant period of time to establish relationships with alternative suppliers
for each of our technologies and substitute their technologies into our network.
Uncertain Federal and State Tax and Other Surcharges on Our Services May
Increase Our Payment Obligations
Telecommunications providers are subject to a variety of complex federal and
state surcharges and fees on their gross revenues from interstate and intrastate
services, including regulatory fees, and surcharges related to the support of
universal service. A finding that we misjudged the applicability of the
surcharges and fees could increase our payment obligations and have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Claims of Interference Could Harm Our Ability to Deploy Our Services
Certain technical laboratory tests and field experience indicate that some
types of DSL, in particular, asymmetrical DSL--in which data transport to the
end user is faster than transport from the end user--may cause interference with
and be interfered with by other signals present in a traditional telephone
company copper plant. Citing this potential interference, some traditional
telephone companies have imposed restrictions on the use of asymmetrical DSL
technology over their copper lines. However, we do not believe that our
symmetrical DSL technology equipment, which permits the same speed of data
transport to and from the end user, poses interference risks. If traditional
telephone companies were to restrict our use of our technology or equipment in
the future, our business, prospects, financial condition and results of
operations could be materially adversely affected.
Our Stock Price May Be Volatile
The trading price of our common stock has been and is likely to continue to be
highly volatile. Our stock price is likely to be volatile and may fluctuate
substantially due to factors such as:
. our historical and anticipated quarterly and annual operating results;
. variations between our actual results and analyst and investor
expectations;
. announcements by us or others and developments affecting our business;
. investor perceptions of our company and comparable public companies; and
. conditions and trends in the data communications and Internet-related
industries.
In particular, the stock market has from time to time experienced significant
price and volume fluctuations affecting the common stocks of technology
companies, which may include data communications and Internet-related companies.
These fluctuations may result in a material decline in the market price of our
common stock.
The Sale of Shares or the Perception of Future Sales Could Depress Our Stock
Price
Sales of a large number of shares of common stock in the market or the
perception that sales may occur could cause the market price of our common stock
to drop. As of July 28, 1999, we have 121,403,370 shares of common stock
outstanding. Of these shares, approximately 17,500,000 shares are freely
tradeable,
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except for any such shares held at any time by an "affiliate" of NorthPoint, as
defined under Rule 144 under the Securities Act. Of the remaining shares,
approximately 97% are subject to lock-up agreements in which the holders of the
shares have agreed not to sell any shares, subject to limited exceptions, for a
period of 180 days (or in some cases longer) after the date of our initial
public offering, which period expires on November 2, 1999. The shares not
subject to lock-up agreements are "restricted securities" as defined in Rule
144 under the Securities Act. These shares may be sold in the future without
registration under the Securities Act to the extent permitted by Rule 144 or an
exemption under the Securities Act.
Our Principal Stockholders and Management Own a Significant Percentage of
NorthPoint, and Will Be Able to Exercise Significant Influence
Our executive officers and directors and principal stockholders together
beneficially own approximately 81% of our common stock. These stockholders, if
they vote together, will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also delay or prevent a change in control of NorthPoint.
Our Certificate of Incorporation and Bylaws Contain Provisions That Could Delay
or Prevent a Change In Control of NorthPoint
Certain provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire control of NorthPoint, even if a
change in control would be beneficial to stockholders. Our certificate of
incorporation allows our board of directors to issue, without stockholder
approval, preferred stock with terms set by the board of directors. The
preferred stock could be issued quickly with terms that delay or prevent a
change in control of NorthPoint or make removal of management more difficult.
Also, the issuance of preferred stock may cause the market price of the common
stock to decrease.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are currently exposed to the impact of interest rate changes and changes in
market values of investments through our investment portfolio. Our principal
exposure to financial market fluctuations relates to our secured credit
facility, which is floating rate debt. While we have not used derivative
financial instruments to manage our interest rate risk to date, we plan to
manage our interest rate exposure in the future through such instruments, if
necessary. We do not believe a hypothetical 10% adverse rate change in our
variable rate debt obligations would be material to our results of operations.
We believe our market risk exposure with regard to marketable debt securities
in our investment portfolio is limited to changes in quoted market prices for
such securities. Based upon the composition of our marketable debt securities at
June 30, 1999, we do not believe a hypothetical 10% adverse change in quoted
market prices would be material to our results of operations.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not currently involved in any pending legal proceedings that
individually, or in the aggregate, are material to us.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) Recent Sales of Unregistered Securities:
During the three month period ended June 30, 1999, we have issued and sold
unregistered securities as follows (all share numbers and prices set forth below
have been adjusted to give effect to the three-for-two stock split effected on
April 9, 1999 and the three-for-two stock split effected on April 16, 1999):
(1) From April 1999 through June 1999, we granted stock options to purchase
an aggregate of 3,339,575 shares of common stock to employees, consultants and
directors with exercise prices ranging from $18.00 to $43.25 per share pursuant
to our 1999 Stock Plan.
(2) We issued an aggregate of 2,239,768 shares of Series D-1 preferred
stock in a private placement in April 1999 to ALC Communications Corporation (an
affiliate of Frontier Corporation), At Home Corporation, Cable & Wireless USA,
Inc., Concentric Network Corporation and Netopia, Inc. The consideration
received for such shares was $21,901,102.00. These shares of Series D-1
preferred stock automatically converted to 1,216,726 shares of Class B common
stock upon the closing of our initial public offering in May 1999. The Class B
common stock has rights that are identical to the Company's common stock except
that the Class B common stock is non-voting stock. Commencing in March 2000,
the Class B common stock may be converted into common stock on a one-for-one
basis at the election of the holder, provided that such holder and its
affiliates would not hold more than 10% of the voting stock of the Company, or
will automatically convert into common stock upon transfer after such date to a
third party.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to (1) Rule 701 promulgated thereunder on the basis that
these options were offered and sold either pursuant to a written compensatory
benefit plan or pursuant to written contracts relating to consideration, as
provided by Rule 701, or (2) Section 4(2) thereof, on the basis that the
transactions did not involve a public offering.
(d) Report of Offering of Securities and Use of Proceeds Therefrom:
In May 1999, we commenced and completed a firm commitment underwritten initial
public offering of 17,250,000 shares of our common stock, including 2,250,000
shares related to the underwriters' overallotment option, at a price of $24.00
per share. The shares were registered with the Securities and Exchange
Commission pursuant to a Registration Statement on Form S-1 (File No. 333-
73065), which was declared effective on May 5, 1999. The public offering was
underwritten by a syndicate of underwriters led by Goldman, Sachs & Co., Morgan
Stanley Dean Witter and Credit Suisse First Boston as their representatives.
After deducting underwriting discounts and commissions of $25,500,000 and
expenses of $2,000,000, we received net proceeds of $386,500,000.
As of June 30, 1999, we had invested the net proceeds from our initial public
offering in short-term investments in order to meet anticipated cash needs for
future working capital. We invested our available cash principally in high-
quality corporate issuers and in debt instruments of the U.S. government and its
agencies. The use of proceeds from the offering does not represent a material
change in the use of proceeds described in our Registration Statement on Form S-
1, as amended (File No. 333-73065). None of the net proceeds of the offering
were paid directly or indirectly to any director or officer of NorthPoint
Communications Group, Inc., persons owning 10% or more of any class of our
equity securities or any of our affiliates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
30
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to a vote of the security holders of
NorthPoint Communications Group, Inc. during the three month period ended June
30, 1999.
(1) Effective April 9, 1999, the stockholders approved by written consent (a)
our Second Amended and Restated Certificate of Incorporation, (b) the adoption
of our 1999 Stock Plan, and (c) the adoption of our 1999 Employee Stock Purchase
Plan. The Second Amended and Restated Certificate of Incorporation (i) effected
a three-for-two stock split in the outstanding Common Stock and Preferred Stock,
(ii) increased the authorized number of shares of Common Stock from 125,000,000
shares to 187,500,000 shares, (iii) increased the number of shares of Common
Stock designated as Class B Common Stock from 8,000,000 shares to 12,000,000
shares, (iv) increased the authorized number of shares of Preferred Stock from
45,000,000 shares to 67,500,000 shares, (v) increased the authorized number of
shares of Series B Preferred Stock from 17,563,187 shares to 26,344,780 shares,
(vi) increased the authorized number of shares of the Series C Preferred Stock
from 18,198,413 shares to 27,297,619 shares, (vii) increased the authorized
number of shares of the Series D Preferred Stock from 3,640,000 shares to
5,460,000 shares, (viii) increased the authorized number of shares of the Series
D-1 Preferred Stock from 3,640,000 shares to 5,460,000 shares, and (ix) changed
the name of the Corporation from NorthPoint Communications Holdings, Inc. to
NorthPoint Communications Group, Inc. A total of 10,117,900 shares of Common
Stock (out of 11,448,763 shares outstanding) were voted in favor of the written
consent. A total of 14,459,553 shares of Series B Preferred Stock (out of
16,450,721 shares outstanding) were voted in favor of the written consent. A
total of 16,120,002 shares of Series C Preferred Stock (out of 18,009,405 shares
outstanding) were voted in favor of the written consent. A total of 927,272
shares of Series D-1 Preferred Stock (out of 1,536,362 shares outstanding) were
voted in favor of the written consent.
(2) Effective April 16, 1999, the stockholders approved by written consent
our Third Amended and Restated Certificate of Incorporation. The Third Amended
and Restated Certificate of Incorporation (a) effected a three-for two stock
split in the outstanding Common Stock and Preferred Stock, (b) increased the
authorized number of shares of Common Stock from 187,500,000 shares to
281,250,000 shares, (c) increased the number of shares of Common Stock
designated as Class B Common Stock from 12,000,000 shares to 18,000,000 shares,
(d) increased the authorized number of shares of Preferred Stock from 67,500,000
shares to 101,250,000 shares, (e) increased the authorized number of shares of
Series B Preferred Stock from 26,344,780 shares to 39,517,170 shares, (f)
increased the authorized number of shares of the Series C Preferred Stock from
27,297,619 shares to 40,946,428 shares, (g) increased the authorized number of
shares of the Series D Preferred Stock from 5,460,000 shares to 8,190,000
shares, and (h) increased the authorized number of shares of the Series D-1
Preferred Stock from 5,460,000 shares to 8,190,000 shares. A total of 13,921,048
shares of Common Stock (out of 17,326,423 shares outstanding) were voted in
favor of the written consent. A total of 21,578,081 shares of Series B Preferred
Stock (out of 24,676,075 shares outstanding) were voted in favor of the written
consent. A total of 25,030,281 shares of Series C Preferred Stock (out of
24,179,990 shares outstanding) were voted in favor of the written consent. A
total of 1,390,907 shares of Series D-1 Preferred Stock (out of 2,645,450 shares
outstanding) were voted in favor of the written consent.
ITEM 5. OTHER INFORMATION.
None.
31
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
The following exhibits are included as part of this Report:
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- ------- ----------------------
<S> <C>
3.2 Amended and Restated Bylaws of NorthPoint Communications Group, Inc.
10.1 The Amended and Restated NorthPoint Communications Group, Inc.
Employee Stock Purchase Plan.
10.27 Class B Common Stock Purchase Warrant dated May 10, 1999, made by
NorthPoint Communications Group, Inc. in favor of Microsoft
Corporation.
10.31 Office Lease dated June 17, 1999, between The Equitable Life Assurance
Society of the United States and NorthPoint Communications, Inc.
10.32 Office Lease dated June 5, 1999, between Emery Station Associates, LLC
and NorthPoint Comunications, Inc.
27.1 Financial Data Schedule for the three months ended June 30, 1999.
</TABLE>
(b) Reports on Form 8-K:
None.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTHPOINT COMMUNICATIONS GROUP, INC.
Registrant
Dated: July 30, 1999 By: /s/ MICHAEL W. MALAGA
----------------------
Michael W. Malaga
Chairman of the Board and Chief
Executive Officer
Dated: July 30, 1999 By: /s/ HENRY P. HUFF
------------------
Henry P. Huff
Chief Financial Officer
33
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
NORTHPOINT COMMUNICATIONS GROUP, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 Other Offices.
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the Board of Directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 Annual Meeting.
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
<PAGE>
2.3 Special Meeting.
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer or the president or vice president of the corporation.
2.4 Notice of Stockholders' Meetings.
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.7 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 Advance Notice of Stockholder Nominees.
--------------------------------------
Only persons who are nominated in accordance with the procedures set forth
in this Section 2.5 shall be eligible for election as directors. Nominations of
persons for election to the board of directors of the corporation may be made at
a meeting of stockholders by or at the direction of the board of directors or by
any stockholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2.5. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation (a) in the case
of an annual meeting, not less than sixty (60) days nor more than ninety (90)
days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholders to be timely must be so received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the meeting was mailed or public disclosure was made and
(b) in the case of a special meeting at which directors are to be elected, not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy
2
<PAGE>
statement as a nominee and to serving as a director if elected, and (b) as to
the stockholder giving the notice, (i) the name and address, as they appear on
the corporation's books, of such stockholder, and (ii) the class and number of
shares of the corporation which are beneficially owned by such stockholder and
also which are owned of record by such stockholder.
At the request of the board of directors, any person nominated by the board
of directors for election as a director shall furnish to the secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
bylaws, and, if he or she should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of this Bylaw, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Bylaw.
2.6 Advance Notice of Stockholder Business.
--------------------------------------
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before an annual meeting, business must be (a) pursuant to the
corporation's notice of meeting (or any supplement thereto), (b) by or at the
direction of the board of directors or (c) by any stockholder of the corporation
who is a stockholder of record at the time of giving of the notice provided for
in this Section 2.6, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 2.6.
Business to be brought before an annual meeting by a stockholder shall not
be considered properly brought if the stockholder has not given timely notice
thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) nor more
than ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
meeting is changed by more than thirty (30) days from such anniversary date,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the earlier of the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting: (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (iii) the class and number of shares of the
corporation, which are owned by the
3
<PAGE>
stockholder of record and by the beneficial owner, if any, on whose behalf the
proposal is made, (iv) any material interest of the stockholder of record and
the beneficial owner, if any, on whose behalf the proposal is made in such
business, and (v) any other information that is required by law to be provided
by the stockholder in his or her capacity as a proponent of a stockholder
proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall
be conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.6. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the bylaws, and, if he or she
should so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Bylaw, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw.
2.7 Manner of Giving Notice; Affidavit of Notice.
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. If mailed, such notice
shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation.
2.8 Quorum.
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (a) the chairman of the meeting or (b) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.9 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the
4
<PAGE>
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.10 Conduct of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.11 Voting.
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.14 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
2.12 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.13 No Stockholder Action by Written Consent Without a Meeting Following
---------------------------------------------------------------------
Initial Public Offering.
-----------------------
Any action required to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, must be taken at an annual or special
meeting of stockholders of the corporation, with prior notice and with a vote,
and may not be taken by a consent in writing.
5
<PAGE>
2.14 Record Date for Stockholder Notice; Voting.
------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.15 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to
6
<PAGE>
be approved by the stockholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
3.2 Number of Directors.
-------------------
The authorized number of directors shall consist of eight (8) persons until
changed by a proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
The board of directors shall be divided into three classes, as nearly equal
in number as possible with the term of office of the first class to expire at
the 2000 annual meeting of stockholders or any special meeting in lieu thereof,
the term of office of the second class to expire at the 2001 annual meeting of
stockholders or any special meeting in lieu thereof and the term of office of
the third class to expire at the 2002 annual meeting of stockholders or any
special meeting in lieu thereof. At each annual meeting of stockholders or
special meeting in lieu thereof following such initial classification, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of the
stockholders or special meeting in lieu thereof after their election and until
their successors are duly elected and qualified. The foregoing provisions shall
become effective only when the corporation becomes a listed corporation within
the meaning of Section 301.5 of the California Corporations Code. Directors
need not be stockholders unless so required by the certificate of incorporation
or these bylaws, wherein other qualifications for directors may be prescribed.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the board of directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(a) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(b) the newly created or eliminated directorships resulting from such increase
or decrease shall if reasonably possible be apportioned by the board of
directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be
7
<PAGE>
subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the board of
directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full board of directors until the vacancy is filled.
Notwithstanding the foregoing, each director shall serve until his or her
successor is duly elected and qualified or until his or her death, resignation
or removal. No decrease in the number of directors constituting the board of
directors shall shorten the term of any incumbent director.
Elections of directors need not be by written ballot.
There shall be no right with respect to shares of stock of the corporation
to cumulate votes in the election of directors.
8
<PAGE>
3.4 Place of Meetings; Meetings by Telephone.
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.5 Regular Meetings.
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.6 Special Meetings; Notice.
------------------------
Special meetings of the board for any purpose or purposes may be called at
any time by the chairman of the board, the president, any vice president, the
secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at lest four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.7 Quorum.
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
9
<PAGE>
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.8 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws. If a quorum is not present at any meeting of the
board of directors, then the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
3.9 Board Action by Written Consent Without a Meeting.
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the
board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.10 Fees and Compensation of Directors.
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors. No such compensation shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
3.11 Approval of Loans to Officers.
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected
10
<PAGE>
to benefit the corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.12 Removal of Directors.
--------------------
The holders of a majority of the shares then entitled to vote at an
election of directors may remove, only with cause, a director or directors of
the corporation.
No reduction in the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
3.13 Chairman of the Board of Directors.
----------------------------------
The corporation may also have, at the discretion of the board of
directors, a chairman of the board of directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
----------
4.1 Committees of Directors.
-----------------------
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any
11
<PAGE>
other class or classes or any other series of the same or any other class or
classes of stock of the corporation), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 Meetings and Action of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.4 (place of meetings and meetings by telephone), Section 3.5 (regular
meetings), Section 3.6 (special meetings and notice), Section 3.7 (quorum),
Section 3.8 (waiver of notice) and Section 3.10 (action without a meeting), with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
12
<PAGE>
5.2 Appointment of Officers.
-----------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 Subordinate Officers.
--------------------
The board of directors may appoint, or empower the chief executive officer
or the president to appoint, such other officers and agents as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these bylaws or
as the board of directors may from time to time determine.
5.4 Removal and Resignation of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices.
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, the chief executive officer of the
corporation shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and officers of the
corporation. The chief executive officer shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the board of directors. The chief executive officer shall have
the general powers and duties of management usually vested in the
13
<PAGE>
office of chief executive officer of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board or the chief executive officer, the
president of the corporation shall have general supervision, direction and
control of the business and officers of the corporation. The president shall
have the general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may be
prescribed by the board of directors or these bylaws.
5.8 Vice Presidents.
---------------
In the absence or disability of the chief executive officer and president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these bylaws, the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or at such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
14
<PAGE>
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. The chief financial officer shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his or her transactions as chief financial officer and of
the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the board of directors or by
the bylaws.
5.11 Representation of Shares of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the president, any
vice president, the chief financial officer, the secretary or any assistant
secretary of this corporation, or any other person authorized by the board of
directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.12 Authority and Duties of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS. OFFICERS,
----------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
6.1 Indemnification of Directors and Officers.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers
15
<PAGE>
against expenses (including attorneys' fees), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the corporation. For purposes of this Section 6.1, a "director" or "officer" of
the corporation includes any person (i) who is or was a director or officer of
the corporation, (ii) who is or was serving at the request of the corporation as
a director or officer of another corporation, partnership, joint venture, trust
or other enterprise, or (iii) who was a director or officer of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
6.2 Indemnification of Others.
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 Payment of Expenses in Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
board of directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article 6.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article 6 shall not be deemed
exclusive of any other rights which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that
additional rights to indemnification are authorized in the certificate of
incorporation.
16
<PAGE>
6.5 Insurance.
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article 6, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(i) That it would be inconsistent with a provision of the
certificate of incorporation, these bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limited indemnification; or
(ii) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance and Inspection of Records.
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so
17
<PAGE>
act on behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Directors.
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement to Stockholders.
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by the vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments.
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
18
<PAGE>
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of such corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 Special Designation on Certificates.
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
19
<PAGE>
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 Dividends.
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 Seal.
----
The corporation may have a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof, to be impressed or affixed or in any other manner
reproduced.
20
<PAGE>
8.10 Transfer Of Stock.
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
21
<PAGE>
CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
NORTHPOINT COMMUNICATIONS GROUP, INC.
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of NorthPoint Communications Group, Inc. (the
"Corporation") and that the foregoing Amended and Restated Bylaws, comprising
twenty-one (21) pages, were adopted as the Amended and Restated Bylaws of the
Corporation on June 29, 1999, by the Board of Directors of the Corporation at a
meeting on June 29, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 29th day of June, 1999.
/s/ Steven J. Gorosh
_________________________
Steven J. Gorosh,
Secretary
<PAGE>
EXHIBIT 10.1
NORTHPOINT COMMUNICATIONS GROUP, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
NORTHPOINT COMMUNICATIONS GROUP, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
NorthPoint Communications Group, Inc., a corporation organized under
the laws of the State of Delaware (the "Company"), hereby adopts the Amended and
Restated NorthPoint Communications Group, Inc. Employee Stock Purchase Plan (the
"Plan"), effective as of the Effective Date (as defined herein).
The purposes of the Plan are as follows:
(1) To assist employees of the Company and its Subsidiary
Corporations (as defined below) in acquiring a stock ownership interest in
the Company pursuant to a plan which is intended to qualify as an "employee
stock purchase plan" within the meeting of Section 423(b) of the Internal
Revenue Code of 1986, as amended.
(2) To help employees provide for their future security and to
encourage them to remain in the employment of the Company and its
Subsidiary Corporations.
1. Definitions. Whenever any of the following terms is used in the Plan
-----------
with the first letter or letters capitalized, it shall have the following
meaning unless context clearly indicates to the contrary (such definitions to be
equally applicable to both the singular and the plural forms of the terms
defined):
(a) "Account" shall mean the account established for a Participant
under the Plan for an Option Period.
(b) "Authorization" shall mean a Participant's payroll deduction
authorization with respect to an Option Period in accordance with Section 3(b)
hereof.
(c) "Base Compensation" shall mean gross base compensation received by
an Employee on each Payday as compensation for services to the Company or any
Subsidiary Corporation, excluding overtime payments, sales commissions,
incentive compensation, bonuses, expense reimbursements, fringe benefits and
other special-payments.
(d) "Board of Directors" or "Board" means the Board of Directors of
the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the committee appointed to administer the Plan
pursuant to Section 12.
<PAGE>
(g) "Company" means NorthPoint Communications Group, Inc., a Delaware
corporation.
(h) "Date of Exercise" means, with respect to any Option, the last day
of the Option Period for which the Option was granted.
(i) "Date of Grant" means, with respect to any Option, the date upon
which the Option is granted, as set forth in accordance with Section 3(a).
(j) "Effective Date" means May 4, 1999.
(k) "Eligible Compensation" means the Eligible Employee's Base
Compensation.
(l) "Eligible Employee" means an Employee of the Company or any
Subsidiary Corporation: (i) who does not, immediately after the Option is
granted, own stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company, a Parent
Corporation or a Subsidiary Corporation (as determined under Section 423(b)(3)
of the Code); (ii) whose customary employment is for more than twenty (20) hours
per week; and (iii) whose customary employment is for more than five (5) months
in any calendar year. For purposes of paragraph (i), the rules of Section
424(d) of the Code with regard to the attribution of stock ownership shall apply
in determining the stock ownership of an individual, and stock which an employee
may purchase under outstanding options shall be treated as stock owned by the
employee. During a leave of absence meeting the requirements of Treasury
Regulation Section 1.421-7(h)(2), an individual shall be treated as an employee
of the Company or Subsidiary Corporation employing such individual immediately
prior to such leave.
(m) "Employee" shall mean any person who renders services to the
Company or a Subsidiary Corporation in the status of an employee within the
meaning of Code Section 3401(c). "Employee" shall not include any director of
the Company or a Subsidiary Corporation who does not render services to the
Company or a Subsidiary Corporation in the status of an employee within the
meaning of Code Section 3401(c).
(n) "Offering Period" shall mean: (i) the period commencing on the
Effective Date and ending on the next following June 30 or December 31 (unless
such period is less than 30 days in duration), and (ii) each six-month period
commencing on any January 1 and July 1 following the Effective Date. Options
shall be granted on the Date of Grant and exercised on the Date of Exercise, as
provided in Sections 3(a) and 4(a).
(o) "Option" means an option granted under the Plan to an Eligible
Employee to purchase shares of Stock.
(p) "Option Period" means, with respect to any Option, the period
beginning on the Date of Grant and ending on the Date of Exercise.
2
<PAGE>
(q) "Option Price" means the option price determined in accordance
with Section 4(b).
(r) "Parent Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
(s) "Participant" means an Eligible Employee who has complied with the
provisions of Section 3(b) hereof.
(t) "Payday" means the regular and recurring established day for
payment of Base Compensation to employees of the Company or any Subsidiary
Corporation.
(u) "Plan" means The Amended and Restated NorthPoint Communications
Group, Inc. Employee Stock Purchase Plan.
(v) "Stock" means the shares of the Company's Common Stock, $0.001 par
value.
(w) "Subsidiary Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in an unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Stock Subject to the Plan. Subject to the provisions of Section 9
-------------------------
hereof (relating to adjustments upon changes in the Stock) and Section 11 hereof
(relating to amendments of the Plan), the Stock that may be sold pursuant to
Options granted under the Plan shall not exceed in the aggregate 2,250,000
shares of Stock; provided, however, that, during the term of the Plan, on each
anniversary of the date of the Plan's initial adoption by the Board (commencing
with the first such anniversary), such number of shares of Stock shall be
increased by 562,500 shares of Stock. The shares of Stock sold pursuant to
Options granted under the Plan may be unissued shares or treasury shares of
Stock, or shares of Stock bought on the Nasdaq National Market ("Nasdaq") or
other nationally-recognized exchange, or other market, for purposes of the Plan.
3. Grant of Options.
----------------
(a) Option Grants. The Company shall grant Options under the Plan to
-------------
all Eligible Employees in successive Offering Periods until the earlier of: (i)
the date when the number of shares of Stock available under the Plan have been
sold, or (ii) the date when the Plan is terminated. Each Employee who is an
Eligible Employee on the first day of an Offering Period shall be granted an
Option with respect to such Offering Period as of such date. The Date of Grant
of an Option shall be the first day of the Offering Period with respect to which
such Option was granted. Each Option shall expire on the Date of Exercise
immediately after the automatic exercise of the Option pursuant to Section 4(a).
The number of shares of Stock subject
3
<PAGE>
to a Participant's Option shall equal the payroll deductions authorized by such
Participant in accordance with subsection (b) for the Option Period, divided by
the Option Price, except as provided in Section 5(a); provided, however, that
the maximum number of shares of Stock subject to any Option shall not exceed
4,500. The Company shall not grant an Option with respect to an Offering Period
to any individual who is not an Eligible Employee on the first day of such
Offering Period.
(b) Election to Participate; Payroll Deduction Authorization. Except
--------------------------------------------------------
as provided in subsection (d), an Eligible Employee shall participate in the
Plan only by means of payroll deduction. Each Eligible Employee who elects to
participate in the Plan with respect to an Offering Period shall deliver to the
Company no later than ten (10) days before the first day of the Offering Period,
a completed and executed written payroll deduction authorization in a form
prepared by the Committee (the "Authorization"); provided, however, that with
-------- -------
respect to the Offering Period commencing on the Effective Date, an Eligible
Employee may deliver an Authorization to the Company at any time during the
Offering Period; provided, further, that such Eligible Employee's payroll
-------- -------
deductions shall apply only with respect to such Eligible Employee's Eligible
Compensation payable on any Payday following delivery of such Authorization to
the Company. An Eligible Employee's Authorization shall give notice of such
Eligible Employee's election to participate in the Plan for the next following
Offering Period (and subsequent Offering Periods) and shall designate a stated
whole percentage of such Eligible Employee's Eligible Compensation to be
withheld by the Company or Subsidiary Corporation employing such Eligible
Employee on each Payday during the Offering Period, which shall not be less than
one percent (1%), nor more than ten percent (10%), of Eligible Compensation.
The Eligible Compensation payable to a Participant for an Offering Period shall
be reduced each Payday through payroll deduction in an amount equal to the
percentage specified in the Authorization, and such amount shall be credited to
the Participant's Account under the Plan. An Eligible Employee may change the
percentage of Eligible Compensation designated in the Authorization subject to
the limits of this subsection, and may suspend the Authorization, at any time
during the Offering Period. Any Authorization shall remain in effect until the
Eligible Employee changes or suspends the same pursuant to this subsection,
withdraws pursuant to Section 5, or ceases to be an Eligible Employee pursuant
to Section 6.
(c) $25,000 Limitation. No Eligible Employee shall be granted an
------------------
Option under the Plan which permits his rights to purchase Stock under the Plan,
and to purchase Stock or other stock under all other employee stock purchase
plans of the Company, any Parent Corporation or any Subsidiary Corporation
subject to the Section 423, to accrue at a rate which exceeds $25,000 of fair
market value of such Stock or other stock (determined at the time the Option is
granted) for each calendar year in which the Option is outstanding at any time.
For purpose of the limitation imposed by this subsection, the right to purchase
Stock or other stock under an Option or other option accrues when the Option or
other option (or any portion thereof) first becomes exercisable during the
calendar year, the right to purchase Stock or other stock under an Option or
other option accrues at the rate provided in the Option or other option, but in
no case may such rate exceed $25,000 of the fair market value of such Stock or
other stock (determined at the time such Option or other option is granted) for
any one calendar year, and a right to purchase Stock or other stock which has
accrued under an Option or other option may
4
<PAGE>
not be carried over to any Option or other option. This limitation shall be
applied in accordance with Section 423(b)(8) of the Code and the Treasury
Regulations thereunder.
(d) Leaves of Absence. During a leave of absence meeting the
-----------------
requirements of Treasury Regulation Section 1.421-7(h)(2), a Participant may
continue to participate in the Plan by making cash payments to the Company on
each Payday equal to the amount of the Participant's payroll deductions under
the Plan for the Payday immediately preceding the first day of such
Participant's leave of absence.
4. Exercise of Options; Option Price.
---------------------------------
(a) Option Exercise. Each Participant automatically and without any
---------------
act on such Participant's part shall be deemed to have exercised such
Participant's Option on the Date of Exercise to the extent that the balance then
in the Participant's Account is sufficient to purchase, at the Option Price,
whole shares of the Stock subject to the Option. Fractional shares of Stock
shall not be sold pursuant to an Option.
(b) Option Price Defined. The option price per share of Stock (the
--------------------
"Option Price") to be paid by a Participant upon the exercise of the
Participant's Option shall be equal to 85% of the lesser of: (i) the Fair
Market Value of a share of Stock on the Date of Exercise or (ii) the Fair Market
Value of a share of Stock on the Date of Grant. The Fair Market Value of a
share of Stock as of a given date shall be: (A) the closing price of a share of
Stock on the principal exchange on which the Stock is then trading, if any, on
such date, or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred; (B) if the Stock is not
traded on an exchange, but is quoted on Nasdaq or a successor quotation system,
(X) the last sales price (if the Stock is then listed as a National Market Issue
under the NASD National Market System) or (Y) the mean between the closing
representative bid and asked prices (in all other cases) for a share of Stock on
such date, or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred, as reported by Nasdaq or
such successor quotation system; (iii) if the Stock is not publicly traded on an
exchange and not quoted on Nasdaq or a successor quotation system, the mean
between the closing bid and asked prices for a share of Stock on such date, or,
if shares of Stock were not traded on such date, then on the next preceding
trading day during which a sale occurred, as determined in good faith by the
Committee; or (iv) if the Stock is not publicly traded, the fair market value of
a share of Stock established by the Committee acting in good faith.
(c) Delivery of Share Certificate. As soon as practicable after the
-----------------------------
exercise of any Option, the Company shall deliver to the Participant or his or
her nominee a certificate representing the whole shares of Stock purchased by
the Participant from amounts credited to the Participant's Account under the
Plan. Any amount remaining in a Participant's Account after the purchase of
whole shares of Stock upon exercise of an Option shall remain credited to such
Participant's Account and carried forward to the next following Offering Period
and applied toward the purchase of whole shares of Stock pursuant to the Option,
if any, granted to such Participant for the next following Offering Period. In
the event the Company is required to obtain authority from any commission or
agency to issue any such certificate, the Company shall seek to obtain such
authority as soon as reasonably practicable. The inability of the Company to
5
<PAGE>
obtain authority from any such commission or agency which the Committee in its
absolute discretion, deems necessary for the lawful issuance of any such
certificate shall relieve the Company from liability to any Participant, except
to pay to the Participant the amount of the balance in the Participant's Account
in one lump sum in cash, without any interest thereon.
(d) Pro Rata Allocations. If the total number of shares of Stock for
--------------------
which Options are to be exercised on any date exceeds the number of shares of
Stock remaining unsold under the Plan (after deduction for all shares of Stock
for which Options have theretofore been exercised), the Committee shall make a
pro rata allocation of the available remaining shares of Stock in as nearly a
uniform manner as shall be practicable and the balance of the amount credited to
the Account of each Participant which has not been applied to the purchase of
shares of Stock shall be paid to such Participant in one lump sum in cash within
sixty (60) days after the Date of Exercise, without any interest thereon.
(e) Information Statement. The Company shall provide each Participant
---------------------
whose Option is exercised with an information statement in accordance with
Section 6039(a) of the Code and the Treasury Regulations thereunder. The
Company shall maintain a procedure for identifying certificates of shares of
Stock sold upon the exercise of Options in accordance with Section 6039(b) of
the Code.
5. Withdrawal from the Plan.
------------------------
(a) Withdrawal Election. Any Participant may withdraw from
-------------------
participation under the Plan at any time, except that no Participant may
withdraw during the last ten (10) days of any Option Period. A Participant
electing to withdraw from the Plan must deliver to the Company a notice of
withdrawal in a form prepared by the Committee (the "Withdrawal Election") not
later than ten (10) days prior to the Date of Exercise for such Option Period.
Upon receipt of a Participant's Withdrawal Election, the Company or Subsidiary
Corporation employing the Participant shall pay to the Participant the amount
credited to the Participant's Account in one lump sum in cash within sixty (60)
days, without any interest thereon. Upon receipt of a Participant's Withdrawal
Election by the Company, the Participant shall cease to participate in the Plan
and the Participant's Option for such Option Period shall terminate.
(b) Eligibility following Withdrawal. A Participant who withdraws
--------------------------------
from the Plan with respect to an Option Period, and who is still an Eligible
Employee, may elect to participate again in the Plan for any subsequent Offering
Period by delivering to the Company an Authorization pursuant to Section 3(b).
6. Termination of Employment.
-------------------------
(a) Termination of Employment Other than by Death. If the employment
---------------------------------------------
of a Participant with the Company and the Subsidiary Corporation terminates
other than by death, the Participant's participation in the Plan automatically
and without any act on the Participant's part shall terminate as of the date of
the termination of the Participant's employment. As soon as practicable after
such a termination of employment, the Company or Subsidiary Corporation
employing the Participant shall pay to the Participant the amount of the balance
in the Participant's Account, without any interest thereon. Upon a
Participant's termination of
6
<PAGE>
employment covered by this subsection, the Participant's Authorization and
Option under the Plan shall terminate.
(b) Termination By Death. If the employment of a Participant is
--------------------
terminated by the Participant's death, the executor of the Participant's will or
the administrator of the Participant's estate, by written notice to the Company,
may request payment of the balance in the Participant's Account, in which event
the Company or Subsidiary Corporation employing the Participant shall make such
payment, without any interest thereon as soon as practicable after receiving
such notice. Upon receipt of such notice, the Participant's Authorization and
Option under the Plan shall terminate. If the Company does not receive such
notice prior to the next Date of Exercise, the Participant's Option shall be
deemed to have been exercised on such Date of Exercise.
7. Restriction upon Assignment. An Option granted under the Plan shall
---------------------------
not be transferable other than by will or the laws of descent and distribution,
and is exercisable during the Participant's lifetime only by the Participant.
Except as provided in Section 6(b) hereof, an Option may not be exercised to any
extent except by the Participant. The Company shall not recognize and shall be
under no duty to recognize any assignment or alienation of the Participant's
interest in the Plan, the Participant's Option or any rights under the
Participant's Option.
8. No Rights of Stockholders until Shares Issued. With respect to shares
---------------------------------------------
of Stock subject to an Option, a Participant shall not be deemed to be a
stockholder of the Company, and the Participant shall not have any of the rights
or privileges of a stockholder, until such shares have been issued to the
Participant or his or her nominee following exercise of the Participant's
Option. No adjustments shall be made for dividends (ordinary or extraordinary,
whether in cash securities, or other property) or distribution or other rights
for which the record date occurs prior to the date of such issuance, except as
otherwise expressly provided herein.
9. Changes in the Stock; Adjustments of an Option. Whenever any change is
----------------------------------------------
made in the Stock or to Options outstanding under the Plan, by reason of a stock
split, stock dividend, recapitalization or other subdivision, combination, or
reclassification of shares, appropriate action shall be taken by the Committee
to adjust accordingly the number of shares of Stock subject to the Plan and the
number and the Option Price of shares of Stock subject to the Options
outstanding under the Plan to preserve, but not increase, the rights of
Participants hereunder.
10. Use of Funds; no Interest Paid. All funds received or held by the
------------------------------
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction and may be used for any corporate
purpose. No interest will be paid to any Participant or credited to any
Participant's Account with respect to such funds.
11. Amendment or Termination of the Plan. The Board of Directors may
------------------------------------
amend, suspend, or terminate the Plan at any time and from time to time,
provided that approval by a vote of the holders of the outstanding shares of the
Company's capital stock entitled to vote shall be required to amend the Plan to:
(a) change the number of shares of Stock that may be sold pursuant to Options
under the Plan, (b) decrease the Option Price below a price computed in the
manner stated in Section 4(b), (c) alter the requirements for eligibility to
participate in the Plan,
7
<PAGE>
or (d) in any manner that would cause the Plan to no longer be an "employee
stock purchase plan" within the meaning of Section 423(b) of the Code.
12. Administration by Committee; Rules and Regulations.
--------------------------------------------------
(a) Appointment of Committee. The Plan shall be administered by the
------------------------
Committee, which shall be composed of not less than two members of the Board of
Directors, none of whom shall be eligible to serve on the Committee, unless such
member is then a "non-employee director" within the meaning of Rule 16b-3 which
has been adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Each member of the Committee shall serve for
a term commencing on a date specified by the Board of Directors and continuing
until the member dies or resigns or is removed from office by the Board of
Directors. The Committee at its option may utilize the services of an agent to
assist in the administration of the Plan including establishing and maintaining
an individual securities account under the Plan for each Participant.
(b) Duties and Powers of Committee. It shall be the duty of the
------------------------------
Committee to conduct the general administration of the Plan in accordance with
the provisions of the Plan. The Committee shall have the power to interpret the
Plan and the terms of the Options and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan.
(c) Majority Rule. The Committee shall act by a majority of its
-------------
members in office. The Committee may act either by vote at a meeting or by a
memorandum or other written instrument signed by a majority of the Committee.
(d) Compensation; Professional Assistance; Good Faith Actions. All
---------------------------------------------------------
expenses and liabilities incurred by members of the Committee in connection with
the administration of the Plan shall be borne by the Company. The Committee
may, with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, the Company and all other interested persons. No member
of the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination, or interpretation.
13. No Rights as an Employee. Nothing in the Plan shall be construed to
------------------------
give any person (including any Eligible Employee or Participant) the right to
remain in the employ of the Company, a Parent Corporation or a Subsidiary
Corporation or to affect the right of the Company, any Parent Corporation or any
Subsidiary Corporation to terminate the employment of any person (including any
Eligible Employee or Participant) at any time, with or without cause.
14. Merger, Acquisition or Liquidation of the Company. In the event of the
-------------------------------------------------
merger or
8
<PAGE>
consolidation of the Company into another corporation, the acquisition by
another corporation of all or substantially all of the Company's assets or 50%
or more of the Company's then outstanding voting stock, the liquidation or
dissolution of the Company or any other reorganization of the Company, the Date
of Exercise with respect to outstanding Options shall be the business day
immediately preceding the effective date of such merger, consolidation,
acquisition, liquidation, dissolution, or reorganization unless the Committee
shall, in its sole discretion, provide for the assumption or substitution of
such Options in a manner complying with Section 424(a) of the Code.
15. Term; Approval by Stockholders. Subject to approval by the
------------------------------
stockholders of the Company in accordance with this Section, the Plan shall be
in effect for a term of ten (10) years commencing on the date of the initial
adoption of the Plan by the Board, unless sooner terminated in accordance with
Section 11. No Option may be granted during any period of suspension of the Plan
or after termination of the Plan. The Plan shall be submitted for the approval
of the Company's stockholders within twelve (12) months after the date of the
Board of Directors' adoption of the Plan. Options may be granted prior to such
stockholder approval; provided, however, that such Options shall not be
exercisable prior to the time when the Plan is approved by the stockholders; and
provided, further, that if such approval has not been obtained by the end of
said 12-month period, all Options previously granted under the Plan shall
thereupon expire.
16. Effect upon Other Plans. The adoption of the Plan shall not affect any
-----------------------
other compensation or incentive plans in effect for the Company, any Parent
Corporation or any Subsidiary Corporation. Nothing in this Plan shall be
construed to limit the right of the Company, any Parent Corporation or any
Subsidiary Corporation to: (a) establish any other forms of incentives or
compensation for employees of the Company, any Parent Corporation or any
Subsidiary Corporation or (b) grant or assume options otherwise than under this
Plan in connection with any proper corporate purpose, including, but not by way
of limitation, the grant or assumption of options in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
17. Conditions to Issuance of Stock Certificates. The Company shall not be
--------------------------------------------
required to issue or deliver any certificate or certificates for shares of Stock
purchased upon the exercise of Options prior to fulfillment of all the following
conditions:
(a) The admission of such shares to listing on all stock exchanges, if
any, on which is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
9
<PAGE>
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Committee may from time to time establish for reasons of
administrative convenience.
18. Notification of Disposition. Each Participant shall give prompt
---------------------------
notice to the Company of any disposition or other transfer of any shares of
Stock purchased upon exercise of an Option if such disposition or transfer is
made: (a) within two (2) years from the Date of Grant of the Option or (b)
within one (1) year after the transfer of such shares of Stock to such
Participant upon exercise of such Option. Such notice shall specify the date of
such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the Participant
in such disposition or other transfer.
19. Notices. Any notice to be given under the terms of the Plan to the
-------
Company shall be addressed to the Company in care of its Secretary and any
notice to be given to any Eligible Employee or Participant shall be addressed to
such Employee at such Employee's last address as reflected in the Company's
records. By a notice given pursuant to this Section, either party may designate
a different address for notices to be given to it, him or her. Any notice which
is required to be given to an Eligible Employee or a Participant shall, if the
Eligible Employee or Participant is then deceased, be given to the Eligible
Employee's or Participant's personal representative if such representative has
previously informed the Company of his status and address by written notice
under this Section. Any notice shall have been deemed duly given if enclosed in
a properly sealed envelope or wrapper addressed as aforesaid at the time it is
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
10
<PAGE>
20. Headings. Headings are provided herein for convenience only and are
--------
not to serve as a basis for interpretation or construction of the Plan.
* * * * * * *
I hereby certify that the foregoing Plan was approved by the
stockholders of NorthPoint Communications Group, Inc. on April 9, 1999, and the
amended and restated Plan was duly adopted by the Board of Directors of
NorthPoint Communications Group, Inc. on June 29, 1999.
Executed at San Francisco, California on this 29th day of June, 1999.
/s/ Steven Gorosh
________________________________________
Steven Gorosh
Secretary
11
<PAGE>
EXHIBIT 10.27
THE TRANSFER OF THIS WARRANT IS SUBJECT TO RESTRICTIONS CONTAINED HEREIN. THIS
WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT
IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD THE
RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
CLASS B COMMON STOCK PURCHASE WARRANT
-------------------------------------
Dated: May 10, 1999
To Subscribe for and Purchase Shares of Class B Common Stock of
NORTHPOINT COMMUNICATIONS GROUP, INC.
-------------------------------------
NORTHPOINT COMMUNICATIONS GROUP, INC., a Delaware corporation (the
"Company"), hereby certifies that MICROSOFT CORPORATION, a Washington
-------
corporation, its permissible transferees, designees, successors and assigns
(collectively, the "Holder"), for value received, is entitled to subscribe for
------
and purchase from the Company at any time commencing on the date hereof (the
"Issuance Date") and terminating on the fifth anniversary of the Issuance Date
-------------
(the "Exercise Period") up to Eight Hundred Thirty Three Thousand, Three Hundred
---------------
Thirty-Three (833,333) shares (each a "Share" and, collectively, the "Shares")
----- ------
of fully paid and non-assessable Class B Common Stock of the Company (the "Class
-----
B Common Stock"), which is convertible into Common Stock of the Company (the
- --------------
"Common Stock") subject to the provisions and upon the terms and conditions
- -------------
hereinafter set forth at an initial exercise price of $36.00 per share (such
price as from time to time to be adjusted as provided herein is called the
"Exercise Price"). The number of Shares purchasable hereunder is subject to
--------------
adjustment as provided in Section 3 hereof.
This Warrant and any Warrant subsequently issued upon exchange or
transfer hereof are hereinafter collectively called the "Warrant."
-------
1. Exercise of Warrant. The rights represented by this Warrant may be
-------------------
exercised by the Holder, in whole or in part (but not as to fractional shares)
at any time or from time to time upon five (5) business days' notice to the
Company during the Exercise Period by the completion of the purchase form
attached hereto and by the surrender of this Warrant (properly endorsed) at the
office of the Company as it may designate by notice in writing to the Holder
hereof at the address of the Holder appearing on the books of the Company, and
by payment to the Company of the Exercise Price in cash or by certified or
official bank check, for each share being purchased. (In addition, see Section 2
below for net issuance provisions.) In the event of any exercise of the rights
represented by this Warrant, a certificate or certificates for the shares of
1
<PAGE>
Class B Common Stock so purchased, registered in the name of the Holder, or its
nominee or other party designated in the purchase form by the Holder hereof,
shall be delivered to the Holder within thirty (30) business days after the date
on which the rights represented by this Warrant shall have been so exercised;
and, unless this Warrant has expired or has been exercised in full, a new
Warrant representing the number of shares (except a remaining fractional share),
if any, with respect to which this Warrant shall not then have been exercised
shall also be issued to the Holder within such time. The person in whose name
any certificate for shares of Class B Common Stock is issued upon exercise of
this Warrant shall for all purposes be deemed to have become the holder of
record of such shares on the date on which this Warrant was surrendered and
payment of the Warrant is made, except that, if the date of such surrender and
payment is a date on which the stock transfer books of the Company are closed,
such person shall be deemed to have become the holder of such shares at the
close of business on the next succeeding date on which the stock transfer books
are open. No fractional shares shall be issued upon exercise of this Warrant and
no payment or adjustment shall be made upon any exercise on account of any cash
dividends on the Class B Common Stock issued upon such exercise. If any
fractional interest in a share of Class B Common Stock would, except for the
provision of this Section 1, be delivered upon such exercise, the Company, in
lieu of delivery of a fractional share thereof, shall pay to the Holder an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Company.
2. Net Issuance.
------------
2.1 Right to Convert. In addition to and without limiting the
----------------
rights of the Holder under the terms of this Warrant, if the Current Market
Value (as defined below) of a share of Common Stock is greater than the Warrant
Price, in lieu of exercising this Warrant for cash the Holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
----------------
into shares of Class B Common Stock equal to the value of this Warrant or the
portion thereof being canceled as provided in this Section 2 at any time or from
time to time during the Exercise Period. Upon exercise of the Conversion Right
with respect to a particular number of shares subject to the Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
------------------------
payment by the Holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Class B Common Stock
computed using the following formula:
X = Y (A - B)
---------
A
where: X = the number of shares of Class B Common Stock to be delivered
to the Holder;
Y = the number of Converted Warrant Shares;
A the Current Market Value (as defined below) of one share of
the Company's Common Stock on the Conversion Date; and
B = the Exercise Price (as of the Conversion Date).
2
<PAGE>
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
Current Market Value (as defined below) of the resulting fractional share on the
Conversion Date. Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
2.2 Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of the Warrant at the principal office of the Company
together with a written statement specifying that the Holder thereby intends to
exercise the Conversion Right and indicating the total number of shares under
the Warrant that the Holder is exercising through the Conversion Right. Such
conversion shall be effective upon receipt by the Company of the Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares issuable
---------------
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.3 Determination of Current Market Value. For purposes of this
-------------------------------------
Section 2, current market value (the "Current Market Value") of a share of
--------------------
Common Stock on the Conversion Date shall mean (i) the average of the closing
selling prices of the Common Stock on the stock exchange determined by the Board
in good faith to be the primary market for the Common Stock over the ten (10)
trading day period (or such shorter period immediately following the closing of
an initial public offering) ending on the date prior to the Conversion Date, as
such prices are officially quoted in the composite tape of transactions on such
exchange, or if the foregoing does not apply, (ii) if the Common Stock is traded
over-the-counter, the average of the closing bid prices (or, if such information
is available, the closing selling prices) of the Common Stock over the ten (10)
trading day period (or such shorter period immediately following the closing of
an initial public offering) ending on the date prior to the Conversion Date, as
such prices are reported by the National Association of Securities Dealers
through its Nasdaq National Market, any successor system or any exchange on
which it is listed, whichever is applicable, or (iii) if there is no public
market for the Common Stock, then the Current Market Value shall be determined
by mutual agreement of the holder of the Warrant and the Company, and if the
holder and the Company are unable to so agree, by an investment banker of
national reputation selected by the Company and reasonably acceptable to the
holder of the Warrant.
3. Adjustments.
-----------
3.1 Dividends, Distributions, Subdivisions, Combinations and
--------------------------------------------------------
Reclassifications. In the event that before the issuance of the shares of Class
- -----------------
B Common Stock into which this Warrant Certificate may be exercised the Company
(i) pays a dividend or makes a distribution on its Common Stock in shares of its
Common Stock, (ii) subdivides its outstanding shares of Common Stock into a
greater number of shares, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, or (iv) increases or decreases the number of
3
<PAGE>
shares of Common Stock outstanding by reclassification of its Common Stock
(including a recapitalization in connection with a consolidation or merger in
which the Company is the continuing corporation), the Warrant Price in effect
immediately prior to such action and the number of shares of Class B Common
Stock purchasable under this Warrant shall, concurrently with the effectiveness
of such action, be proportionately adjusted.
3.2 Issuances of Common Stock. In the event the Company shall
-------------------------
issue shares of Common Stock or any securities convertible into or exchangeable
or exercisable for shares of Common Stock to an Affiliate (as defined below) of
the Company at a price per share that as of the date of such issuance is less
than the then Current Market Value per share of Common Stock (determined in
accordance with Section 2.3), excluding, however, (i) shares of Common Stock
issued upon conversion of the shares of Class B Common Stock issued pursuant to
the exercise of this Warrant, (ii) shares of Common Stock issued pursuant to the
conversion rights of any security convertible into or exchangeable or
exercisable for shares of Common Stock, which security was outstanding as of the
Issuance Date (to the extent such issuances are in accordance with the terms of
such securities in effect on the Issuance Date), (iii) shares of Common Stock
issued in any of the transactions described in Section 3.1, and (iv) shares of
Common Stock issued upon the grant, conversion, exchange or exercise of options
granted to the Company's employees, directors, consultants or strategic partners
under a plan or plans adopted by the Company's Board of Directors, the number of
shares of Class B Common Stock issuable upon the exercise of the Warrant shall
be increased to a number determined by multiplying the number of shares of Class
B Common Stock theretofore issuable upon exercise of the Warrant by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
on the date of issuance of such shares of Common Stock or securities plus the
number of additional shares of Common Stock issued or for which such securities
that are issued are convertible, exchangeable or exercisable, and the
denominator of which shall be the number of shares of Common Stock outstanding
on the date of issuance of such shares of Common Stock or securities plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received by the Company (assuming the exercise or conversion of
all such securities) would purchase at the then Current Market Value per share
of Common Stock (determined in accordance with Section 2.3). In the event of
any such adjustment, the Exercise Price shall be adjusted to a number determined
by dividing the Exercise Price immediately prior to such date of issuance by the
aforementioned fraction. Such adjustment shall be made immediately after such
shares of Common Stock or securities are issued and shall become effective,
retroactive to the date of such issuance. No adjustment shall be made pursuant
to this Section 3.2 which shall have the effect of decreasing the number of
shares of Class B Common Stock purchasable upon exercise of the Warrant or of
increasing the Exercise Price. No adjustments shall be made under this Section
3.2 unless the adjustments to be made to the Exercise Price would individually
or together with any prior adjustments to the Exercise Price exceed $.10. If
such securities convertible into or exchangeable or exercisable for shares of
Common Stock expire unexercised, any such adjustments shall be reversed or
adjusted to reflect such expiration. For the purposes of this Section 3.2,
"Affiliate" shall mean, as to any person or entity, a person or entity that,
- ----------
directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such person or entity.
4
<PAGE>
3.3 Combination; Liquidation.
------------------------
(a) If there shall be effected any consolidation or merger of
the Company with another corporation, or a sale of all or substantially all
of the Company's assets to another corporation (each, a "Combination"), the
-----------
Holder shall have the right to receive upon exercise of the Warrant the kind
and amount of shares of capital stock or other securities or property which such
Holder would have been entitled to receive upon or as a result of such
Combination had such Warrant been exercised immediately prior to such event
(subject to further adjustment in accordance with the terms hereof). If agreed
to by the surviving or acquiring Person (the "Successor Company"), the Company
-----------------
shall provide that the Successor Company in such Combination will assume by
written instrument the obligations under this Section 3.3(a) and the obligations
to deliver to the Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder may be entitled to acquire.
"Person" means any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity. The provisions of this Section 3.3(a) shall similarly apply to
successive Combinations involving any Successor Company.
(b) If there shall be effected any Combination where the holders
of Common Stock shall be entitled pursuant to the terms of any such transaction
to receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such consolidation, merger or sale, lawful and
adequate provisions shall be made whereby the Holder of this Warrant shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the exercise of such Warrant, such
shares of stock, securities or assets as may be issuable or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore so
receivable had such Combination not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder to the end that the provisions hereof shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of this Warrant.
3.4 Notice of Adjustment. Whenever the Exercise Price or the number
--------------------
of shares of Class B Common Stock issuable upon exercise of the Warrant
Certificates is adjusted, as herein provided, the Company shall deliver to the
Holder a certificate of the Company's Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated, and specifying the Exercise Price and number of
shares of Class B Common Stock issuable upon exercise of Warrant after giving
effect to such adjustment.
3.5 Stock To Be Reserved. The Company will at all times reserve
--------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon the exercise of this Warrant as herein provided, such number of
shares of Class B Common Stock as shall
5
<PAGE>
then be issuable upon the exercise of this Warrant and such number of shares of
Common Stock as shall be issuable upon conversion thereof.
3.6 Issue Tax. The issuance of certificates for shares of Class
---------
B Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax in respect thereof provided that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the Holder.
3.7 Closing Of Books. The Company will at no time close its
----------------
transfer books against the transfer of the shares of Class B Common Stock issued
or issuable upon the exercise of this Warrant in any manner which interferes
with the timely exercise of this Warrant.
4. Notices Of Record Dates. In the event of:
-----------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any Change of Control
(as defined below); or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will give notice to the Holder of this
Warrant specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock will be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days and not more than ninety (90) days
prior to the date therein specified, and such notice shall state that the action
in question or the record date is subject to the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act") or
--------------
to a favorable vote of shareholders, if either is required. For purposes of this
Section 4, a "Change of Control" shall mean the occurrence of any of the
-----------------
following events: (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; or (ii) the stockholders
6
<PAGE>
of the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
5. No Shareholder Rights Or Liabilities. This Warrant shall not
------------------------------------
entitle the Holder hereof to vote for the election of the directors of the
Company or on any other matter or to any other rights as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Class B Common Stock, and no mere
enumeration hereon of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Exercise Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
6. Lost, Stolen, Mutilated Or Destroyed Warrant. If this Warrant
--------------------------------------------
is lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
7. Presentment. Prior to due presentment of this Warrant
-----------
together with a completed assignment form attached hereto for registration of
transfer, the Company may deem and treat the Holder as the absolute owner of the
Warrant, notwithstanding any notation of ownership or other writing thereon, for
the purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
8. Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by certified or
registered U.S. mail with return receipt requested and postage prepaid; by
private overnight delivery service (e.g., Federal Express); by facsimile
transmission (if no original documents or instruments must accompany the
notice); or by personal delivery. Any such notice shall be deemed to have been
given (a) five Business Days following the mailing thereof, if mailed by
certified or registered U.S. mail as specified above; (b) on the Business Day
immediately following deposit with a private overnight delivery service if sent
by said service; (c) upon receipt of confirmation of transmission if sent by
facsimile transmission; or (d) upon personal delivery of the notice. All such
notices shall be sent to the following addresses (or to such other address or
addresses as a party may have advised the other in the manner provided in this
Section 8):
7
<PAGE>
If to the Company:
NorthPoint Communications Group, Inc.
222 Sutter Street
San Francisco, CA 94108
Attn: Kevin Cameron, Esq.
Tel: (415) 403-4003
Fax: (415) 403-4004
With a copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Attn: Michael Hall, Esq.
Tel: (650) 463-2655
Fax: (650) 328-2600
If to the Holder:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Chief Financial Officer
With a copy to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: General Counsel, Finance and
Adminstration
Notwithstanding the time of effectiveness of notices set forth in this Section,
a purchase form shall not be deemed effectively given until it has been duly
completed and submitted to the Company together with the original Warrant to be
exercised and payment of the Exercise Price in a manner set forth in this
Warrant.
9. Governing Law. The validity, interpretation and performance of
-------------
this Warrant Certificate shall be governed by the laws of the State of
California without regard to principles of conflicts of laws.
10. Successors and Assigns. Subject to the restrictions on
----------------------
transfer by Holder set forth in that certain Warrant and Rights Agreement dated
as of April 7, 1999, between the Company and the Holder, all the terms and
provisions of this Warrant shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto.
8
<PAGE>
11. Amendment. This Warrant may be modified, amended or
---------
terminated by a writing signed by the Company and the Holder.
12. Severability. Should any part but not the whole of this Warrant
------------
for any reason be declared invalid, such decision shall not affect the validity
of any remaining portion, which remaining portion shall remain in force and
effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Warrant without including
therein any such part which may, for any reason, be hereafter declared invalid.
13. No Impairment. The Company will not, by any voluntary action,
-------------
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
14. No Right To Redeem. Except as explicitly provided herein,
------------------
this Warrant may not be called by the Company.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered on and as of the day and year first above written by one of its
officers thereunto duly authorized.
NORTHPOINT COMMUNICATIONS GROUP, INC.,
a Delaware corporation
Dated: May 10, 1999 By:/s/ Michael W. Malaga
-----------------
Name: Michael MAlaga
Title: Chief EXecutive Officer
The undersigned Holder agrees and accepts this Warrant.
MICROSOFT CORPORATION,
a Washington corporation
By:_____________________
Name:
Title:
[SIGNATURE PAGE TO WARRANT]
10
<PAGE>
PURCHASE FORM
-------------
(To be executed by the Holder if it desires
to exercise the Warrant in whole or in part)
The undersigned Holder hereby elects to exercise _______ of the rights
to purchase Class B Common Stock represented by the attached Warrant, and to
purchase the shares of Class B Common Stock issuable upon the exercise of such
rights, and requests that certificates for securities be issued in the name of:
____________________________________________________________
(Please type or print name and address)
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Social Security or Tax Identification Number)
and delivered to _____________________________________________________________
(Please type or print name and address if different from above)
If such number of rights being exercised hereby shall not be all the rights
evidenced by the attached Warrant, a new Warrant for the balance of such rights
shall be registered in the name of, and delivered to, the Holder at the address
set forth below.
[In full payment of the purchase price with respect to the rights
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_______ by check, money order or wire transfer payable in United States
currency to the order of NorthPoint Communications Group, Inc.] or [The
undersigned elects net issuance exercise in accordance with Section 2 of the
Warrant.]
HOLDER:
Dated:__________________________ By:_________________________________
Name:
Title:
Address:____________________________
____________________________
11
<PAGE>
FORM OF ASSIGNMENT
------------------
(To be executed by the Holder if he desires to effect a transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________, whose Social Security or other
identification number is ________________________ [residing/located] at
____________________________ ____________________ the attached Warrant, and
appoints _____________________________ residing at ________________________ the
undersigned's attorney-in-fact to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated: ________________ By:________________________
Name:
Title:
(Signature must conform in all respects to
the name of the Holder as specified on the
face of the Warrant, without alteration,
enlargement or any change whatsoever).
In the presence of:
12
<PAGE>
EXHIBIT 10.31
OFFICE LEASE
between
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES,
a New York corporation,
as Landlord,
and
NORTHPOINT COMMUNICATIONS, INC.,
a Delaware corporation,
as Tenant
Dated as of
June 17, 1999
--
303 Second Street
San Francisco, California
1
<PAGE>
OFFICE LEASE
BASIC LEASE INFORMATION
Date: June 17, 1999
--
Landlord: THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES, a
New York corporation
Tenant: NORTHPOINT COMMUNICATIONS, INC., a
Delaware corporation
Building (Paragraph 1(a)): 303 Second Street
San Francisco, CA 94107
Premises (Paragraph 1(b)): The entire seventh and ninth floors and a
portion of the eighth floor of the South Tower,
containing approximately ninety-eight thousand
eight hundred seventy-three (98,873) square feet
of rentable area of space, as more specifically
outlined in Exhibit A attached hereto
Term Commencement
(Paragraph 2): The earlier of substantial completion of Tenant
Improvements in the Premises, or Tenant's
occupancy of the Premises, or December 1, 1999
Term Expiration
(Paragraph 2): The day that is sixty (60) months and
two (2) weeks after the Term Commencement
Base Rent (Paragraph 3): The Base Rent shall commence two (2) weeks
after the Term Commencement and, beginning on
the Base Rent commencement date, shall be as
follows:
Months Annual Monthly
------ ---------- -----------
1-24 $3,757,174 $313,097.83
25-36 $3,856,047 $321,337.25
37-60 $3,954,920 $329,576.66
Base Expense Year
(Paragraph 1(c)): 2000
Base Tax Year
(Paragraph 1(d)) 2000
Tenant's Expense Share
(Paragraph 4(a)): 14.11%
Tenant's Tax Share
(Paragraph 4 (a)): 14.11%
Security Deposit
(Paragraph 32): $3,300,000
Tenant's Address
For Notices (Paragraph 34): NORTHPOINT COMMUNICATIONS, INC.
303 Second Street
San Francisco, CA 94107
Attn: Bryce C. Mason
i
<PAGE>
With a copy to: NORTHPOINT COMMUNICATIONS, INC.
c/o Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
Attn: Alan J. Robin, Esq.
Landlord's Address
For Notices (Paragraph 34): THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
c/o Lend Lease Real Estate
Investments, Inc.
One Front Street, Suite 1100
San Francisco, CA 94111
Attn: Asset Manager
With a copy to: THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
c/o LaSalle Partners Management
Services, Inc.
303 Second Street, Building Offices
San Francisco, CA 94107
Attn: Property Manager
Brokers (Paragraph 47): Grubb & Ellis and Jones Lang
LaSalle Management Services, Inc.
Exhibits and Addendum
(Paragraph 43): Addendum
Exhibit A: Floor Plan
Exhibit B: Rules and Regulations
Exhibit C: Tenant Improvement Work Letter
The provisions of the Lease identified above in parentheses are those provisions
where references to particular Basic Lease Information appear. Each such
reference shall incorporate the applicable Basic Lease Information. In the event
of any conflict between any Basic Lease Information and the Lease, the latter
shall control.
TENANT LANDLORD
NORTHPOINT COMMUNICATIONS, THE EQUITABLE LIFE ASSURANCE
INC., a Delaware corporation SOCIETY OF THE UNITED STATES,
a New York corporation
By /s/ TIMOTHY M. MONAHAN By /s/ JAMES PIANE
-------------------------- --------------------------
Title Vice President Finance Title Investment Officer
& Planning ---------------------
---------------------
By /s/ [SIGNATURE]
--------------------------
Title Chief Development Officer
---------------------
ii
<PAGE>
TABLE OF CONTENTS
CLAUSE CLAUSE HEADINGS PAGE
- ------ ------------------------------------------------------- ----
1 Definitions 1
2 Term; Condition of Premises 1
3 Rental 1
4 Additional Charges For Expenses and Real Estate Taxes 2
5 Use 5
6 Services 5
7 Impositions Payable by Tenant 6
8 Alterations 6
9 Liens 7
10 Repairs 7
11 Destruction or Damage 7
12 Insurance 8
13 Waiver of Subrogation 9
14 Indemnification 9
15 Compliance with Legal Requirements 9
16 Assignment and Subletting 9
17 Rules; No Discrimination 11
18 Entry by Landlord 11
19 Events of Default 12
20 Termination upon Default 12
21 Continuation after Default 13
22 Other Relief 14
23 Landlord's Right to Cure Defaults 14
24 Attorneys' Fees 14
25 Eminent Domain 14
26 Subordination 14
27 No Merger 15
28 Sale 15
29 Estoppel Certificate 15
30 No Light, Air, or View Easement 15
31 Holding Over 15
32 Security Deposit 15
33 Waiver 15
34 Notices and Consents 15
35 Complete Agreement 16
36 Corporate Authority 16
37 Partnership Authority 16
38 Limitation of Liability to Building 16
39 Miscellaneous 16
40 Abandonment 17
41 Substitution of Premises 17
42 Americans with Disabilities Act and Similar Acts 17
43 Exhibits 17
44 Landlord's Liability; Sale of Building 17
45 Name of Building 18
46 Hazardous Substance Disclosure 18
47 Real Estate Brokers 18
48 Limited Recourse 18
Exhibit A: Floor Plan
Exhibit B: Rules and Regulations
Exhibit C: Work Letter
<PAGE>
OFFICE LEASE
THIS LEASE, dated June 17, 1999, for purposes of reference only, is made
------- --
and entered into by and between The Equitable Life Assurance Society of the
United States ("Landlord") and NorthPoint Communications, Inc. ("Tenant").
------------------------------
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord
the premises described in paragraph 1 (b) below for the term and subject to the
terms, covenants, agreements and conditions hereinafter set forth, to each and
all of which Landlord and Tenant hereby mutually agree.
1. Definitions. Unless the context otherwise specifies or requires, the
-----------
following terms shall have the meanings herein specified:
(a) The term "Building" shall mean the land, building or buildings,
other improvements and other real property described in the Basic Lease
Information, as well as any property interest in the area of the streets
bounding the parcel described in the Basic Lease Information, and all other
improvements on or appurtenances to said parcel or said streets.
(b) The term "Premises" shall mean the portion of the Building located
on the floor(s) specified in the Basic Lease Information which is crosshatched
on the floor plan(s) attached to this Lease as Exhibit A.
(c) The term "Base Expense Year" shall mean the calendar year
specified in the Basic Lease Information as the Base Expense Year.
(d) The term "Base Tax Year" shall mean the calendar year specified in
the Basic Lease Information as the Base Tax Year.
2. Term; Condition of Premises. The term of this Lease shall commence
---------------------------
and, unless sooner terminated or extended as hereinafter provided, shall end on
the dates respectively specified in the Basic Lease Information. Unless
otherwise agreed by Landlord and Tenant in this Lease, Landlord shall deliver
the Premises to Tenant on the date of the Lease in their then existing condition
with no alterations being make by Landlord. If Landlord, for any reason
whatsoever, cannot deliver the Premises to Tenant at the commencement of the
term, this Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting therefrom, but in that event rental
shall be waived for the period between the commencement of the term and the time
when Landlord delivers the Premises to Tenant. No delay in delivery of the
Premises shall operate to extend the term hereof.
3. Rental.
------
(a) Tenant shall pay to Landlord throughout the term of this Lease as
rental for the Premises the sum specified in the Basic Lease Information as the
Base Rent. As additional rental hereunder, Tenant shall pay to Landlord the
additional charges described in paragraph 4 below.
(b) Monthly rental shall be paid to Landlord on or before the first
day of the term hereof and on or before the first day of each and every
successive calendar month thereafter during the term hereof beginning on the
Base Rent commencement date. In the event the term of this Lease commences on a
day other than the first day of a calendar month or ends on a day other than the
last day of a calendar month, the monthly rental for the first and last
fractional months of the term hereof shall be appropriately prorated.
1
<PAGE>
(c) All sums of money due from Tenant hereunder not specifically
characterized as rental shall constitute additional rent, and if any such sum is
not paid when due it shall nonetheless be collectible as additional rent with
the next installment of rental thereafter falling due, but nothing contained
herein shall be deemed to suspend or delay the payment of any sum of money at
the time it becomes due and payable hereunder, or to limit any other remedy of
Landlord.
(d) Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent and other sums due hereunder after the expiration of any
applicable grace period described in paragraph 19(a) will cause Landlord to
incur costs not contemplated by this Lease, the exact amounts of which will be
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by the
terms of any encumbrances covering the Building and the Premises. Accordingly,
if any installment of rent or any other sums due from Tenant shall not be
received by Landlord prior to the expiration of any applicable grace period
described in paragraph 19(a), Tenant shall pay to Landlord a late charge equal
to three percent (3%) of such overdue amount, but, after the second occurrence
in any calendar year, the late charge for all subsequent occurrences in the same
calendar year shall be five percent (5%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payment by Tenant based on the
circumstances existing as of the date of this Lease. Acceptance of such late
charge by Landlord shall in no event constitute a waiver of Tenant's default
with respect to such overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies granted hereunder.
(e) Any amount due from Landlord or Tenant, if not paid when first
due, shall bear interest from the date first due until paid at an annual rate
equal to 4% over the annual prime rate of interest announced publicly by
Citibank, N.A. in New York, New York from time to time (but in no event in
excess of the maximum rate of interest permitted by law), provided that interest
shall not be payable on late charges incurred by Tenant nor on any amounts upon
which late charges are paid by Tenant to the extent such interest would cause
the total interest to be in excess of that legally permitted. Payment of
interest shall not excuse or cure any default hereunder by Landlord or Tenant.
(f) All payments due from Tenant shall be paid to Landlord, without
deduction or offset, in lawful money of the United States of America at
Landlord's address for notices hereunder, or to such other person or at such
other place as Landlord may from time to time designate by notice to Tenant.
4. Additional Charges for Expenses and Real Estate Taxes
-----------------------------------------------------
(a) For purposes of this Paragraph 4, the following terms shall have
the meanings hereinafter set forth:
(i) "Tenant's Tax Share" and "Tenant's Expense Share" mean the
percentage figures so specified in the Basic Lease Information. Tenant's Tax
Share and/or Tenant's Expense Share may be adjusted by Landlord as a result of
any change in the rentable area of the Premises or the total rentable area of
the Building.
(ii) "Tax Year" means each twelve (12) consecutive month period
commencing January 1st of each year during the Term, including, without
limitation, any partial year during which the Lease may commence; provided that
Landlord, upon notice to Tenant, may change the Tax Year from time to time to
any other twelve (12) consecutive month period and, in the event of any such
change, Tenant's Tax Share of Real Estate Taxes shall be equitably adjusted for
the Tax Year involved in any such change.
(iii) "Real Estate Taxes" means all taxes, assessments and
charges of any kind whatsoever levied upon or with respect to the Building or
any personal property of Landlord used in the operation thereof, or Landlord's
interest in the Building or such personal property. Real Estate Taxes shall
include, without limitation: all general real property taxes and general and
special assessments, charges, fees, or assessments for transit, housing, police,
fire, or other governmental services or purported benefits to the Building or
the occupants thereof, service payments in lieu of taxes, business taxes, and
any tax, fee, or excise on the act of entering into this Lease or any other
lease of space in the Building, or on the use or occupancy of the Building or
any part thereof, or on the rent payable under any lease or in connection with
the business of renting space in the Building, that are now or hereafter levied
or assessed against
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Landlord by the United States of America, the State of California or any
political subdivision thereof, public corporation, district, or any other
political or public entity, and shall also include any other tax, fee, charge or
other excise, however described, that may be levied or assessed as a substitute
for, or as an addition to, in whole or in part, any other Real Estate Taxes,
whether or not now customary or in the contemplation of the parties on the date
of this Lease. Real Estate Taxes shall not include fines, penalties or interest,
or estate, franchise, transfer, inheritance, or capital stock taxes or income
taxes measured by the net income of Landlord from all sources unless, due to a
change in the method of taxation, any of such taxes is levied or assessed
against Landlord as a substitute for, or as an addition to, in whole or in part,
any other tax that would otherwise constitute a Real Estate Tax. Real Estate
Taxes shall also include legal fees, costs, and disbursements incurred in
connection with proceedings to contest, determine, or reduce Real Estate Taxes.
If and to the extent Real Estate Taxes may be paid in installments, only the
amount of installments payable during a calendar year shall be included in Real
Estate Taxes for such calendar year.
(iv) "Expense Year" means each twelve (12) consecutive month
period commencing January 1st of each year during the Term, including, without
any limitation, any partial year during which the Lease may commence; provided
that Landlord, upon notice to Tenant, may change the Expense Year from time to
time to any other twelve (12) consecutive month period and, in the event of any
such change, Tenant's Expense Share of Expenses shall be equitably adjusted for
the Expense Years involved in any such change.
(v) "Expenses" means the total costs and expenses paid or
incurred by Landlord in connection with the ownership, management, operation,
maintenance and repair of the Building, including, without limitation: (i) the
cost of air conditioning, electricity, steam, water, heating, mechanical,
telephone, ventilating, escalator and elevator systems and all other utilities;
(ii) the cost of repairs and replacements and all labor and material costs
related thereto, and the cost of general maintenance, cleaning and service
contracts and the cost of all supplies, tools and equipment required in
connection therewith; (iii) the cost of the Building delivery and messenger
service; (iv) the cost incurred by Landlord for all insurance carried on the
Building or in connection with the use and/or occupancy thereof and the amount
of any deductible on uninsured loss; (v) wages, salaries, payroll taxes and
other labor costs and employee benefits; (vi) management fees; (vii) fees,
charges and other costs of all independent contractors engaged by Landlord;
(viii) accounting and legal expenses; (ix) Landlord's share of any shared
expenses under any reciprocal easement agreement or similar document; (x)
depreciation on personal property, including, without limitation, carpeting in
public corridor and common areas and window coverings provided by Landlord; (xi)
the fair market value rental paid for offices in the Building for the property
manager and related management and operations personnel; (xii) the cost of any
capital improvements made to the Building after completion of its construction
as a labor-saving or energy saving device or to enhance the health and safety of
the public (including tenants) or to effect other economies in the operation or
maintenance of the Building, or made to the Building after the date of this
Lease that are required under any governmental law or regulation or insurance
carrier that was not applicable to the Building at the time that permits for the
construction thereof were obtained, such cost to be amortized over such period
as Landlord shall determine (including, without limitation, with respect to any
improvements which result in cost savings with respect to the Building, such
period as would allow Landlord to amortize the improvements to the extent of
such cost savings in any year), together with interest on the unamortized
balance at the rate of ten percent (10%) per annum or such higher rate as may
have been paid by Landlord on funds borrowed for the purpose of constructing
such capital improvements; (xiii); (xiv) the cost of contesting the validity or
applicability of any governmental enactments which may affect operating
expenses; (xv) the rental costs of art in the Building; and (xvi) any other
expenses and costs of any kind whatsoever incurred in connection with the
ownership, management, operation, maintenance and repair of the Building
including, without limitation, capital expenditures required to bring the
Building into compliance with laws enacted after the Building's temporary
certificate of occupancy or the equivalent is validly issued. Expenses shall not
include Real Estate Taxes, the cost of Tenant Improvements, real estate broker's
commissions, or interest or principal payments on loans which are secured by a
deed of trust or mortgage encumbering the Building. Actual Expenses for both the
Base Expense year and each subsequent Expense Year shall, if actual occupancy is
less than ninety-five percent (95%), be adjusted to equal Landlord's reasonable
estimate of the Expenses had ninety-five percent (95%) the total area of the
Building been occupied for each such Expense Year. Landlord and Tenant
acknowledge and agree that certain costs of the ownership, management, operation
maintenance and repair of the Building may be allocated exclusively to a single
component of the Building (for example, and without limitation, to an office
area, a retail area or a parking facility) and certain of such costs may be
allocated among such components. The determination of such costs and their
allocation
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shall be made by Landlord in Landlord's sole discretion.
(b) Tenant shall pay to Landlord as additional rent one twelfth (1/12)
of Tenant's Tax Share of increases in the Real Estate Taxes for each Tax Year or
portion thereof during the Term after the Base Tax Year when compared to Real
Estate Taxes for the Base Tax Year (the "Tax Increases"), in advance, on or
before the first day of each month during such Tax Year, in an amount estimated
by Landlord in a writing delivered to Tenant. Landlord may revise such estimates
from time to time and Tenant will thereafter make payments on the basis of such
revised estimates.
(c) Tenant shall pay to Landlord as additional rent one twelfth (1/12)
of Tenant's Expense Share of increases in the Expenses for each Expense Year or
portion thereof during the Term after the Base Expense Year when compared to
Expenses for the Base Expense Year (the "Expense Increases"), in advance, on or
before the first day of each month during such Expense Year, in an amount
estimated by Landlord in a writing delivered to Tenant. Landlord may revise such
estimates from time to time and Tenant will thereafter make payments on the
basis of such revised estimates.
(d) Within six (6) months after the expiration of each Expense Year
and Tax Year after the Base Expense Year and Base Tax Year, including, without
limitation, the Expense Year and Tax Year during which this Lease terminates,
Landlord will furnish Tenant with a statement (herein called "Landlord's Expense
Statement" and "Landlord's Tax Statement"), prepared by Landlord or its
accountant, setting forth in reasonable detail the Expenses and Real Estate
Taxes for each such Expense Year and Tax Year and Tenant's Expense Share of the
Expense Increases and Tenant's Tax Share of the Tax Increases, which statement
shall be conclusive and binding upon Tenant. If the total of Tenant's Expense
Share of the Expense Increases for such Expense Year as set forth in Landlord's
Expense Statement exceeds the total estimated payments for Expense Increases
paid by Tenant for such Expense Year, Tenant shall pay to Landlord (whether or
not this Lease has terminated) the difference between the total amount of
estimated payments paid by Tenant with respect to Expense Increases and the
total of Tenant's Expense Share of the actual Expense Increases within thirty
(30) days after the receipt of Landlord's Expense Statement. If the total amount
paid by Tenant for any such Expense Year shall exceed Tenant's Expense Share of
the actual Expense Increases for such Expense Year, such excess shall be
credited against the next installments of Expense Increases due from Tenant to
Landlord hereunder. If this Lease has terminated and no amounts are due or to
become due to Landlord from Tenant hereunder, any excess shall be paid to Tenant
by check within a reasonable time after such final determination of the actual
Expenses. If the total of Tenant's Tax Share of the Tax Increases for any Tax
Year as set forth in Landlord's Tax Statement exceeds the total estimated
payments for Tax Increases paid by Tenant for such Tax Year, Tenant shall pay to
Landlord (whether or not this Lease has terminated) the difference between the
total amount of estimated payments paid by Tenant with respect to Tax Increases
and the total of Tenant's Tax Share of the actual Tax Increases within thirty
(30) days after the receipt of Landlord's Tax Statement. If the total amount
paid by Tenant for any such Tax Year shall exceed Tenant's Tax Share of the
actual Real Estate Taxes for such Tax Year, such excess shall be credited
against the next installments of Tax Increases due from Tenant to Landlord
hereunder. If this Lease has terminated and no amounts are due or to become due
to Landlord from Tenant hereunder, any excess shall be paid to Tenant by check
within a reasonable time after such final determination of the actual Tax
Increases. Notwithstanding anything to the contrary contained herein, in the
event that the Expenses for any subsequent Expense Year are less than Expenses
for the Base Expense Year or in the event that the Real Estate Taxes for any Tax
Year are less than the Real Estate Taxes for the Base Tax Year, Tenant shall not
be entitled to a credit against any Base Rent or other sums payable by Tenant
hereunder or to a payment from Landlord to Tenant with respect thereto.
(e) If the commencement date or expiration date shall occur on a date
other than the first or last day, respectively, of a Tax Year and/or Expense
Year, Tenant's Tax Share of the Tax Increases and/or Tenant's Expense Share of
Expense Increases for which the commencement date or expiration date occurs
shall be prorated based on a 365-day year, but shall remain subject to
adjustment based on receipt of information after the expiration date.
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5. Use.
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(a.) Tenant shall not do or permit to be done in or about the
Premises, nor bring or keep or permit to be brought or kept therein, anything
which is prohibited by or would in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated, or which is prohibited by the standard form of fire
insurance policy, or would in any way increase the existing rate of or affect
any fire or other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy covering the Building or any part thereof
or any of its contents. Tenant shall not do or permit anything to be done in or
about the Premises which would in any way obstruct or interfere with the rights
of other tenants of the Building, or injure or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purposes, nor shall Tenant cause, maintain or permit any nuisance or waste in,
on or about the Premises.
(b.) Tenant shall not cause or permit the storage, use, generation,
release, or disposal (collectively, "Handling") of any Hazardous Materials (as
defined below), in, on, or about the Premises or the Building by Tenant or any
agents, employees, contractors, licensees, subtenants, customers, guests or
invitees of Tenant (collectively with Tenant, "Tenant Parties"), except that
Tenant shall be permitted to use normal quantities of office supplies or
products (such as copier fluids or cleaning supplies) customarily used in the
conduct of general business office activities ("Common Office Chemicals"),
providing that the Handling of such Common Office Chemicals shall comply at all
times with all Hazardous Materials Laws (as defined below). Notwithstanding
anything to the contrary contained herein, however, in no event shall Tenant
permit any usage of Common Office Chemicals in a manner that may cause the
Premises or the Building to be contaminated by any Hazardous Materials or in
violation of any Hazardous Materials Laws. Tenant's obligations under this
Paragraph shall survive the expiration or other termination of this Lease. For
purposes of this Paragraph, "Hazardous Materials" means any explosive,
radioactive materials, hazardous wastes, or hazardous substances, including
without limitation, asbestos containing materials, PCB's, CFC's, or substances
defined or regulated as hazardous substances or hazardous materials in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601-9657; the Hazardous Materials Transportation Act
of 1975, 42 U.S.C. Section 1001-1012, the Resource Conservation and Recovery Act
of 1976, 42 U.S.C. Section 6901-6987; or any other Federal State or local law,
ordinance or regulation. "Hazardous Materials Laws" shall mean all Federal,
State, and local laws, ordinances and regulations defining, regulating,
restricting or otherwise governing the storage, use, generation, release or
disapproval of Hazardous Materials.
6. Services.
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(a) Landlord shall maintain the public and common areas of the
Building, including lobbies, stairs, elevators, corridors and restrooms,
windows, mechanical, plumbing and electrical equipment, and the structure itself
in reasonably good order and condition except for damage occasioned by the acts
of Tenant, its employees, agents, contractors or invitees, which damage shall be
repaired by Landlord at Tenant's expense.
(b) Landlord shall furnish the Premises with (1) electricity for
lighting and the operation of customary office machines, (2) heat and air
conditioning to the extent reasonably required for the comfortable occupancy by
Tenant in its use of the Premises during the period from 7 a.m. to 6 p.m. on
weekdays (except holidays), or such shorter period as may be prescribed by any
applicable policies or regulations adopted by any utility or governmental
agency, (3) elevator service, (4) lighting replacement (for building standard
lights), (5) restroom supplies, (6) window washing with reasonable frequency,
and (7) lobby attendant services and janitor service during the times and in the
manner that such services are customarily furnished in comparable office
buildings in the area. Landlord may establish reasonable measures to conserve
energy, including but not limited to, automatic switching of lights after hours,
so long as such measures do not unreasonably interfere with Tenant's use of the
Premises. Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated, or this Lease terminated by reason of (i) the installation,
use or interruption of use of any equipment in connection with the furnishing of
any of the foregoing services, (ii) failure to furnish or delay in furnishing
any such services or by the making of
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necessary repairs or improvements to the Premises or to the Building, or
(iii) the limitation, curtailment, rationing or restrictions on use of water,
electricity, gas or any other form of energy serving the Premises or the
Building. Landlord shall use reasonable efforts diligently to remedy any
interruption in the furnishing of such services.
(c) Whenever heat-generating equipment or lighting other than
building standard lights are used in the Premises by Tenant which affect the
temperature otherwise maintained by the air conditioning system, Landlord shall
have the right, after notice to Tenant, to install supplementary air
conditioning facilities in the Premises or otherwise modify the ventilating and
air conditioning system serving the Premises, and the cost of such facilities
and modifications shall be borne by Tenant. Tenant shall also pay the cost of
providing all cooling energy to the Premises in excess of that required for
normal office use or during hours requested by Tenant when air conditioning is
not otherwise furnished by Landlord. If there is installed in the Premises
lighting requiring power in excess of that required for normal office use in the
Building, or if there is installed in the Premises equipment requiring power in
excess of that required for normal desk-top office equipment or normal copying
equipment, Tenant shall pay for the cost of such excess power, together with the
cost of installing any additional risers or other facilities that may be
necessary to furnish such excess power to the Premises.
(d) In the event that Landlord, at Tenant's request, provides services
to Tenant that are not otherwise provided for in this Lease, Tenant shall pay
Landlord's reasonable charges for such services upon billing therefor,
including, without limitation, Landlord's then current administrative fee
therefor.
7. Impositions Payable by Tenant. In addition to the monthly rental and
-----------------------------
other charges to be paid by Tenant hereunder, Tenant shall pay or reimburse
Landlord for any and all of the following items (hereinafter collectively
referred to as "Impositions"), whether or not now customary or in the
contemplation of the parties hereto: taxes (other than local, state and federal
personal or corporate income taxes measured by the net income of Landlord from
all sources), assessments (including, without limitation, all assessments for
public improvements, services or benefits, irrespective of when commenced or
completed), excises, levies, business taxes, license, permit, inspection and
other authorization fees, transit development fees, assessments or charges for
housing funds, service payments in lieu of taxes and any other fees or charges
of any kind, which are levied, assessed, confirmed or imposed by any public
authority, but only to the extent the Impositions are: (a) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, furniture,
fixtures and other personal property located in the Premises, or the cost or
value of any leasehold improvements made in or to the Premises by or for Tenant,
regardless of whether title to such improvements shall be in Tenant or Landlord;
(b) upon, with respect to or by reason of the development, possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; or (c) upon this transaction or
any document to which Tenant is a party creating or transferring an interest or
an estate in the Premises. In the event that it shall not be lawful for Tenant
to reimburse Landlord for the Impositions but it is lawful to increase the
monthly rental to take into account Landlord's payment of the Impositions, the
monthly rental payable to Landlord shall be revised to net Landlord the same net
return without reimbursement of the Impositions as would have been received by
Landlord with reimbursement of the Impositions.
8. Alterations.
-----------
(a) Tenant shall make no alterations, additions or improvements to the
Premises or install fixtures in the Premises without first obtaining Landlord's
consent, which consent shall not be unreasonably withheld, provided however,
that Landlord may withhold its consent in its sole and absolute discretion if
there are any material modifications to any structural components of the
Building or any of the Building's operating systems, including, without
limitation, heating, ventilating, air conditioning, plumbing, electrical, and
other operating systems. Tenant may reconfigure and replace furniture and
undertake corresponding voice/data work, and no consent of Landlord shall be
required therefor. In connection with Tenant's request for Landlord's consent
under this Lease, Tenant shall pre-pay to Landlord a Two Hundred Fifty Dollar
($250.00) charge for Landlord's review of applicable documents and plans,
together with any third-party costs and expenses incurred or to be incurred by
Landlord related thereto. In no event, however, may the Tenant make any
alterations, additions or related thereto. In no event, however, may the Tenant
make any alterations, additions or improvements or install fixtures which, in
Landlord's reasonable judgement, might adversely affect the structural
components of the Building or Building mechanical, utility or life safety
6
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systems. At the time such consent is requested, Tenant shall furnish to Landlord
a description of the proposed work, an estimate of the cost thereof and such
information as shall reasonably be requested by Landlord substantiating Tenant's
ability to pay for such work. Landlord, at its sole option, may require as a
condition to the granting of such consent to any work costing in excess of two
hundred fifty thousand dollars ($250,000), that Tenant provide to Landlord, at
Tenant's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half (1 1/2) times any and all estimated costs of the proposed work,
to insure Landlord against any liability for mechanics' and materialmen's liens
and to insure completion of the work. Before commencing any work, Tenant shall
give Landlord at least fifteen (15) days written notice of the proposed
commencement of such work in order to give Landlord an opportunity to prepare,
post and record such notice as may be permitted by law to protect Landlord's
interest in the Premises and the Building from mechanics' and materialmen's
liens. Within a reasonable period following completion of any work for which
plans and specifications were required to obtain a building permit for such
work, Tenant shall furnish to Landlord "as built" plans showing the changes made
to the Premises.
(b) Any alterations, additions or improvements to the Premises shall
be made by Tenant at Tenant's sole cost and expense, and any contractor,
subcontractor or other person selected by Tenant to make the same shall be
selected from Landlord's approved bidder list. Tenant's contractor and its
subcontractors shall employ union labor to the extent necessary to insure, so
far as may be possible, the progress of the alterations, additions or
improvements and the performance of any other work or the provision of any
services in the Building without interruption on account of strikes, work
stoppage or similar causes of delay. All work performed by Tenant shall comply
with the laws, rules, orders, directions, regulations and requirements of all
governmental entities having jurisdiction over such work and shall comply with
the rules, orders, directions, regulations and requirements of any nationally
recognized board of insurance underwriters. All alterations, additions and
improvements shall immediately become Landlord's property and, at the end of the
term hereof, shall remain on the Premises without compensation to Tenant;
provided, however, that if required by Landlord at the time Landlord reviews and
approves the plans for alterations, additions or improvements (including the
Tenant Improvements pursuant to the Tenant Improvement Work Letter attached
hereto as Exhibit C), Tenant shall, prior to the end of the term, at its sole
cost and expense, remove the alterations, additions and improvements required to
be removed by Landlord and repair and restore the Premises to their condition at
the commencement of the term.
9. Liens. Tenant shall keep the Premises and the Building free from
-----
any liens (and claims thereof) arising out of any work performed, materials
furnished or obligations incurred by or for Tenant. Landlord shall have the
right to post and keep posted on the Premises any notices that may be provided
by law or which Landlord may deem to be property for the protection of Landlord,
the Premises and the Building from such liens and claims.
10. Repairs. By entry hereunder, Tenant accepts the Premises as being
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in the condition in which Landlord is obligated to deliver the Premises. Tenant
shall, at all times during the term hereof and at Tenant's sole cost and
expense, keep the Premises in good condition and repair; ordinary wear and tear
and damage thereto by fire, earthquake, act of God or the elements excepted.
Tenant hereby waives all rights to make repairs at the expense of Landlord or in
lieu thereof to vacate the Premises, abate rent or terminate this Lease. Subject
to Landlord's rights to require the removal of alterations, additions and
improvements, Tenant shall at the end of the term hereof surrender to Landlord
the Premises and all Alterations thereto in the same condition as when received,
ordinary wear and tear and damage by fire, earthquake, act of God or the
elements excepted. Landlord has no obligation and has made no promise to alter,
remodel, improve, repair, decorate or paint the Premises or any part thereof,
except as specifically herein set forth. No representations respecting the
condition of the Premises or the Building have been made by Landlord or
Landlord's agents to Tenant, except as specifically herein set forth.
11. Destruction or Damage.
----------------------
(a) In the event the Premises or the portion of the Building necessary
for Tenant's use and enjoyment of the Premises are damaged by fire, earthquake,
act of God, the elements or other casualty, Landlord shall repair the same
(including the Tenant Improvements constructed pursuant to Exhibit C), subject
to the provisions of this paragraph hereinafter set forth, if (i) such repairs
can, in Landlord's opinion, be made within a period of twelve (12) months after
commencement of the repair work, (ii) the cost of repairing damage for which
Landlord is not insured shall be less than ten percent (10%) of the then full
insurable value of the Premises with respect to repairing any damage to the
Premises, or five
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percent (5%) of the then full insurable value of the Building with respect to
repairing any damage to other areas of the Building, and (iii) the damage or
destruction does not occur during the last twelve (12) months of the term of
this Lease or any extension thereof. This Lease shall remain in full force and
effect except an abatement of rental shall be allowed Tenant for such part of
the Premises as shall be rendered unusable by Tenant in the conduct of its
business during the time such part is so unusable.
(b) As soon as is reasonably possible following the occurrence of any
damage, Landlord shall notify Tenant of the estimated time and cost required for
the repair or restoration of the Premises or the portion of the Building
necessary for Tenant's occupancy. If, in Landlord's opinion, such repairs cannot
be made within twelve (12) months as set forth in subparagraph (a) (i) above,
Landlord or Tenant may elect by written notice to the other within
thirty (30) days after Landlord's notice of estimated time and cost is given,
to terminate this Lease effective as of the date of such damage or destruction.
If Landlord is not obligated to effect the repair based upon the circumstances
set forth in subparagraphs (a) (ii) or (a) (iii) above, Landlord shall have the
right to terminate this Lease, by written notice to Tenant within
thirty (30) days after Landlord's notice of time and cost is given, effective as
of the date of such damage or destruction. If neither party so elects to
terminate this Lease, this Lease shall continue in full force and effect, but
the rent shall be partially abated as hereinabove in this paragraph provided,
and Landlord shall proceed diligently to repair such damage.
(c) A total destruction of the Building shall automatically terminate
this Lease. Tenant waives California Civil Code Sections 1932, 1933, 1941 and
1942 providing for (among other things) termination of hiring upon destruction
of the thing hired and the right to make repairs and to vacate the Premises
under certain conditions.
(d) In no event shall Tenant be entitled to any compensation or
damages from Landlord, specifically including, but not limited to, any
compensation or damages for (i) loss of the use of the whole or any part of the
Premises, (ii) damage to Tenant's personal property in or improvements to the
Premises, or (iii) any inconvenience, annoyance or expense occasioned by such
damage or repair (including moving expenses and the expense of establishing and
maintaining any temporary facilities).
(e) Landlord, in repairing the Premises, shall not be required to
repair any injury or damage to the personal property of Tenant, or to make any
repairs to or replacement of any alterations, additions, improvements or
fixtures installed on the Premises by or for Tenant.
12. Insurance.
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(a) Tenant agrees to procure and maintain in force during the term
hereof, at Tenant's sole cost and expense, Commercial General Liability
insurance in an amount not less than Two Million Dollars ($2,000,000) combined
single limit for bodily injury and property damage for injuries to or death of
persons and property damage occurring in, on or about the Premises or the
Building. If the term of this Lease, including, without limitation, any option
terms, is for a period of more than five (5) years, then at the date which is
the fifth anniversary of the commencement of the term, the aforesaid amount of
Two Million Dollars ($2,000,000) shall be increased as required by Landlord to
reflect Landlord's then requirements for the aforesaid insurance. Such policy
shall name Landlord, Landlord's managing agent and any other party designated by
Landlord as additional insureds, shall insure Landlord and Landlord's managing
agent's contingent liability as respect to acts or omissions of Tenant, shall be
issued by a company licensed to do business in the State of California and
otherwise reasonably acceptable to Landlord, and shall provide that the policy
may not be canceled nor amended without thirty (30) days prior written notice to
Landlord. Tenant may carry said insurance under a blanket policy, provided
however, said insurance by Tenant shall include an endorsement confirming
application to and coverage of Landlord. Said insurance shall be primary
insurance to any other insurance that may be available to Landlord. Any other
insurance available to Landlord shall be non-contributing with and excess to
this insurance.
(b) A copy of the certificate(s) of insurance shall be delivered to
Landlord by Tenant prior to commencement of the term of this Lease and upon each
renewal of such insurance.
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(c) Tenant shall, prior to and throughout the term of this Lease,
procure from each of its insurers under all policies of fire, theft, public
liability, workers' compensation and any other insurance policies of Tenant now
or hereafter existing, pertaining in any way to the Premises or the Building or
any operation therein, a waiver, as set forth in paragraph 13 of this Lease, of
all rights of subrogation which the insurer might otherwise, if at all, have
against the Landlord or any officer, agent of employee of Landlord (including,
without limitation, Landlord's managing agent).
13. Waiver of Subrogation. Landlord and Tenant shall each
---------------------
have included in all policies of fire, extended coverage, business interruption
and other insurance respectively obtained by them covering the Demised Premises,
the Building and contents therein, a waiver by the insurer of all right of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by the
primary insured. To the full extent permitted by law, Landlord and Tenant each
waives all right of recovery against the other for, and agrees to release the
other from liability for, loss or damage to the extent such loss or damage is
covered by valid and collectible insurance in effect at the time of such loss or
damage or would be covered by the insurance required to be maintained under this
Lease by the party seeking recovery.
14. Indemnification. Tenant hereby waives all claims against Landlord
---------------
for damage to any property or injury or death of any person in, upon or about
the Premises arising at any time and from any cause other than principally by
reason of gross negligence or willful act or breach of this Lease of Landlord,
its employees or contractors, and Tenant shall defend Landlord against, hold
Landlord harmless from, and reimburse Landlord for any and all claims,
liabilities, damages, losses, costs and expenses, including without limitation,
attorneys' fees and costs arising out of or in any way connected with (a) injury
to or death of any person, and (b) damage to or destruction of any property,
attributable to or resulting from the condition, use or occupancy of the
Premises by Tenant or Tenant's failure to perform its obligations under this
Lease; except such as is caused principally by gross negligence or willful act
or breach of this Lease of Landlord, its contractors or employees. The foregoing
indemnity obligation of Tenant shall include reasonable attorneys' fees,
investigation costs and all other reasonable costs and expenses incurred by
Landlord from the first notice that injury, death or damage has occurred or that
any claim or demand is to be make or may be made. The provisions of this
paragraph shall survive the termination of this Lease with respect to any
damage, injury or death occurring prior to such termination.
15. Compliance with Legal Requirements. Tenant, at its sole cost and
----------------------------------
expense, shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force; with the requirements of any board of fire underwriters
or other similar body now or hereafter constituted; with any direction or
occupancy certificate issued pursuant to any law by any public officer or
officers; as well as the provisions of all recorded documents affecting the
Premises (including, without limitation, any ground lease, mortgage or
covenants, conditions and restrictions), insofar as any thereof relate to or
affect the condition, use or occupancy of the Premises, including, without
limitation, structural, utility system and life safety system changes
necessitated by Tenant's acts, use of the Premises or by improvements made by or
for Tenant. To the extent not within the foregoing obligations of Tenant,
Landlord shall comply with all such laws, requirements, directions and
provisions insofar as any thereof relate to portions of the Building outside the
Premises.
16. Assignment and Subletting.
-------------------------
(a) Tenant shall not hypothecate or encumber this Lease or any
interest herein without the prior written consent of Landlord, which may be
granted or denied in Landlord's absolute discretion. Tenant shall not, without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld by Landlord, transfer or assign this Lease or any interest herein,
sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than Tenant. This Lease shall not, nor shall any interest
herein, be assignable as to the interest of Tenant by operation of law without
the consent of Landlord, which consent shall not be unreasonably withheld. Any
of the foregoing acts without such consent shall be void and shall, at option of
Landlord, be an Event of Default under this Lease. In connection with each
consent requested by Tenant, Tenant shall submit to Landlord the terms of the
proposed transaction, the identity of the parties to the transaction, the
proposed documentation for the transaction, and all other information reasonably
requested by Landlord concerning the proposed transaction and the parties
involved.
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(b) If the Tenant is a privately held corporation, or is an
unincorporated association or partnership, or any other entity, the transfer,
assignment, or hypothecation of any stock or interest in such corporation,
association, partnership or other entity in excess of fifty percent (50%) in the
aggregate from the Ownership existing as of the date of this Lease shall be
deemed an assignment or transfer within the meaning and provisions of this
paragraph 16. If Tenant is a publicly held corporation, the public trading of
stock in Tenant shall not be deemed an assignment or transfer within the meaning
of this paragraph.
(c) Without limiting the other instances in which it may be reasonable
for Landlord to withhold its consent to an assignment or subletting, Landlord
and Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in the following instances:
(1) at the time consent is requested, or at any time prior to the
granting of consent, Tenant is in default in payment of rent under this Lease or
would be in default in payment of rent under this Lease but for the pendency of
any grace or cure period under paragraph 19 below;
(2) if the proposed assignee or sublessee is a governmental
agency;
(3) if, in Landlord's reasonable judgment, the use of the
Premises by the proposed assignee or sublessee would not be comparable to the
types of office use by other tenants in the Building, would entail any
alterations which would lessen the value of the leasehold improvements in the
Premises, or would conflict with any so-called "exclusive" or percentage lease
then in favor of another tenant of the Building;
(4) if, in Landlord's reasonable judgment, the financial worth
of the proposed assignee or sublessee does not meet the credit standards applied
by Landlord for other tenants under leases with comparable terms, or the
character, reputation, or business of the proposed assignee or sublessee is not
consistent with the quality of the other tenancies in the Building;
(5) ; and
(6) if the proposed assignee or sublessee is an existing tenant
of the Building.
(d) If, at any time during the term of this Lease, Tenant desires
to assign its interest in this Lease or sublet all or any part of the Premises,
Tenant shall give notice to Landlord setting forth the terms of the proposed
assignment or subletting ("Tenant's Notice"). Landlord shall have the option,
exercisable by notice given to Tenant within twenty-one (21) days after Tenant's
Notice is given ("Landlord's Option Period"), either (1) to consent to the
assignment, in which event the provisions of subparagraph (g) shall be
applicable, or to consent to the subletting in which event the provisions of
subparagraph (h) shall be applicable; (2) to become the assignee or sublessee of
Tenant (instead of the entity specified in Tenant's Notice) upon the terms set
forth in Tenant's Notice; (3) in the event of a proposed assignment, to
terminate this Lease and to retake possession of the Premises; (4) in the event
of a proposed subletting of the entire Premises, or a portion of the Premises
for all or substantially all of the remainder of the term, to terminate this
Lease with respect to, and to retake possession of, the space in question,
together with, if only a portion of the Premises is involved, such rights of
access to and from such portion as may be reasonably required for its use and
enjoyment; or 5) to disapprove the proposed assignment or subletting.
(e) [ INTENTIONALLY DELETED ]
(f) No sublessee (other than Landlord if it exercises its option
pursuant to subparagraph (d) above) shall have a right further to sublet without
Landlord's prior consent, which consent shall not be unreasonably withheld in
accordance with this Lease, and any assignment by a sublessee of its sublease
shall be subject to Landlord's prior consent in the same manner as if Tenant
were entering into a new sublease. No sublease, once consented to by Landlord,
shall be modified or terminated by Tenant without Landlord's prior consent,
which consent shall not be unreasonably withheld.
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(g) In the case of an assignment to an entity other than Landlord,
fifty percent (50%) of any sums above the rate paid by Tenant, or other economic
consideration received by Tenant as a result of such assignment, shall be paid
to Landlord after first deducting the unamortized cost of reasonable leasehold
improvements paid for by Tenant, and the cost of any real estate commissions
incurred by Tenant in connection with such assignment.
(h) In the case of a subletting to an entity other than Landlord,
fifty percent (50%) of any sums or economic consideration received by Tenant as
a result of such subletting shall be paid to Landlord after first deducting
(1) the rental due hereunder, prorated to reflect only rental allocable to the
sublet portion of the Premises, (2) the cost of leasehold improvements made to
the sublet portion of the Premises at Tenant's cost, amortized over the term of
this Lease except for leasehold improvements made for the specific benefit of
the sublessee, which shall be amortized over the term of the sublease, and
(3) the cost of any real estate commissions incurred by Tenant in connection
with such subletting, amortized over the term of the sublease.
(i) Regardless of Landlord's consent and regardless of whether
Landlord consent is required pursuant to the terms hereof, no subletting or
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the rental and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rental by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed consent to
any subsequent assignment or subletting. In the event of default by any assignee
of Tenant or any successor of Tenant in the performance of any of the terms
hereof, Landlord may proceed directly against Tenant without the necessity of
exhausting remedies against such assignee or successor. Landlord may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto,
and such action shall not relieve Tenant of liability under this Lease.
(j) In the event Tenant shall assign this Lease or sublet the Premises
or request the consent of Landlord to any assignment, subletting, hypothecation
or other action requiring Landlord's consent hereunder, the Tenant shall pay
Landlord's reasonable and standard processing fee (which currently is Five
Hundred Dollars ($500.00)) in each instance and Landlord's reasonable attorneys'
fees and costs incurred in connection therewith. In no event shall any of these
costs be reimbursable to Tenant.
(k) Notwithstanding anything to the contrary contained herein, any and
all unexercised options to extend or renew the term of the Lease or to expand
the Premises and any and all rights of first refusal and similar rights are
intended by both Landlord and Tenant to be personal to NorthPoint
Communications, Inc., a Delaware corporation, and any Affiliate thereof, and
are not intended to benefit any assignee or sublessee hereunder. Upon any
assignment or subletting of the Premises or any portion thereof, any such
options or rights shall automatically and without any further action by Landlord
terminate and be of no further force and effect.
17. Rules; No Discrimination. Tenant shall faithfully observe and
------------------------
comply with the rules and regulations annexed to this Lease, and after notice
thereof, all reasonable modifications thereof and additions thereto from time to
time promulgated in writing by Landlord. Landlord shall not be responsible to
Tenant for the nonperformance by any other tenant or occupant of the Building of
any of said rules and regulations. Tenant specifically covenants and agrees that
Tenant shall not discriminate against or segregate any person or group of
persons on account of race, sex, creed, color, national origin, or ancestry in
the occupancy, use, sublease, tenure or enjoyment of the Premises.
18. Entry by Landlord. Landlord may enter the Premises at reasonable
-----------------
hours to (a) inspect the same; (b) exhibit the same to prospective purchasers,
lenders or tenants, provided, however, that Landlord shall only exhibit the
Premises to prospective tenants during the final ninety (90) days of Tenant's
occupancy of the Premises; (c) make repairs or perform maintenance required of
Landlord under the terms hereof or repairs to any adjoining space or utility
services or make repairs, alterations or improvements to any other portion of
the Building; (d) supply janitor service and any other service to be provided by
Landlord to Tenant under this Lease; and (e) post notices of non-responsibility,
provided, however, that all such work shall be
11
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done as promptly as reasonably practical and so as to cause as little
interference to Tenant as reasonably practical. Tenant hereby waives any claim
for damages for any inconvenience to or interference with Tenant's business or
any loss of occupancy or quiet enjoyment of the Premises occasioned by such
entry except to the extent cause by the gross negligence, willful misconduct or
breach of this Lease of Landlord. Landlord shall at all times have and retain a
key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant's vaults, safes and similar areas designated in writing by
Tenant in advance); and Landlord shall have the right to use any and all means
which Landlord may deem proper to open Tenant's doors in an emergency in order
to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord in an emergency shall not be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof and Landlord
shall have no liability to Tenant as a result thereof.
19. Events of Default. The following events shall constitute Events of
-----------------
Default under this Lease:
(a) a default by Tenant in the payment when due of any rent or other
sum payable hereunder and the continuation of such default for a period of 5
days after notice by Landlord that the same is due, but, after the second
occurrence in any calendar year, only the passage of 5 days, and no notice,
shall be required;
(b) a default by Tenant in the performance of any of the other terms,
covenants, agreements or conditions contained herein and, if the default is
curable, the continuation of such default for a period of twenty (20) days after
notice by Landlord or beyond the time reasonably necessary for cure if the
default is of a nature to require more than twenty (20) days to remedy,
provided, however, in no event shall Tenant have more than a period of one
hundred thirty (130) days to remedy any such default;
(c) the bankruptcy or insolvency of Tenant, transfer by Tenant in
fraud of creditors, an assignment by Tenant for the benefit of creditors, or the
commencement of any proceedings of any kind by or against Tenant under any
provision of the Federal Bankruptcy Act or under any other insolvency,
bankruptcy or reorganization act unless, in the event any such proceedings are
involuntary, Tenant is discharged from the same within sixty (60) days
thereafter;
(d) the appointment of a receiver for a substantial part of the
assets of Tenant;
(e) the abandonment of the Premises; and
(f) the levy upon this Lease or any estate of Tenant hereunder by any
attachment or execution and the failure to have such attachment or execution
vacated within twenty (20) days thereafter.
In no event shall this Lease be assigned or assignable by reason of any
voluntary or involuntary bankruptcy proceedings, nor shall any rights or
privileges hereunder be an asset of Tenant, the trustee, debtor-in-possession,
or the debtor's estate in any bankruptcy, insolvency or reorganization
proceedings.
20. Termination Upon Default. Upon the occurrence of any Event of Default
------------------------
by Tenant hereunder, Landlord may, at its option and without any further notice
or demand, in addition to any other rights and remedies given hereunder or by
law, terminate this Lease and exercise its remedies relating thereto in
accordance with the following provisions:
(a) Landlord shall have the right, so long as the Event of Default
remains uncured, to give notice of termination to Tenant, and on the date
specified in such notice this Lease shall terminate.
(b) In the event of any such termination of this Lease, Landlord may
then or at any time thereafter by judicial process, re-enter the Premises and
remove therefrom all persons and property and again repossess and enjoy the
Premises, without prejudice to any other remedies that Landlord may have by
reason of Tenant's default or of such termination.
(c) In the event of any such termination of this Lease, and in
addition to any other rights and remedies Landlord may have, Landlord shall have
all of the rights and remedies
12
<PAGE>
of a landlord provided by Section 1951.2 of the California Civil Code. The
amount of damages which Landlord may recover in event of such termination shall
include, without limitation: (1) the worth at the time of award (computed by
discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent) of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of rental loss that Tenant proves could be reasonably avoided; (2) all
legal expenses and other related costs incurred by Landlord following Tenant's
default; (3) all costs incurred by Landlord in restoring the Premises to good
order and condition, or in remodeling, renovating or otherwise preparing the
Premises for reletting; (4) all costs (including, without limitation, any
brokerage commissions) actually incurred by Landlord in reletting the Premises;
and (5) any and all other damages suffered by Landlord.
(d) After terminating this Lease, Landlord may remove any and all
personal property located in the Premises and place such property in a public or
private warehouse or elsewhere at the sole cost and expense of Tenant. In the
event that Tenant shall not immediately pay the cost of storage of such property
after the same has been stored for a period of thirty (30) days or more,
Landlord may sell any or all thereof at a public or private sale in such manner
and at such times and places as Landlord in its sole discretion may deem proper,
without notice to or demand upon Tenant. Tenant waives all claims for damages
that may be caused by Landlord's removing or storing or selling the property as
herein provided, and Tenant shall indemnify and hold Landlord free and harmless
from and against any and all claims, damages, liabilities, losses, costs and
expenses, including, without limitation, all costs of court and attorneys' fees
of Landlord occasioned thereby.
(e) In the event of the occurrence of any of the events specified in
paragraph 19(c) of this Lease, if Landlord shall not choose to exercise, or by
law shall not be able to exercise, its rights hereunder to terminate this Lease,
then, in addition to any other rights of Landlord hereunder or by law,
(1) Landlord may discontinue the services provided pursuant to paragraph 6 of
this Lease, unless Landlord has received compensation in advance for such
services in the amount of Landlord's reasonable estimate of the compensation
required with respect to such services, and (2) neither Tenant, as debtor-in-
possession, nor any trustee or other person (collectively, the "Assuming
Tenant") shall be entitled to assume this Lease unless on or before the date of
such assumption, the Assuming Tenant (a) cures, or provides adequate assurance
that the Assuming Tenant will promptly cure, any existing default under this
Lease, (b) compensates, or provides adequate assurance that the Assuming Tenant
will promptly compensate Landlord for any pecuniary loss (including, without
limitation, attorneys' fees and disbursements) resulting from such default, and
(c) provides adequate assurance of future performance under this Lease. For
purposes of this subparagraph (e), "adequate assurance" of such cure,
compensation or future performance shall be effected by the establishment of an
escrow fund for the amount at issue or by bonding.
(f) In the event any governmental authority having jurisdiction over
the Real Property or the Building promulgates or revises any applicable law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Premises or the Building relating to the use or conservation of energy or
utilities or the reduction of automobiles or other emissions (collectively
"Controls") or in the event Landlord is required or elects to make alterations
to the Premises or the Building in order to comply with such mandatory or
voluntary Controls, Landlord may, in its sole discretion, comply with such
Controls or make such alterations to the Premises and/or Building related
thereto. Such compliance and the making of such alterations shall not entitle
Tenant to any abatement of rent, constitute an eviction of Tenant, constructive
or otherwise, or impose upon Landlord any liability whatsoever, including but
not limited to, liability for consequential damages or loss of business by
Tenant. In carrying out such compliance and alterations, Landlord shall use
reasonable efforts to minimize any disruptions to Tenant's business in the
Premises.
21. Continuation after Default. Landlord shall have the remedy described
--------------------------
in California Civil Code Section 1951.4 (i.e. Landlord may continue this Lease
in effect after Tenant's abandonment and recover rental as it becomes due,
because Tenant has the right to sublet or assign, subject only to reasonable
limitations). Even though Tenant has breached this Lease and abandoned the
Premises, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord may enforce all its rights
and remedies as it becomes due under this Lease. Acts of maintenance or
preservation or efforts to relet the Premises or the appointment of a receiver
upon initiative of Landlord to protect
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Landlord's interest under this Lease shall not constitute a termination of
Tenant's right to possession.
22. Other Relief. The remedies provided for in this Lease are in addition
------------
to any other remedies available to Landlord at law or in equity, by statute or
otherwise.
23. Landlord's Right to Cure Defaults. All agreements and provisions to be
---------------------------------
performed by Tenant under any of the terms of this Lease shall be at its sole
cost and expense and without any abatement of rental. If Tenant shall fail to
pay any sum of money, other than rental, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder and
such failure shall continue for twenty (20) days after notice thereof by
Landlord, or such longer period as may be allowed hereunder, Landlord may, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any obligations of Tenant, make any such payment or perform any such other act
on Tenant's part to be made or performed as in this Lease provided to the extent
Landlord may deem desirable. All sums so paid by Landlord (with interest at an
annual rate equal to four percent (4%) over the annual prime rate of interest
announced publicly by Citibank, N.A., in New York, New York from time to time,
but in no event in excess of the maximum interest rate permitted by law) and all
necessary incidental costs shall be payable to Landlord on demand.
24. Attorneys' Fees. If any action arising out of this Lease is brought by
---------------
either party hereto against the other, then and in that event the unsuccessful
party to such action shall pay to the prevailing party all costs and expenses,
including reasonable attorneys' fees, incurred by such prevailing party, and if
the prevailing party shall recover judgment in such action, such costs expenses
and attorneys' fees shall be included in and as part of such judgment.
25. Eminent Domain. If all or any part of the Premises shall be taken as a
--------------
result of the exercise of the part of eminent domain, this Lease shall terminate
as to the part so taken as of the date of taking, and, in the case of a partial
taking, either Landlord or Tenant shall have the right to terminate this Lease
as to the balance of the Premises by notice to the other within thirty (30) days
after such date, provided, however, that a condition to the exercise by Tenant
of such right to terminate shall be that the portion of the Premises taken shall
be of such extent and nature as substantially to handicap, impede or impair
Tenant's use of the balance of the Premises. In the event of any taking,
Landlord shall be entitled to any and all compensation, damages, income, rent,
awards, or any interest therein whatsoever which may be paid or made in
connection therewith, and Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease or otherwise. In the event of a
partial taking of the Premises which does not result in a termination of this
Lease, the monthly rental thereafter to be paid shall be equitably reduced.
26. Subordination.
-------------
(a) This Lease shall be subject and subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the Building and to any and all advances made on the
security thereof or Landlord's interest herein, and to all renewals,
modifications, consolidations, replacements and extensions thereof, subject to
the requirement in paragraph (26)b below. In the event any mortgage or deed of
trust to which this Lease is subordinate is foreclosed or a deed in lieu of
foreclosure is given to the mortgagee or beneficiary, Tenant shall attorn to the
purchaser at the foreclosure sale or to the grantee under the deed in lieu of
foreclosure; in the event any ground lease to which this Lease is subordinate is
terminated, Tenant shall attorn to the ground lessor. Tenant agrees to execute
within ten (10) days any documents required to effectuate such subordination, to
make this Lease prior to the lien of any mortgage or deed of trust or ground
lease as may be requested by the holder of any such mortgage or deed of trust or
by the ground lease under any such ground lease, or to evidence such attornment,
subject to the requirement in paragraph 26(b) below.
(b) In the event any mortgage or deed of trust which is entered into
by Landlord after the date hereof to which this Lease is subordinate is
foreclosed or a deed in lieu of foreclosure is given to the mortgagee or
beneficiary, or in the event any ground lease to which this Lease is subordinate
is terminated, this Lease shall not be barred, terminated, cut off or
foreclosed, nor shall the rights and possession of Tenant hereunder be disturbed
if no Event of Default exists under the terms of this Lease, and if Tenant shall
attorn to the purchaser, grantee, or
14
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ground lessor as provided in subparagraph (a) above or, if requested, enter into
a new lease for the balance of the term (including the Extended Term) hereof
upon the same terms and provisions as are contained in this Lease. Landlord
share obtain a nondisturbance agreement from the existing mortgage lender for
the Building, in such lender's approved form, within thirty (30) days after the
date of this Lease, and Tenant shall execute such nondisturbance agreement.
27. No Merger. The voluntary or other surrender of this Lease by Tenant,
---------
or a mutual cancellation thereof, shall not work a merger, and shall, at the
option of Landlord, terminate all or any existing subleases or subtenancies, or
operate as an assignment to it of any or all such subleases or subtenancies.
28. Sale. In the event the original Landlord hereunder, or any successor
----
owner of the Building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner, under
this Lease accruing thereafter shall terminate, and thereupon all such
liabilities and obligations shall be binding upon the new owner. Tenant agrees
to attorn to such new owner.
29. Estoppel Certificate. At any time and from time to time but on not
--------------------
less than ten (10) days prior notice by Landlord, Tenant shall execute,
acknowledge, and deliver to Landlord, promptly upon request, a certificate
certifying (a) that this Lease is unmodified and in full force and effect (or,
if there have been modifications, that this Lease is in full force and effect,
as modified, and stating the date and nature of each modification), (b) the
date, if any, to which rental and other sums payable hereunder have been paid,
(c) that no notice has been received by Tenant of any default which has not been
cured, except as to defaults specified in the certificate, (d) whether there is
then existing any claim by Tenant of default hereunder by Landlord, and, if so,
specifying the nature thereof, and (e) such other matters as may be requested by
Landlord. Any such certificate may be relied upon by any prospective purchaser,
mortgagee or beneficiary under any deed of trust on the Building or any part
thereof.
30. No Light, Air, or View Easement. Tenant agrees that any diminution or
-------------------------------
shutting off of light, air or view by any structure which may be erected
(whether or not by Landlord) on lands adjacent to the Building shall in no way
affect this Lease or impose any liability on Landlord, nor entitle Tenant to any
reduction of rent or any other sums payable hereunder.
31. Holding Over. If Tenant holds possession of the Premises after
------------
expiration of the term of this Lease, Tenant shall become a tenant from month to
month upon the terms herein specified but at a monthly rental equivalent to 150%
of the then prevailing monthly rental payable by Tenant at the expiration of the
term of this Lease, payable in advance on or before the first day of each month,
and shall indemnify Landlord and any replacement tenant for the Premises for any
damages or loss suffered by either Landlord or the replacement tenant resulting
from Tenant's failure timely to vacate the Premises.
32. Security Deposit. Tenant shall, upon execution of this Lease, deposit
----------------
with Landlord the sum specified in the Basic Lease Information (the "deposit").
The deposit shall be held by Landlord as security for the faithful performance
by Tenant of all the provisions of this Lease to be performed or observed by
Tenant. If Tenant fails to pay rent or other sums due hereunder, or otherwise
defaults with respect to any provision of this Lease, after expiration of any
applicable grace period set forth in paragraph 19 hereof, Landlord may use,
apply or retain all or any portion of the deposit for the payment of any rent or
other sum in default or for the payment of any other sum to which Tenant
compensates Landlord for any loss or damage which Landlord may suffer thereby.
If Landlord so uses or applies all or any portion of the deposit, Tenant shall
within ten (10) business days after demand therefor deposit cash with Landlord
in an amount sufficient to restore the deposit to the full amount thereof and
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep the deposit separate from its general accounts or
to pay any interest on the deposit.
33. Waiver. The waiver by Landlord of any agreement, condition or
------
provision herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other agreement, condition or provision herein
contained, nor shall any custom or practice which may grow up between the
parties in the administration of the terms hereof be construed to waive or to
lessen the right of Landlord to insist upon the performance by Tenant in strict
accordance with such terms. The subsequent acceptance of rental hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any agreement, condition or provision of this Lease, other than the failure of
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of preceding breach at the time of acceptance of the rental.
34. Notices and Consents. All notices, consents, demands and other
--------------------
communications
15
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from one party to the other that are given pursuant to the terms of this Lease
shall be in writing and shall be deemed to have been fully given when deposited
in the United States mail, certified or registered, postage prepaid, and
addressed as follows: to Tenant at the address specified in the Basic Lease
Information, or to such other place as Tenant may from time to time designate in
a notice to Landlord; to Landlord at the address specified in the Basic Lease
Information, or to such other place as Landlord may from time to time designate
in a notice to Tenant; or, in the case of Tenant, delivered to Tenant at the
Premises.
35. Complete Agreement. There are no oral agreements between Landlord and
------------------
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, agreements, letters of intent
and understandings if any, between Landlord and Tenant or displayed by Landlord
to Tenant with respect to the subject matter of this Lease, the Building or
related facilities.
36. Corporate Authority. If Tenant signs as a corporation, each of the
-------------------
persons executing this Lease on behalf of Tenant warrants that Tenant is a duly
authorized and existing corporation, that Tenant has been and is qualified to do
business in California, that the corporation has full right and authority to
enter into this Lease, and that each and both of the persons signing on behalf
of the corporation were authorized to do so.
37. Partnership Authority. If Tenant is a partnership, joint venture, or
---------------------
other unincorporated association, each individual executing this Lease on behalf
of Tenant warrants that this Lease is binding on Tenant and that each and both
of the persons signing on behalf of Tenant were authorized to do so.
38. Limitation of Liability to Building. The liability of Landlord to
-----------------------------------
Tenant for any default by Landlord under this Lease or arising in connection
with Landlord's operation, management, leasing, repair, renovation, alteration,
or any other matter relating to the Building or the Premises, shall be limited
to the interest of Landlord in the Building. Tenant agrees to look solely to
Landlord's interest in the Building for the recovery of any judgment against
Landlord, and Landlord shall not be personally liable for any such judgment or
deficiency after execution thereon. The limitations of liability contained in
this paragraph 38 shall apply equally and inure to the benefit of Landlord, its
successors and their respective, present and future partners of all tiers,
beneficiaries, officers, directors, trustees, shareholders, agents and
employees, and their respective heirs, successors and assigns. Under no
circumstances shall any present or future general partner of Landlord (if
Landlord is a partnership) or individual trustee or beneficiary' (if Landlord or
any partner of Landlord is a trust) have any liability for the performance of
Landlord's obligations under this Lease.
39. Miscellaneous. The words "Landlord" and "Tenant" as used herein shall
-------------
include the plural as well as the singular. If there be more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and several. Time
is of the essence of this Lease and each , and all of its provisions. Submission
of this instrument for examination or signature by Tenant does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution and delivery by both Landlord and Tenant. The
agreements, conditions and provisions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, executors,
administrators, successors and assigns of the parties hereto. Tenant shall not,
without the consent of Landlord, use the name of the Building for any purpose
other than as the address of the business to be conducted by Tenant in the
Premises, Upon the request of Landlord, Tenant shall provide to Landlord from
time to time, at no expense to Landlord, copies of such financial statements
with respect to Tenant as may have been prepared by or for Tenant (which, in the
case of financial statements made available to the public, shall be such
publicly available financial statements). Landlord's acceptance of a partial
rent payment shall not constitute a waiver of any rights of Tenant or Landlord,
including, without limitation, any right Landlord may have to recover possession
of the Premises, in unlawful detainer, or otherwise. If any provisions of this
Lease shall be determined to be illegal or unenforceable, such determination
shall not affect any other provision of this Lease and all such other provisions
shall remain in full force and effect. This Lease shall be governed by and
construed pursuant to the laws of the State of California.
40. Abandonment. Tenant shall not vacate or abandon the Premises or any
-----------
part thereof at any time during the term of this Lease. Tenant understands that
if Tenant should leave the Premises or any part thereof abandoned, the risk of
fire, other casualty, and vandalism to the Premises and the Building will be
increased and that, therefore, such action by
16
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Tenant shall constitute a material breach of this Lease, whether or not Tenant
continues to pay rent and additional rent under this Lease. If Tenant shall
abandon or surrender the Premises, or be dispossessed by process of law or
otherwise, any personal property belonging to Tenant and left on the Premises
shall be deemed to be abandoned, at the option of Landlord, and Landlord may
sell or otherwise dispose of such personal property in any commercially
reasonable manner.
41.
42. Americans with Disabilities Act and Similar Acts. Notwithstanding
------------------------------------------------
anything to the contrary contained herein or in the Lease, Tenant, at its sole
cost and expense, shall (i) cause the Premises to comply with the provisions of
the Americans With Disabilities Act, 42. U.S.C. 12101 et seq. and any
governmental regulations with respect thereof (the "ADA"), Title 24 of the
California Administrative Code ("Title 24"), and other similar federal, state,
and local laws and regulations, including, without limitation, any alterations
required under ADA for the purposes of "public accommodations" (as that term is
used in the ADA), and (ii) reimburse Landlord upon demand for any and all costs
and expenses incurred by Landlord to comply with ADA, Title 24, or such similar
federal, state, or local laws and regulations in any other portion of the
Building in which the Premises are located arising out of Tenant's use of or
construction in the Premises. Except as provided above, Tenant shall have no
responsibility to comply with such laws in of the Premises. Landlord shall be
responsible for compliance with ADA in the common areas and the path of travel
to the Premises in the portions of the Building outside the Premises.
43. Exhibits. The exhibit(s) and addendum, if any, specified in the Basic
--------
Lease Information are attached to this Lease and by this reference made a part
hereof.
44. Landlord's Liability; Sale of Building. The term "Landlord," as used
--------------------------------------
in this Lease, shall mean only the owner or owners (or lessee or lessees under
any ground lease) of the Building at the time in question. Tenant acknowledges
and agrees that the liability of Landlord with respect to its obligations under
this Lease is limited to Landlord's interest in the Building and any sale,
insurance or condemnation proceeds derived therefrom, and Tenant agrees
to look solely to Landlord's interest in the Building and any sale, insurance or
condemnation proceeds derived therefrom to satisfy any claim or judgment against
or any liability or obligation of Landlord to Tenant under this Lease. In no
event shall any partner, officer, director, employee, trustee, beneficiary,
advisor, investment manager, manager, agent, member, advisor, or shareholder of
Landlord have any personal liability to Tenant with respect to any liability or
obligation of Landlord to Tenant, and no recourse shall be had by Tenant against
any such parties or the assets of any such parties to satisfy any claim or
judgment of Tenant for Landlord's breach of any of its obligations under this
Lease. In addition, in the event of any conveyance of title to the Building,
Landlord shall be relieved of all liability with respect to Landlord's
obligations to be performed under this Lease after the date of such conveyance.
If Tenant provides Landlord with any security for Tenant's performance of its
obligations hereunder, Landlord shall transfer such security to the grantee or
transferee of Landlord's interest in the Real Property, and once such transfer
has been made, Landlord shall be released from any further responsibility or
liability of such security. Wherever in this Lease Tenant (a) releases Landlord
from any claim or liability, (b) waives or limits any right of Tenant to assert
any claim against Landlord or to seek recourse against any property of Landlord
or (c) agrees to indemnify Landlord against any matters, the relevant release,
waiver, limitation or indemnity shall run in favor of and apply to Landlord, the
constituent shareholders, partners, trustees, beneficiaries, members or other
owners of Landlord, and the directors, officers, employees and agents of
Landlord and each such constituent shareholder, partner or other owner.
17
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45. Name of Building. Tenant shall not use the name of the Building for
----------------
any purpose other than as the address of the business conducted by Tenant in the
Premises without the written consent of Landlord. Landlord reserves the right to
change the name of the Building and Landlord shall not be liable to Tenant for
any loss, cost or expense in account of any such change of name.
46. Hazardous Substance Disclosure. California law requires landlords to
------------------------------
disclose to tenants the existence of certain Hazardous Materials. Accordingly,
the existence of gasoline and other automotive fluids, asbestos containing
materials, maintenance fluids, copying fluids and other office supplies and
equipment, certain construction and finish materials, tobacco smoke, cosmetics
and other personal items must be disclosed. Gasoline and other automotive fluids
are found in the garage area of the Building. Cleaning, lubricating and
hydraulic fluids used in the operation and maintenance of the Building are found
in the utility areas of the Building not generally accessible to Building
occupants or the public. Many Building occupants use copy machines and printers
with associated fluids and toners, and pens, markers, inks, and office equipment
that may contain Hazardous Materials. Certain adhesives, paints and other
construction materials and finishes used in portions of the Building may contain
Hazardous Materials. Although smoking is prohibited in the public areas or the
Building, these areas may from time to time be exposed to tobacco smoke.
Building occupants and other persons entering the Building from time to time may
use or carry prescription and non-prescription drugs, perfumes, cosmetics and
other toiletries, and foods and beverages, some of which may contain Hazardous
Materials.
47. Real Estate Brokers. Landlord and Tenant each represents and warrants
-------------------
to the other that such party has negotiated this Lease directly with the Real
Estate Broker(s), if any, identified in the Basic Lease Information and has not
authorized or employed, or acted by implication to authorize or to employ, any
other real estate broker or salesman to act for such party in connection with
this Lease. Each party shall indemnify, defend and hold the other harmless from
and against any and all claims by any real estate broker or salesman other than
the Real Estate Broker(s), if any, identified in the Basic Lease Information for
a commission, finder's fee or other compensation as a result of the inaccuracy
of such party's representation above. Landlord will pay any commission owing to
the Real Estate Brokers, if any, identified in the Basic Lease Information above
pursuant to a separate agreement.
48. Limited Recourse. Notwithstanding anything to the contrary in the
----------------
Lease or in any document delivered by Landlord in connection with the
consummation of the transaction contemplated hereby, it is expressly understood
and agreed that The Equitable Life Assurance Society of the United States is
acting solely on behalf and for the benefit of Separate Account No. S-16III and
Landlord's liability shall be limited to, and payable and collectable only out
of, assets allocated to, or held by Landlord for the benefit of, Separate
Account No. S-16III (including, without limitation, the Building) and no other
property or asset of Landlord or of any of Landlord's directors, officers,
employees, shareholders, contractholders or policyholders, shall be subject to
any lien, levy, execution, setoff or other enforcement procedure for
satisfaction of any right or remedy of Tenant in connection with the transaction
contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Lease on the
respective dates indicated below:
TENANT LANDLORD
NORTHPOINT COMMUNICATIONS, INC., THE EQUITABLE LIFE ASSURANCE
a Delaware corporation SOCIETY OF THE UNITED STATES,
a New York corporation
By: /s/ TIMOTHY M. MONAHAN By: /s/ JAMES PIANE
------------------------------- -------------------------------
Its: Vice President Finance & Its: Investment Officer
Planning ------------------------
---------------------------
By: /S/ [SIGNATURE]
-------------------------------
Its: Chief Development Officer
---------------------------
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ADDENDUM
--------
This Addendum is attached to and made a part of the Office Lease dated June
17, 1999, between The Equitable Life Assurance Society of the United States, a
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New York corporation, as Landlord, and NorthPoint Communications, Inc., a
Delaware corporation, as Tenant.
49. First Month Base Rent. Tenant shall, on the date of this Lease, pay
---------------------
to Landlord the amount of $313,097.83 representing the Base Rent for the first
full month following the Base Rent commencement date. Landlord shall apply such
amount to the Base Rent for such first full month.
50. Temporary Space. Between the date of this Lease and the date of
---------------
substantial completion of the Tenant Improvements in the Premises, Tenant shall
have the right to occupy the entire tenth floor of the North Tower of the
Building, which contains approximately 29,734 square feet of rentable area of
space, and, when vacated by the existing occupant, a portion of the ninth floor
of the North Tower of the Building containing approximately 9,788 square feet of
rentable area of space (collectively the "Temporary Space"). If Tenant occupies
any of the Temporary Space, all of the agreements of Tenant and covenants in
this Lease, except the amount of the Base Rent and the provisions of Exhibit C
relating to Tenant Improvements, shall apply to Tenant and the Temporary Space
occupied by Tenant (as though the Temporary Space were the Premises) and be in
full force and effect. The Base Rent for the Temporary Space shall be thirty-
eight dollars ($38) per square foot of rentable area of the Temporary Space
occupied by Tenant per year, payable monthly in advance in accordance with this
Lease, beginning on the date on which Tenant occupies any of the Temporary Space
and continuing thereafter until Tenant vacates the Temporary Space in its
entirety. Landlord shall deliver the Temporary Space to Tenant, and Tenant shall
accept the Temporary Space, in its "as is" condition on the date of this Lease.
Tenant shall vacate the Temporary Space within ten (10) business days after the
date of substantial completion of the Tenant Improvements in the Premises. If
Tenant fails to vacate the Temporary Space by such date, the Base Rent for the
Temporary Space shall be increased to seventy-six dollars ($76) per square foot
of rentable area per year calculated on the basis of the Temporary Space not so
vacated by Tenant. Tenant shall indemnity and defend Landlord and any tenant
with whom Landlord signs a lease for any Temporary Space ("new tenant") and hold
Landlord and new tenant harmless from all claims, demands, liabilities, losses,
damages, costs and expenses, including, without limitation, reasonable
attorneys' fees and disbursements, arising from or caused by any failure by
Tenant to vacate the Temporary Space in its entirety within ten (10) business
days after the date of substantial completion of the Tenant Improvements in the
Premises.
51. Extended Term.
-------------
(a) Subject to the provisions of this paragraph, Tenant shall have the
right to extend the term of this Lease for an additional term (the "Extended
Term") of five (5) years. The Extended Term shall commence on the first day
after the Term Expiration specified in the Basic Lease Information and, unless
sooner terminated as provided in this Lease, shall end five (5) years
thereafter. Tenant may exercise such right only by giving Landlord written
notice of exercise of such right at least two hundred ten (210) days, but no
earlier than three hundred sixty (360) days, before the Term Expiration and only
if no Event of Default exists when Tenant exercises such right. If Tenant fails
to exercise such right in accordance with this paragraph, such right shall
terminate. If Tenant exercises such right in accordance with this paragraph, the
term of this Lease shall be extended for the Extended Term subject to the
agreements, covenants and conditions set forth in this Lease.
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<PAGE>
(b) If Tenant exercises the right to extend the term of this Lease for the
Extended Term in accordance with this paragraph, effective as of first day of
the Extended Term, the Base Rent for the Extended Term shall be the prevailing
fair market rental value of the Premises on the first day of the Extended Term,
on and subject to the agreements, covenants and conditions (except the amount of
Base Rent) of this Lease, based on then current rent being offered and accepted
for comparable space in comparable buildings (including, without limitation,
other space in the Building) in San Francisco leased to tenants of comparable
quality, size and financial capability to Tenant, for a term equal to the
Extended Term, on terms comparable to this Lease as of the first day of the
Extended Term. Such fair market rental value shall be determined by agreement
between Landlord and Tenant. If Landlord and Tenant do not agree on such fair
market rental value by the date three (3) months prior to the first day of the
Extended Term, such fair market rental value shall be determined as follows.
(i) Landlord and Tenant each shall appoint one (1) appraiser within
fifteen (15) days after a written request for appointment of appraisers has
been given by either Landlord or Tenant to the other. If either Landlord or
Tenant fails to appoint its appraiser within such period of fifteen (15)
days, such appraiser shall be appointed by the Superior Court of the State
of California in and for the City and County of San Francisco upon
application of the other. Each such appraiser shall establish his or her
opinion of such fair market rental value of the Premises and submit a
written report setting forth the value to Landlord and Tenant within thirty
(30) days after the appointment of both such appraisers. If the higher
value in such two (2) reports is not more than one hundred ten percent
(110%) of the lower value, such fair market rental value of the Premises
shall be the average of the two (2) values. If the higher value is more
than one hundred ten percent (110%) of the lower value, Landlord and Tenant
shall agree upon and appoint a neutral third appraiser within fifteen (15)
days after both of the first two (2) reports have been submitted to
Landlord and Tenant. If Landlord and Tenant do not agree and fail to
appoint such neutral third appraiser within such period of fifteen (15)
days, such neutral third appraiser shall be appointed by the Superior Court
of the State of California in and for the City and County of San Francisco
upon application of either Landlord or Tenant. The neutral third appraiser
shall establish his or her opinion of such fair market rental value of the
Premises and submit a written report setting forth the value to Landlord
and Tenant within thirty (30) days after his or her appointment. Such fair
market rental value of the Premises shall be the average of the two (2)
values set forth in such three (3) reports that are closest to each other
(or, if the differences among such three (3) values are equal, the average
of such three (3) values). The fair market rental value of the Premises,
determined in accordance with this paragraph, shall be conclusive and
binding upon Landlord and Tenant.
(ii) Any proceedings in connection with the determination of the fair
market rental value of the Premises shall be subject to California Code of
Civil Procedure sections 1280 to 1294.2 (including section 1283.05) or
successor California laws then in effect relating to arbitration and any
such proceedings shall be conducted in the City and County of San
Francisco. All appraisers appointed by Landlord or Tenant, or both of them,
shall be members of the American Institute of Real Estate Appraisers of the
National Association of Realtors (or successor organization) or real estate
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<PAGE>
professionals qualified by appropriate training or experience and have at
least ten (10) years of experience dealing with commercial real estate. The
appraisers shall have no power or authority to amend or modify this Lease
in any respect and their jurisdiction is limited accordingly.
(iii) Landlord and Tenant each shall pay the fee and expenses charged
by its appraiser plus one-half of the fee and expenses charged by the
neutral third appraiser. If the fair market rental value of the Premises
has not been determined in accordance with this paragraph by the first day
of the Extended Term, Tenant shall pay as Base Rent amount of Base Rent for
the month immediately preceding the Extended Term, effective on the first
day of the Extended Term, and Tenant shall continue to pay such amount
until the fair market rental value of the Premises has been determined, at
which time any adjustment in the Base Rent resulting therefrom shall be
made retroactively within ten (10) days after such determination.
(c) If Tenant exercises the right to extend the term of this Lease for the
Extended Term in accordance with this paragraph, Landlord and Tenant each shall,
on or before the first day of the Extended Term (or as soon thereafter as
practical), execute and deliver to the other an amendment to this Lease which
confirms the extension of the term of this Lease for the Extended Term and sets
forth the Base Rent for the Extended Term, but the term of this Lease shall be
extended for the Extended Term and the Base Rent for the Extended Term shall be
determined in accordance with this paragraph whether or not such amendment is
executed.
52. Right of First Offer.
--------------------
(a) During the initial term of sixty (60) months and two (2) weeks of this
Lease, Landlord grants to Tenant a right of first offer to lease space located
on the fifth and eighth floors of the South Tower of the Building (the "First
Offer Space"). Notwithstanding the foregoing, Tenant shall not have a right of
first offer with respect to the approximately thirteen thousand (13,000) square
feet of rentable area (the Carve Out Space") on the eighth floor for which
Landlord is currently in lease negotiations with a third party, unless and until
Landlord gives written notice to Tenant that the Carve Out Space has become a
First Offer Space. Additionally, such first offer right of Tenant shall commence
only following the expiration or earlier termination of the existing leases
(including, without limitation, renewals or extensions thereof, whether or not
pursuant to a right or option to do so) of the First Offer Space, and such right
of first offer shall be subordinate to all rights of existing tenants in
possession of the First Offer Space and any renewal, extension, or expansion
rights currently negotiated or to be negotiated in the future with such tenants
(collectively, the "Superior Right Holders"). Tenant's right of first offer
shall be on the terms and conditions set forth in this paragraph.
(b) If no Event of Default exists, Landlord shall notify Tenant (the "First
Offer Notice") from time to time when the First Offer Space or any portion
thereof becomes available for lease to third parties, provided that no Superior
Right Holder wishes to lease such space and that such right of first offer has
not otherwise terminated as set forth in this paragraph. Pursuant to such First
Offer Notice, Landlord shall offer to lease to Tenant the then available First
Offer Space. The First Offer Notice shall describe the First Offer Space so
offered to Tenant and shall set forth the Base Rent and additional rent (the
"First Offer Rent"), the term for such lease of space, and the other material
lease terms upon which Landlord is willing to lease such First Offer Space to
Tenant.
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<PAGE>
(c) If no Event of Default exists and Tenant wishes to exercise Tenant's
right of first offer with respect to the space described in the First Offer
Notice, then within five (5) business days after delivery of the First Offer
Notice to Tenant, Tenant shall deliver to Landlord notice of Tenant's exercise
of its right of first offer with respect to the entire First Offer Space
described in the First Offer Notice either (i) on the terms contained in the
First Offer Notice or (ii) on terms to be negotiated between Landlord and Tenant
as provided below ("Tenant's Exercise Notice"). Notwithstanding anything to the
contrary contained herein, Tenant must elect to exercise its right of first
offer, if at all, with respect to all of the First Offer Space offered by
Landlord to Tenant in a First Offer Notice at any particular time, and Tenant
may not elect to lease only a portion thereof. If Tenant does not so notify
Landlord within such five (5) business day period, Tenant shall have no further
right of first offer with respect to that First Offer Space and Landlord shall
be free to lease the First Offer Space described in the First Offer Notice to
any tenant on any terms whatsoever. In the event that Tenant does deliver
Tenant's Exercise Notice to Landlord within the five (5) business day period and
Tenant's Exercise Notice states that such exercise shall be on terms to be
negotiated between Landlord and Tenant, then Landlord and Tenant agree to
negotiate in good faith for a period of up to seven (7) business days after
Landlord's receipt of Tenant's Exercise Notice to determine the First Offer Rent
and other material lease terms for the First Offer Space described in the First
Offer Notice. If Landlord and Tenant cannot in good faith agree upon the First
Offer Rent and other material lease terms for the First Offer Space described in
the First Offer Notice within such seven (7) business day period, then Landlord
shall be free to lease the First Offer Space described in the First Offer Notice
to any tenant or any terms whatsoever and Tenant shall have no further right of
first offer with respect to that First Offer Space.
(d) Tenant shall take any and all First Offer Space in its then "as is"
condition, with such tenant improvement allowance, if any, offered by Landlord
in the First Offer Notice or as otherwise negotiated between Landlord and Tenant
as provided above. Except as provided in the First Offer Notice or as otherwise
negotiated between the parties as provided above, Landlord shall have no
obligation to construct or install any improvements, furnishings or equipment
whatsoever in the First Offer Space.
(e) If Tenant timely exercises Tenant's right to lease any First Offer
Space as set forth herein, Landlord and Tenant shall within twenty (20) days
thereafter execute an amendment to this Lease for such First Offer Space upon
the terms and conditions set forth in the First Offer Notice or as otherwise
negotiated between Landlord and Tenant as provided above.
(f) The rights contained in this paragraph shall be personal to Tenant (and
shall not be exercisable by any sublessee or transferee or any other assignee or
successor to Tenant's interest in or to this Lease), and may only be exercised
by Tenant if no Event of Default exists and Tenant occupies the entire Premises.
53. Letter of Credit.
----------------
(a) In lieu of the cash deposit described in paragraph 32 hereof, Tenant
shall, on the date of this Lease, deliver to Landlord an irrevocable letter of
credit (the "Letter of Credit") in the amount of three million three hundred
thousand dollars ($3,300,000), issued to Landlord, as beneficiary, in form and
substance satisfactory to Landlord, by a bank (an "Approved Bank") approved by
Landlord qualified to transact banking business in California with an office in
the City and County of San Francisco, Alameda County, Contra Costa County, Marin
County, San Mateo County or Santa Clara County at which drafts drawn on the
Letter of Credit may be presented for payment. The full
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<PAGE>
amount of the Letter of Credit shall be available to Landlord upon presentation
of Landlord's sight draft accompanied only by the Letter of Credit and a signed
and dated certification from Landlord stating the following: The undersigned, as
the landlord under the Office Lease dated June 17, 1999, between The Equitable
Life Assurance Society of the United States, a New York corporation, as
landlord, and NorthPoint Communications, Inc., a Delaware corporation, as
tenant, has the right to draw the full amount of the Letter of Credit pursuant
to the Office Lease. Tenant shall maintain the Letter of Credit for the entire
term (including any Extended Term) of this Lease, subject only to reduction in
the amount of the Letter of Credit or release of the Letter of Credit as
provided in this paragraph. The Letter of Credit shall expressly state that the
Letter of Credit and the right to draw thereunder may be transferred or assigned
by Landlord to any successor or assignee of Landlord under this Lease.
(b) The Letter of Credit shall have an initial expiration date at least
twelve (12) months after the date of this Lease. Tenant shall, at least sixty
(60) days before each expiry of the Letter of Credit, cause an Approved Bank to
reissue, renew, replace or extend the Letter of Credit for an additional period
of at least twelve (12) months in order to maintain the Letter of Credit in
accordance with this paragraph.
(c) If any Event of Default by Tenant occurs under this Lease, then
Landlord shall have the right at any time thereafter, but shall not be
obligated, to draw the full amount of the Letter of Credit and to hold and apply
the proceeds from the Letter of Credit as the cash deposit under paragraph 32
hereof. If Tenant fails to cause an Approved Bank to reissue, renew, replace or
extend the Letter of Credit at least sixty (60) days before any expiry of the
Letter of Credit in accordance with this paragraph, then Landlord shall have the
right to draw the full amount of the Letter of Credit at any time within such
period sixty (60) days preceding such expiry of the Letter of Credit and to hold
and apply the proceeds from the Letter of Credit as the cash deposit under
paragraph 32 hereof.
(d) If no Event of Default has occurred prior to the applicable reduction
date set forth in this sentence (even if the Event of Default subsequently was
cured by Tenant), the amount of the Letter of Credit shall be reduced (i) to two
million four hundred seventy-five thousand dollars ($2,475,000) on the date
twenty-four (24) months after the Base Rent commencement date, (ii) to one
million six hundred fifty thousand dollars ($1,650,000) on the date thirty-six
(36) months after the Base Rent commencement date, and (iii) to eight hundred
twenty-five thousand dollars ($825,000) on the date forty-eight (48) months
after the Base Rent commencement date.
(e) If no Event of Default has occurred (even if the Event of Default
subsequently was cured by Tenant) and Tenant obtains a "BB" credit rating from
Standard & Poor's, or a rating equivalent to such Standard & Poor's rating from
Moody's or Fitch (or any other comparable rating agency acceptable to Landlord)
for unsecured debt of Tenant, then the amount of the Letter of Credit shall be
reduced by fifty percent (50%) from the amounts otherwise required by this
paragraph. If such "BB" (or equivalent) credit rating is subsequently withdrawn
or reduced, then Tenant shall, within thirty (30) days thereafter, restore the
amount of the Letter of Credit to the amount calculated in accordance with this
paragraph and in compliance with the requirements set forth in this paragraph.
(f) If no Event of Default has occurred (even if the Event of Default
subsequently was cured by Tenant) and Tenant obtains a "BBB" credit rating from
Standard & Poor's, or a rating equivalent to such Standard & Poor's rating from
Moody's or Fitch (or any other comparable rating agency acceptable to Landlord)
for senior unsecured debt of Tenant, then Landlord shall release
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<PAGE>
the Letter of Credit and deliver the Letter of Credit to Tenant within thirty
(30) days after Tenant delivers to Landlord written evidence reasonably
satisfactory to Landlord that Tenant has received such "BBB" (or equivalent)
credit rating. If such "BBB" (or equivalent) credit rating is subsequently
withdrawn or reduced, then Tenant shall, within thirty (30) days thereafter,
deliver a Letter of Credit, in the amount calculated in accordance with this
paragraph and in compliance with the requirements set forth in this paragraph,
to Landlord.
(g) Tenant grants to Landlord a security interest in all proceeds of the
Letter of Credit to secure performance of all obligations of Tenant under this
Lease.
54. Parking. Tenant shall have the right from time to time to rent from
-------
Landlord as many as one (1) unreserved parking space in the Building garage for
each two thousand five hundred (2,500) square feet of rentable area in the
Premises on a monthly basis throughout the term of this Lease. If, at any time,
Tenant rents less than the maximum of one (1) parking space per two thousand
five hundred (2,500) square feet of rentable area and Tenant requests additional
parking spaces, Landlord shall use commercially reasonable efforts to furnish
such additional parking spaces to Tenant as soon as such additional parking
spaces are available. Such parking spaces shall be rented by Tenant at the then
prevailing monthly rate established by Landlord from time to time or Landlord's
agents for such parking spaces. Tenant shall be responsible for any taxes
imposed by any governmental authority in connection with such spaces. Tenant's
continued right to use such parking spaces is conditioned upon Tenant and
Tenant's employees complying with all rules and regulations which are prescribed
from time to time for the orderly operation and use of the parking facility.
Landlord specifically reserves the right to change the location, size,
configuration, design, layout and all other aspects of the parking facility, and
Tenant acknowledges and agrees that Landlord may, without incurring any
liability to Tenant and without any abatement of any rent under this Lease, from
time to time, close off or restrict access to the parking facility for purposes
of permitting or facilitating any maintenance, construction, alterations or
improvements. Landlord may totally or partially delegate its responsibilities
hereunder to a parking operator, in which event such operator shall have the
rights of control granted to Landlord. The parking spaces rented by Tenant
pursuant to this paragraph are provided to Tenant solely for use by Tenant's own
personnel (not including Tenant's invitees and guests) and such spaces may not
be transferred, assigned, subleased or otherwise alienated by Tenant without
Landlord's prior approval. Monthly parking pass holders shall have twenty-four
(24) hour access to the Building garage.
55. Storage Space. upon execution of Landlord's standard storage space
-------------
lease ("Storage Space Lease"), Tenant shall have the right to lease
approximately five hundred (500) square feet of storage space at a rental rate
of fifteen dollars ($15) per square foot per year, on the terms and conditions
contained in the Storage Space Lease.
56. Signage. Tenant shall have the right to install Building standard
-------
signage in the lobby and common areas of the Building and to use the standard
graphics of Tenant therefor during the term (and any Extended Term) of this
Lease. During the term (and any Extended Term) of this Lease, so long as Tenant
leases from Landlord and occupies a minimum of one hundred seventy-five
(175,000) square feet of rentable area in the Building, Tenant shall have the
primary right, at its sole cost and expense, to erect and maintain signage with
the NorthPoint Communications Group, Inc. corporate name or logo, or both, on
the exterior of the South Tower of the Building over or around the entrance
doors. The exact location, size, materials and design for such signage shall be
compatible with Landlord's Building signage program and shall be subject to all
applicable
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<PAGE>
laws and to Landlord's prior approval, which approval shall not be unreasonably
withheld. Tenant shall comply, at its sole cost and expense, with any and all
laws, statues, ordinances and governmental rules, regulations or requirements
applicable to such signage. Tenant shall have the right and the obligation to
remove any such signage prior to the expiration of the term of this Lease.
57 Gross Negligence. The term "gross negligence" as used in this Lease
----------------
shall mean "any action or inaction taken with a reckless disregard for the
consequences."
58. Time is of the Essence. Time is of the essence of this Lease and each
----------------------
of the provisions in this Lease.
59. BOMA Measurement. Tenant shall have the right, within forty-five (45)
----------------
days after the date of this Lease, to have the architect approved by Landlord
who will design the Tenant Improvements measure the Premises in accordance with
the Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA
Z65.1-1996 (the "BOMA Standard"). If Tenant exercises such right, Tenant shall
furnish copies of all measurements and calculations made by such architect to
Landlord promptly after such measurement has been undertaken. If, on the basis
of such measurement, such architect determines that the rentable area (as
defined in the BOMA Standard) of the Premises is only eighty percent (80%) or
less of the rentable area of the Premises set forth in the Basic Lease
Information, then Tenant shall have the right, by giving notice to Landlord
within ten (10) days after such initial period of forty-five (45) days, to have
the rentable area of the Building and the Premises determined in accordance with
the BOMA Standard by an architect having at least fifteen (15) years of
experience designing improvements for office buildings in San Francisco,
California (a "Qualified Architect"), solely for the purpose of this Lease. If,
within fifteen (15) days after Tenant gives such notice, Landlord and Tenant do
not agree upon and appoint a Qualified Architect, the Qualified Architect shall
be appointed by the Superior Court of the State of California in and for the
City and County of San Francisco upon application of either Landlord or Tenant.
Within thirty (30) days after his or her appointment, the Qualified Architect
shall determine the rentable area of the Building and the Premises solely for
the purposes of this Lease, and such determination shall be final, conclusive
and binding upon Landlord and Tenant. Any proceedings in connection with such
determination shall be subject to California Code of Civil Procedure sections
1280 to 1294.2 or successor California laws then in effect relating to
arbitration and any such proceedings shall be conducted in the City and County
of San Francisco. Landlord and Tenant each shall pay one-half of the fee and
expenses charged by the Qualified Architect. When such determination has been
made, Landlord and Tenant each shall, upon demand by the other, execute and
deliver to the other an amendment to this Lease which sets forth the rentable
area of the Premises, the amount of the Base Rent, Tenant's Expense Share,
Tenant's Tax Share and the Tenant Improvement Allowance based on the Qualified
Architect's determination of the rentable area. If there is no determination of
the rentable area pursuant to this paragraph, all references to rentable areas
of spaces in the Building set forth in this Lease shall be final, conclusive and
binding upon Landlord and Tenant.
60. Exclusions From Expenses. Notwithstanding anything to the contrary in
------------------------
the definition of Expenses set forth in paragraph 4(a)(v) hereof, Expenses
shall not include: (i) any ground lease rental; (ii) costs incurred for goods
and services (including utilities) sold or supplied to Tenant or other tenants
or occupants of the Building to the extent Landlord receives direct and separate
reimbursement of such costs from Tenant or other tenants or occupants of the
Building; (iii) costs incurred for the repair of damage to the Building to the
extent that Landlord is separately and directly reimbursed from any source
(including,
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<PAGE>
without limitation, by insurance, condemnation or warranty proceeds); (iv) costs
(including permit, license and inspection costs but excluding costs of
utilities) incurred for the installation of tenant improvements made for tenants
or other occupants of the Building or otherwise for renovating, improving,
painting or decorating space leased or available for leasing to tenants or other
occupants of the Building; (v) depreciation and amortization except as
specifically provided in paragraph 4(a)(v) hereof; (vi) leasing commissions,
attorneys' fees and other costs and expenses incurred in connection with
negotiations or disputes with present or prospective tenants or other occupants
of the Building; (vii) except as specifically provided in paragraph 4(a)(v)
hereof, costs incurred for capital improvements or capital replacements as
determined in accordance with generally accepted accounting principles
consistently applied; (viii) interest or penalties incurred as the result of
late payment by Landlord due to Landlord's active negligence (unless Landlord in
good faith disputes a charge and subsequently loses or settles such dispute) or
willful misconduct; (ix) costs incurred for goods and services sold or supplied
by Landlord or any Affiliate of Landlord to the extent such costs exceed the
fair market value of such goods or services; (x) interest and principal on any
mortgage encumbering the Building and costs of refinancing any such mortgage;
(xi) wages, salaries, payroll taxes and other labor costs and employee benefits
for personnel ratably to the extent such personnel do not devote time to the
management, operation, maintenance and repair of the Building; (xii) equipment
rental or lease costs for renting or leasing major capital equipment for the
operation of the Building determined in accordance with generally accepted
accounting principles consistently applied; (xiii) costs arising from Hazardous
Materials which were installed by Landlord or its officers, agents or employees
and which, at the time of installation, Landlord knew or should have known were
in fact Hazardous Materials; (xiv) costs for the purchase of fine art
(including, without limitation, paintings and sculptures); and (xv) advertising
and promotional expenditures primarily directed toward leasing tenant space in
the Building, and the costs of signs in or on the Building identifying any
tenant of the Building, except the Building directories.
61. Audit of Expenses and Real Estate Taxes. Provided no Event of Default
---------------------------------------
exists, Tenant shall have the right to conduct an audit of the books and records
of Landlord to determine the accuracy of a Landlord's Expense Statement or a
Landlord's Tax Statement for a calendar year. Any such audit shall be initiated
no later than six (6) months after the Landlord's Expense Statement or the
Landlord's Tax Statement for the applicable calendar year has been delivered.
Such audit shall be performed by a regular employee of Tenant or by a major
regional or national firm of certified public accountants reasonably acceptable
to Landlord, at the expense of Tenant, during normal business hours at the
management office of the Building or an office of Landlord in the City and
County of San Francisco, and with at least seven (7) days' prior written notice.
Such audit shall not be performed by any person or entity that performs such
audits on a contingent fee basis. Landlord shall keep books and records showing
Expenses and Real Estate Taxes for at least one (1) year following the
applicable calendar year at the management office of the Building or an office
of Landlord in the City and County of San Francisco. No books or records may be
removed by Tenant. Paragraph 4(d) hereof shall apply to the results of any such
audit. If Tenant does not initiate an audit in accordance with this paragraph
within such period of six (6) months, the Landlord's Expense Statement and the
Landlord's Tax Statement for the applicable calendar year shall be final,
conclusive and binding.
62. Use of Premises. The Premises shall be used for the following purposes
---------------
and no other without the prior written consent of Landlord, which may be granted
or denied in Landlord's absolute discretion: general business and professional
offices,
-8-
<PAGE>
including storage, public meeting rooms, meeting, training and conference
facilities, kitchen, telecommunication facilities and equipment,
teleconferencing facilities, data processing and computer facilities and
computer equipment rooms, a 24-hour a day operational network control center,
and any other uses consistent with telecommunications uses and business and
professional uses in Class A office buildings in the City and County of San
Francisco, California.
63. Landlord's Insurance. Landlord shall, during the term (including any
--------------------
Extended Term) of this Lease, obtain and keep in force standard "all risk" or
"fire and extended coverage" property insurance for the Building with such
coverages, in such amounts and subject to such deductibles as Landlord
determines from time to time. At the request of Tenant at any time, Landlord
shall furnish to Tenant a certificate of insurance for the property insurance
covering the Building carried by Landlord. As of the date of this Lease,
Landlord carries earthquake insurance but Landlord shall not be obligated to
maintain earthquake insurance. If Landlord ceases to carry earthquake insurance
or materially alters the coverage under an earthquake insurance policy, Landlord
shall give notice of the change to Tenant. Landlord shall, during the term
(including any Extended Term) of this Lease, obtain and keep in force commercial
general liability insurance for the use and occupancy of the Building with such
coverages and in such limits as Landlord determines from time to time.
64. Permitted Transfers. Notwithstanding anything in paragraph 16 hereof
-------------------
to the contrary, Tenant shall have the right (a) to assign this Lease or
sublease all or any portion of the Premises to an Affiliate and (b) to permit
the use or occupancy of the Premises or any part thereof by suppliers of
services to Tenant (such as data processing, photocopy, messenger, travel,
communications, facilities management and accounting services) in. connection
with the provision of such services to Tenant as long as the total area of the
Premises used or occupied by such suppliers does not exceed twenty thousand
(20,000) square feet at any time (all of the foregoing are "Permitted
Transfers"). The consent of Landlord shall not be required for any Permitted
Transfers, but Tenant shall give notice to Landlord upon the occurrence of any
assignment of this Lease or any sublease of all or any portion of the Premises
to an Affiliate. The provisions of subparagraphs (d)~ (g) and (h) of paragraph
16 shall not apply to Permitted Transfers. As used in this Lease, "Affiliate"
means any person or entity which controls, is controlled by or is under common
control with Tenant, or any entity resulting from the merger or consolidation
with Tenant, or any person or entity which acquires all the assets of Tenant as
a going concern of the business that is being conducted by Tenant on the
Premises. For this purpose, "control" means ownership of fifty-one percent (51%)
or more of the voting stock or the capital and profits of the controlled entity.
65. Roof Satellite Dish. Upon execution of Landlord's standard Satellite
-------------------
Dish License ("Roof License"), Tenant shall have the right to lease
approximately one hundred (100) square feet of space on the roof of the Building
designated by Landlord, at a rental rate of one thousand two hundred dollars
($1,200) per
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<PAGE>
month, for the installation of a satellite dish on the terms and conditions
contained in the Roof License.
66. Electricity. Landlord shall, as an Expense of the Building, provide an
-----------
average of four and one-half (4-1/2) watts connected load per square foot of
rentable area for normal office use, which shall include, without limitation,
fluorescent and incandescent lighting (including task and task ambient lighting
systems); office equipment (including duplicating (reproduction) machines,
computers, terminals, minicomputers, communications/ audiovisual equipment and
vending machines); and kitchen equipment (some of which shall require separate
electrical circuits), but excluding Building equipment.
67. Confirmation of Term. Landlord and Tenant each shall, promptly after
--------------------
the Term Commencement, execute and deliver to the other an amendment to this
Lease which confirms the date of Term Commencement, the Base Rent commencement
date and the date of Term Expiration determined in accordance with this Lease,
but the term of this Lease shall commence on the Term Commencement in accordance
with this Lease whether or not such amendment is executed.
End of Addendum
---------------
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<PAGE>
EXHIBIT A
FLOOR PLANS
<PAGE>
EXHIBIT A
303
---------
SECOND
7TH FLOOR
SOUTH TOWER
(IMAGE)
<PAGE>
EXHIBIT A
303
---------
SECOND
9TH FLOOR
SOUTH TOWER
(IMAGE)
<PAGE>
EXHIBIT A
303
---------
SECOND
8TH FLOOR
SOUTH TOWER
(IMAGE)
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators and stairways of the Building shall not be obstructed by
any of the tenants or used by them for any purpose other than for ingress to and
egress from their respective premises. The halls, passages, exits, entrances,
shopping malls, elevators, escalators and stairways are not for the general
public, and Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Landlord would
be prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal activities. No tenant and no employee or invitee of any tenant shall go
upon the roof of the Building except such roof or portion thereof as may be
contiguous to the premises of a particular tenant and may be designated in
writing by Landlord as a roof deck or roof garden area.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any tenant's premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and finish to tenants general
guidelines relating to signs inside the Building on the office floors. Each
tenant shall conform to such guidelines, but may request approval of Landlord
for modifications, which approval will not be unreasonably withheld. All
approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the Tenant by a person approved by Landlord, which
approval will not be unreasonably withheld. Material visible from outside the
Building will not be permitted.
3. Their Premises shall not be used for the storage of merchandise held
for sale to the general public or for lodging. No cooking shall be done or
permitted by any tenant on the premises, except that use by the tenant of food
and beverage vending machines and Underwriters' Laboratory approved microwave
ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages
shall be permitted, provided that such use is in accordance with all applicable
federal, state and city laws, codes, ordinances, roles and regulations.
4. No tenant shall employ any person or persons other than Landlord's
janitorial service for the purpose of cleaning the premises, unless otherwise
approved by Landlord. No person or persons other than those approved by Landlord
shall be permitted to enter the Building for the purpose of cleaning the same.
No tenant shall cause any unnecessary labor by reason of such tenant's
carelessness or indifference in the preservation of good order and cleanliness.
Janitor service will not be furnished on nights when rooms are occupied after
9:30 P.M. unless, by prior arrangement with Landlord, service is extended to a
later hour for specifically designated rooms.
5. Landlord will furnish each tenant, free of charge, with two keys to
each door lock in its premises. Landlord may make a reasonable charge for any
additional keys. No tenant shall have any keys made. No tenant shall alter any
lock or install a new or additional lock or any bolt on any door of its premises
without the prior consent of Landlord. The tenant shall in each case furnish
Landlord with a key for any such lock. Each tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in the Building which shall
have been furnished to the tenant.
6. The freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. The persons employed to move such equipment in or out of
the Building must be acceptable to Landlord. Landlord shall have the right to
prescribe the weight, size and position of all equipment, materials, furniture
or other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on wood strips of such thickness as is necessary to
properly distribute the weight. Landlord will not be responsible for loss of or
damage to any such property from any cause, and all damage done to the Building
by moving or maintaining such property shall be repaired at the expense of the
tenant.
7. No tenant shall use or keep in the premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or, without Landlord's prior approval, use any method of
heating or air conditioning other than that supplied by Landlord.
19
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
No tenant shall use or keep or permit to be used or kept any foul or noxious gas
or substance in the premises, or permit or suffer the premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors or vibrations, or interfere in any way
with other tenants or those having business therein.
8. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and street address of the Building.
9. Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 7 A.M. and at all hours on Saturdays, Sundays and legal
holidays all persons who do not present a pass signed by Landlord to the
Building. Landlord will furnish passes to persons for whom any tenant requests
the same in writing. Each tenant shall be responsible for all persons for whom
it requests passes and shall be liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In the case of
invasion, mob, riot, public excitement or other circumstances rendering such
action advisable in Landlord's opinion, Landlord reserves the right to prevent
access to the Building during the continuance of the same by such action as
Landlord may deem appropriate.
10. The directory of the Building will be provided for the display of the
name and location of tenants and a reasonable number of the principal officers
and employees of tenants, and Landlord reserves the right to exclude any other
names therefrom. Any additional name which a tenant desires to have added to the
directory shall be subject to Landlord's approval and may be subject to a charge
therefor.
11. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Landlord. If consented to by Landlord, such items shall be installed
on the office side of the standard window covering and shall in no way be
visible from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages,
and other products or services shall be subject to such reasonable regulations
as may be adopted by Landlord. Landlord may establish a central receiving
station in the Building for delivery and pick-up by all messenger services, and
may limit delivery and pick-up at tenant premises to Building personnel.
13. Each tenant shall see that the doors of its premises are closed and
locked and that all water faucets or apparatus, cooking facilities and office
equipment (excluding office equipment required to be operative at all times) are
shut off before the tenant or its employees leave the premises at night, so as
to prevent waste or damage, and for any default or carelessness in this regard
the tenant shall be responsible for any damage sustained by other tenants or
occupants of the Building or Landlord. On multiple-tenancy floors, all tenants
shall keep the doors to the Building corridors closed at all times except for
ingress and egress.
14. The toilets, urinals, wash bowls and other restroom facilities shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this role
shall be borne by the tenant who, or whose employees or invitees, shall have
caused it.
15. Except with the prior consent of Landlord, no tenant shall sell, or
permit the sale retail, of newspapers, magazines, periodicals, theatre tickets
or any other goods or merchandise to the general public in or on the premises,
nor shall any tenant carry on, or permit or allow any employee or other person
to carry on, the business of stenography, typewriting or any similar business or
from the premises for the service or accommodation of occupants of any other
portion of the Building, nor shall the premise of any tenant be used for
manufacturing of any kind, or any business or activity other than that
specifically provided for in such tenant's lease.
16. No tenant shall install any antenna, loudspeaker, or other device on
the roof or exterior walls of the Building.
20
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
17. There shall not be used in any portion of the Building, by any tenant
or its invitees, any hand trucks or other material handling equipment except
those equipped with rubber tires and side guards unless otherwise approved by
Landlord.
18. Each tenant shall store its refuse within its premises. No material
shall be placed in the refuse boxes or receptacles if such material is of such
nature that it may not be disposed of in the ordinary and customary manner of
removing and disposing of refuse in the City and County of San Francisco without
being in violation of any law or ordinance governing such disposal. All refuse
disposal shall be made only through entryways and elevators provided for such
purposes and at such times as Landlord shall designate.
19. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in the Building are prohibited, and each tenant shall
cooperate to prevent the same.
20. The requirements of the tenants will be attended to only upon
application by telephone or in person at the office of the Building. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
21. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
22. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
23. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building, and for the preservation of good
order therein.
21
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT WORK LETTER
This Exhibit is C attached to and made a part of the Office Lease dated
June 17, 1999, between The Equitable Life Assurance Society of the United
States, a New York corporation, as Landlord, and NorthPoint Communications,
Inc., a Delaware corporation, as Tenant.
1. Tenant Accepts Premises in "As Is" Condition. As of the Term
--------------------------------------------
Commencement date, Landlord shall deliver possession of the Premises to Tenant
and Tenant shall accept possession of the Premises in "AS IS" condition. Tenant
acknowledges and agrees that Tenant and its representatives have inspected the
Premises and all of its structural and mechanical elements and that Tenant is
satisfied with the condition thereof. Except as specifically provided below or
in the Lease, Landlord has no obligation and has made no promise to alter,
remodel, improve, repair, decorate or paint the Premises or any part of the
Premises, or to pay for any such work, and neither Landlord nor Landlord's
agents have made any representations to Tenant with respect to the condition of
the Premises.
2. Construction of Tenant Improvements. Tenant shall construct and
-----------------------------------
substantially complete any and all alterations of, or improvements to, the
Premises (the "Tenant Improvements") in accordance with the Final Plans (as
defined below) submitted to and approved by Landlord. The Tenant Improvements
shall be made and performed in a safe and workmanlike manner, using only first-
class materials, in compliance with the minimum Building standard specification
for interior tenant improvements developed by Landlord for uniform application
in the Building, and in accordance with the following provisions of this Exhibit
C.
(a) No work with respect to the Tenant Improvements shall proceed without
Landlord's reasonable prior written approval of:
(i) Tenant's contractor(s) and subcontractor(s);
(ii) certificates of insurance furnished to Landlord from a company or
companies approved by Landlord
(A) by Tenant's general contractor, evidencing commercial general
liability insurance (with contractual liability and products and completed
operations coverages) with a minimum combined single limit for bodily
injury and property damage in an amount not less than two million five
hundred thousand dollars ($2,500,000) per occurrence, endorsed to name
Landlord, Landlord's managing agent and any other party designated by
Landlord as an additional insured, and workers' compensation insurance, as
required by law;
(B) by any and all subcontractors, evidencing commercial general
liability insurance (with contractual liability and products and completed
operations coverages) with a minimum combined single limit for bodily
injury and property damage in an amount not less than one million dollars
($1,000,000) per occurrence, endorsed to name Landlord, Landlord's managing
agent and any other party designated by Landlord as an additional insured,
and workers' compensation insurance, as required by law; and
(C) by Tenant evidencing builder's risk insurance with respect to the
Tenant Improvements, in such amounts as are deemed reasonable by Landlord,
and workers' compensation insurance, as required by law; and
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<PAGE>
(iii) detailed plans and specifications for such work, prepared by a
licensed architect approved in writing by Landlord (the "Tenant's
Architect"), which indicate that such work will not exceed the design load
capacities and performance criteria of the Building, including, without
limitation, its electrical, HVAC and weight capacities, and construction
means and methods.
(b) Except as otherwise expressly provided herein, the Tenant Improvements
shall be undertaken at Tenant's sole cost and expense and in strict conformance
with all applicable laws, regulations, building codes and the requirements of
any building permit and all other applicable permits or licenses issued with
respect to such work. Tenant shall be solely responsible for obtaining all such
permits and licenses from the appropriate governmental authorities, and any
delay in obtaining such permits or licenses shall not be deemed to extend the
commencement date or the expiration date of the term of this Lease or to waive
or toll Tenant's rent and other obligations with respect to the Premises. Copies
of all permits and licenses shall be furnished to Landlord before any work is
commenced, and any work not acceptable to any governmental authority or agency
having or exercising jurisdiction over such work, or not reasonably satisfactory
to Landlord, shall be promptly replaced and corrected at Tenant's expense.
(c) Tenant shall provide Landlord with a construction schedule and all
revisions thereto. All work by Tenant shall be scheduled through Landlord and
shall be diligently and continuously pursued from the date of its commencement
through its completion. Landlord hereby agrees to use its reasonable efforts to
facilitate such work and to ensure access by Tenant to and availability to
Tenant of all freight elevators and all such similar facilities necessary to
facilitate such work, subject, however, to the rules and regulations established
by Landlord for construction work in the Building. All work shall be conducted
in a manner that maintains harmonious labor relations and does not unreasonably
interfere with or delay any other work or activities being carried out by
Landlord in the Building. Landlord or Landlord's agent shall have the right to
enter the Premises and inspect the Premises and the Tenant Improvements at all
reasonable times during the construction of the Tenant Improvements.
(d) Tenant shall cause the Tenant's Architect to prepare and submit to
Landlord for its approval complete architectural plans, drawings and
specifications for all Tenant Improvements, including, without limitation,
complete engineered mechanical and electrical working drawings for the Premises,
showing the subdivision, layout, finish and decoration work desired by Tenant
therefor, and any internal or external communications or special utility
facilities which will require installation of conduits or other improvements
within common areas, all in such form and in such detail as may be required by
Landlord. Such complete plans, drawings and specifications are referred to
herein as "Final Plans". Tenant shall submit the Final Plans for the approval of
Landlord. Within seven (7) business days after Landlord receives the Final Plans
for approval, Landlord shall give its written approval of the Final Plans, or
provide Tenant with specific written objections to the Final Plans. If Landlord
objects to the Final Plans, Landlord shall make itself available to meet with
Tenant and the Tenant's Architect within three (3) business days after said
objection to resolve the objections and to deliver to the Tenant's Architect
such information as may be necessary to enable the Tenant's Architect to cause
the Final Plans to be revised consistent with Landlord's objections. No delay in
the scheduling of completion of the Tenant Improvements resulting from
Landlord's review, revision and approval of the Final Plans shall be deemed to
extend the commencement date or expiration date of the term of this Lease or
waive or toll Tenant's rent obligations with respect to the Premises. In the
event that Tenant and/or its contractors and subcontractors
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desire to change the Final Plans subsequent to approval by Landlord, Tenant
shall provide notice of such proposed change to Landlord for Landlord's written
approval, which approval shall be required prior to the implementation of such
proposed change. Landlord shall approve or disapprove the proposed change within
three (3) business days after Landlord's receipt of all final plans and
specifications therefor or within such time period after such three (3) business
day period which is reasonably practical. At the conclusion of construction,
Tenant shall cause the Tenant's Architect to provide two (2) complete sets of
record drawings of the Tenant Improvements, as constructed, which shall not
materially deviate from the Final Plans, and Tenant shall also cause to be
provided a project closeout package, including, without limitation, a punchlist
sign-off, project team list, permit cards, unconditional lien releases and final
construction costs itemized by trade.
(e) Landlord shall approve the list of bidding general contractors. Tenant
shall enter into a contract (the "General Contract") with one of the Bidding
Contractors ("Tenant's Contractor") for the construction of the Tenant
Improvements.
(f) With respect to fire and life safety systems work required under the
General Contract, Tenant shall cause Tenant's Contractor to solicit and review
bids from at least three (3) subcontractors (the "Fire and Life Safety Bidders")
from a list of contractors approved by Landlord and to enter into a subcontract
with one of the Fire and Life Safety Bidders. With respect to all mechanical
systems work required under the General Contract, Tenant shall cause Tenant's
Contractor to solicit and review bids from at least three (3) subcontractors
(the "Mechanical Bidders") from a list of contractors approved by Landlord and
to enter into a subcontract with one of the Mechanical Bidders. With respect to
all electrical systems work required under the General Contract, Tenant shall
cause Tenant's Contractor to solicit and review bids from at least three (3)
subcontractors (the "Electrical Bidders") from a list of contractors approved by
Landlord and to enter into a subcontract with one of the Electrical Bidders. To
the extent Tenant's Contractor desires to subcontract other work required under
the General Contract, Tenant shall cause Tenant's Contractor to solicit bids for
such proposed subcontract (the "Other Work Bidders"), at least one (1) of which,
if Landlord so elects, shall be a subcontractor designated by Landlord, and,
with the prior written notice to Landlord, to enter into such subcontract with
one of the Other Work Bidders. Tenant's Contractor may engage such laborers and
suppliers as it deems appropriate, subject to the provisions of subparagraph (g)
below.
(g) Notwithstanding anything to the contrary contained herein, the
contracts with all major contractors and their subcontracts with all major
subcontractors for the Tenant Improvements shall be union contracts, and Tenant
shall use its commercially reasonable efforts to ensure that union labor is
employed in connection with the design and construction of the Tenant
Improvements.
(h) Tenant hereby designates Bryce C. Mason, or any other person designated
by Tenant from time to time, as its representative in connection with the design
and construction of the Tenant Improvements, and Landlord shall be entitled to
rely upon the decisions and agreements made by such representative as binding
upon Tenant. Landlord hereby designates Lori Perro, or any other person
designated by Landlord from time to time, as its representative for the purpose
of resolving any issues relating to the design and construction of the Tenant
Improvements that Tenant has not initially resolved with Landlord's project
manager.
(i) Although Landlord has the right to review, request revisions to and
approve the Final Plans, Landlord's sole interest in doing so is to protect the
Building and Landlord's
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interest in the Building, and Landlord is not in any way warranting or
representing that Tenant's Final Plans are suitable for their intended use or
comply with applicable laws and regulations. Landlord shall have no liability
whatsoever in connection with Tenant's Final Plans, nor any responsibility for
any omissions or errors contained therein. Accordingly, Tenant shall not rely
upon Landlord's approval for any purpose other than for the purpose of
acknowledging the consent of Landlord to proceed with the requested action, and
Landlord shall incur no liability of any kind by reason of the granting of such
approvals.
(j) Nothing in this Exhibit C shall affect the obligations of Tenant under
this Lease with respect to any alterations, additions and improvements within
the Premises, including, without limitation, any obligation to obtain the prior
written consent of Landlord in connection therewith.
3. Tenant Improvement Allowance. Subject to the terms and conditions of
----------------------------
this paragraph 3, Landlord shall pay on behalf of Tenant up to a maximum amount
of three million four hundred sixty thousand five hundred fifty-five dollars
($3,460,555) for the construction of Tenant Improvements in the Premises (the
"Tenant Improvement Allowance"), including, without limitation, all
architectural and engineering fees incurred in connection therewith, project and
construction management fees, real property improvements, and all sums payable
to Landlord as provided in paragraph 4 below. The Tenant Improvement Allowance
shall not be used for equipment, furniture or cabling. The Tenant Improvement
Allowance shall be paid as follows: upon the presentation of invoices to
Landlord from Tenant or the person performing the work or rendering the services
or providing the materials and such supporting documentation as Landlord may
reasonably require, including, without limitation, identification of the work
completed and/or material supplied, mechanic lien releases and certificates of
payment issued by the Tenant's Architect and Tenant's designated representative,
Landlord shall pay such invoices on or before the fifteenth (15th) day of the
following month to the person performing the work or rendering the services or
providing the materials. Notwithstanding anything to the contrary contained
herein or in this Lease, the obligation of Landlord to make any one or more
payments pursuant to the provisions of this paragraph 3 shall be suspended
without further act of the parties during any such time as there exists an Event
of Default under this Lease. The Tenant Improvement Allowance must be utilized
by Tenant, if at all, prior to June 30, 2000. As of such date, Tenant shall
forfeit any remaining balance of the Tenant Improvement Allowance that Tenant
has not utilized pursuant to the terms of this Exhibit C. Tenant shall bear the
cost of any and all Tenant Improvements to the Premises in excess of the Tenant
Improvement Allowance.
4. Reimbursement and Compensation. Tenant shall reimburse Landlord for
------------------------------
any and all reasonable out-of-pocket costs incurred by Landlord in connection
with the design and review of the Final Plans (including, without limitation,
any conceptual plans and/or working drawings related thereto) for the Tenant
Improvements, and Tenant shall pay to Landlord a construction management fee in
connection with its supervision of the construction of the Tenant Improvements
and administration of the Tenant Improvement Allowance in an amount equal to two
percent (2%) of the total cost of Tenant Improvements. Landlord may obtain any
reimbursement or compensation required hereunder by deducting the amount of such
reimbursement and/or compensation from the Tenant Improvement Allowance.
5. Tenant's Indemnity. Tenant shall indemnify, defend and hold Landlord
------------------
harmless from and against any and all claims, liens, expenses, costs, losses,
fines, liabilities and/or damages (including, without limitation, attorneys'
fees and costs) arising out of or in any way connected with the construction by
Tenant of the Tenant Improvements, except to the extent caused by
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the gross negligence or willful misconduct of Landlord or its employees,
contractors or agents. Tenant's liability insurance will be primary with respect
to Tenant's indemnity.
6. Notice of Nonresponsibility. Landlord shall have the right to post in
---------------------------
a conspicuous location on the Premises, as well as record within the City and
County of San Francisco, Notice(s) of Nonresponsibility in connection with any
and all Tenant Improvements constructed by Tenant hereunder.
7. Base Building Improvements. Landlord shall be responsible for
--------------------------
constructing the Base Building Improvements (as defined below), at its sole cost
and expense, in conformance with all applicable laws, regulations, building
codes and the requirements of all permits or licenses issued with respect to
such work. Subject to unavoidable delays or delays caused in whole or in part by
Tenant or as otherwise necessitated by Tenant's construction schedule for the
Tenant Improvements, Landlord shall use commercially reasonable efforts to
substantially complete all Base Building Improvements on or before substantial
completion of Tenant Improvements. For purposes hereof, the term "Base Building
Improvements" shall mean all code compliance work in the common area of the
eighth floor, including ADA, life safety and path of travel compliance in the
common areas of the Building; and the term "substantially complete" shall mean
that the work in question is complete subject only to normal punch list items
that do not affect the beneficial use thereof. Notwithstanding anything to the
contrary contained herein or in this Lease, the obligation of Landlord to
proceed with the construction of the Base Building Improvements shall be
suspended without further act of the parties during any such time as there
exists an Event of Default under this Lease.
8. Force Majeure. If Tenant is actually delayed in substantially
-------------
completing the Tenant Improvements beyond the deadline (the "Commencement
Deadline") of December 1, 1999, for the commencement of the term of this Lease
specified in the Basic Lease Information by any event that constitutes a Force
Majeure (as hereinafter defined) and Tenant complies with the requirements in
this paragraph with respect to the Force Majeure, then the Commencement Deadline
shall be extended by one (1) day for each day of actual delay in Tenant's
achieving substantial completion of the Tenant Improvements caused by a Force
Majeure. For this purpose, a "Force Majeure" is the occurrence of a casualty, a
strike, a labor dispute, a civil commotion or a similar event that cannot be
reasonably anticipated or controlled by Tenant. Without limiting any other
events, conditions or occurrences that shall not constitute a Force Majeure, any
inability to obtain (or delay in obtaining) permits for the construction of the
Tenant Improvements, any illness, incapacity, death or termination of employment
of any person, or any failure by any contractor or subcontractor to perform in
accordance with its contract or subcontract shall not constitute a Force
Majeure. In order to claim an extension of the Commencement Deadline, (a) Tenant
shall give Landlord written notice of the occurrence of a Force Majeure within
two (2) days after the onset of the Force Majeure claimed by Tenant, which
notice shall describe the Force Majeure and specify the commencement date of the
Force Majeure claimed by Tenant, and (b) Tenant shall give Landlord written
notice of the termination of the Force Majeure claimed by Tenant, which notice
shall specify the termination date, set forth the total number of days of actual
delay claimed by Tenant to have been caused by the Force Majeure, and explain
how the Force Majeure caused the delay. Tenant shall have no right to an
extension of the Commencement Deadline unless Tenant has complied with the
foregoing notice requirements and the period of such extension shall not exceed
the number of days from the date of onset to the termination date specified in
such notices. Landlord shall have the right at any time to dispute the
occurrence of any Force Majeure or delay in achieving substantial completion of
the Tenant Improvements claimed by Tenant.
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EXHIBIT 10.32
OFFICE LEASE
BETWEEN
EMERY STATION ASSOCIATES, LLC (LANDLORD)
AND
NORTHPOINT COMMUNICATIONS, INC. (TENANT)
EMERYSTATION PROJECT
Emeryville, California
<PAGE>
OFFICE LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS
In the event of any conflict between these Basic Lease Provisions and any Other
Lease provision, such other Lease provision shall control.
(1) BUILDING AND ADDRESS:
EmeryStation
5858 Horton
Emeryville, California 94608
(2) LANDLORD AND ADDRESS:
Emery Station Associates, LLC
1120 Nye Street, Suite 400
San Rafael, California 94901
Notices to Landlord shall be addressed:
Emery Station Associates, LLC
c/o Wareham Development Corporation
1120 Nye Street, Suite 400
San Rafael, California 94901
(3) TENANT AND CURRENT ADDRESS:
(a) Name: NorthPoint Communications, Inc.
(b) State of incorporation: Delaware
Notices to Tenant shall be addressed:
NorthPoint Communications, Inc.
222 Sutter Street
San Francisco, CA 94108
Attn: Bryce Mason
with a copy to:
NorthPoint Communications, Inc.
222 Sutter Street
San Francisco, CA 94108
Attn: Kevin Cameron, Esq.
(4) DATE OF LEASE: as of June 5, 1999
(5) LEASE TERM: 86 months, subject to extension as described in the
Addendum hereto.
(6) PROJECTED COMMENCEMENT DATE: September 15, 1999
<PAGE>
(7) PROJECTED EXPIRATION DATE: November 14, 2006.
(8) MONTHLY BASE RENT:
PERIOD FROM/TO MONTHLY MONTHLY RATE/SF
OF RENTABLE AREA
Months 1 to 2* 0
Months 3 to 30 $2.52
Months 31 to 60 $2.67
Months 61 to 86 $2.82
*Tenant shall not pay Monthly Base Rent during the first two months of the
Term but shall pay any and all other amounts otherwise payable by Tenant
by reason of its occupancy of the Premises in accordance with the terms
and conditions of this Lease.
The Monthly Base rent for the 3rd month of the Term shall be paid within
five (5) business days of execution of this Lease.
(9) RENTABLE AREA OF THE PREMISES: 72,500 square feet subject to
expansion in accordance with the terms hereof.
South Wing of the 4th Floor: 35,000 rentable square feet
Entire 5th Floor: 25,000 rentable square feet
North End of 2nd Floor: 12,500 rentable square feet
The stated rentable areas are approximate. They will be measured by
Landlord's Architect and verified by Tenant's architect according to
1996 BOMA standards.
(10) SECURITY DEPOSIT: $355,250.00 (to be restated to equal two month's
rent at the rate of $2.45 per rentable square foot per month once the
Premises are remeasured, as referenced above). Tenant shall have the
right to provide this Security deposit either in the form of cash or
irrevocable letter of credit, cashable on sight in California. Said
letter of credit shall be of a form and drawn on a financial
institution reasonably satisfactory to Landlord.
(11) SUITE NUMBERS OF PREMISES: 270, 400 and 500.
(12) OPERATING EXPENSES BASE YEAR FOR PREMISES: The first full twelve-
month period following Tenant's occupancy.
(13) TAXES BASE YEAR FOR PREMISES: The first full twelve-month period
following Tenant's occupancy.
(14) TENANT'S USE OF PREMISES: General office use with the following
permitted incidental uses to such primary use: storage, public
meeting rooms, meeting, training and conference facilities, kitchen,
telecommunication facilities and equipment, teleconferencing
facilities, data processing and computer facilities and computer
equipment rooms, work out room and showers, a 24 hour a day
operational network control center. Landlord represents and warrants
that Tenant may occupy the Premises for such uses and that such uses
are and will not be in violation of (a) any exclusives or other
agreements that Landlord has with other occupants, lenders,
governmental authorities, or any
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others, (b) any covenants, conditions, restrictions, easements,
mortgages, deeds of trust, leases, ground leases, and rights of way
affecting the Premises or (c) currently existing restrictions imposed
by any governmental body or authority.
(15) PARKING: Up to 63 unreserved parking spaces in garage (1 per 1000
usable square feet)
Up to 126 unreserved parking spaces on surface lots (2 per
1000 usable square feet)
(The total number of parking spaces shall not exceed 3
cars per 1,000 square feet of usable square feet, and
shall be recalculated as part of the Premises
measurement referred to above. Landlord will use
commercially reasonable efforts to increase Tenant's
overall parking ratio up to 3 cars per 1000 rentable
square feet of Premises area.)
PARKING RATES: Unreserved Garage Spaces: $55/month through the first
full twelve (12) months of Tenant's occupancy; Unreserved Surface Lot
Spaces: $35/month through the first full twelve (12) months of
tenant's occupancy.
There shall be an annual limit on increases of not more than 10% on
Tenant's parking rate increases after the first full twelve (12)
months of Tenant's occupancy. Subject to the foregoing, any year that
parking rates are increased less than the allowed amount, the amount
of unused allowable increase less can be used in any subsequent
years. For example, if parking rates are increased only 5% in the
third full lease year, Landlord may increase parking rates as much as
15% the next year.
(16) BROKERS:
Landlord's Broker: CB Richard Ellis, Inc.
155 Grand Avenue,
Oakland, California 94612
Attention: Rick Calhoun
Tenant's Broker: Grubb & Ellis Company
255 California Street
San Francisco, CA 94111
Attn: Brian J. Fleming
1.02 ENUMERATION OF EXHIBITS, RIDER(S) AND ADDENDUM
The Exhibits, Rider(s) and Addendum set forth below and attached to this Lease
are incorporated in this Lease by this reference:
EXHIBIT A Plan of Premises
EXHIBIT B Workletter Agreement
EXHIBIT C Rules and Regulations
RIDER 1 Commencement Date Agreement
ADDENDUM TO LEASE
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ADJUSTMENT YEAR: The applicable calendar year or any portion thereof after the
Operating Expenses Base Year and Taxes Base Year for which a Rent Adjustment
computation is being made.
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AFFILIATE: Any corporation or other business entity that is owned or controlled
by, owns or controls, or is under common ownership or control with Tenant, and
any corporation or other business entity into which, or with which, Tenant may
merge or consolidate.
BUILDING: The office building located at the address specified in Section
1.01(1). The Building also includes retail spaces.
COMMON AREAS: All areas of the Project made available by Landlord from time to
time for the general common use or benefit of the tenants of the Building, and
their employees and invitees, or the public, as such areas currently exist and
as they may be changed from time to time.
DECORATION: Tenant Alterations which do not require a building permit and which
do not involve any of the structural elements of the Building, or any of the
Building's systems, including its electrical, mechanical, plumbing, security,
heating, ventilating, air-conditioning, communication, and fire and life safety
systems.
DEFAULT RATE: Two (2) percentage points above the rate then most recently
announced by Bank of America N.T.&S.A. at its San Francisco main office as its
base lending reference rate, from time to time announced, but in no event higher
than the maximum rate permitted by Law.
ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or generation
of any Hazardous Material, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, and
the Resource Conservation and Recovery Act of 1976, as amended.
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
EXPANSION OPTION: Shall have the meaning set forth in the Addendum.
EXTENSION OPTION: One five (5) year option to extend the Lease Term as more
fully defined in the Addendum hereto.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable control
of Landlord, including water shortages, energy shortages or governmental
preemption in connection with an act of God, a national emergency, or by reason
of Law, or by reason of the conditions of supply and demand which have been or
are affected by act of God, war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law; or which are classified as hazardous or
toxic under any Environmental Law; and explosives and firearms, radioactive
material, asbestos, polychlorinated biphenyls, and petroleum products.
LAND: The parcel(s) of real estate on which the Building and Project are
located.
LANDLORD DELAY: Any event or occurrence that delays the completion of the Tenant
Work which is caused by or is described as follows:
(i) changes, alterations or additions requested or made by Landlord in
the design or finish in any part of the Premises after approval of the plans and
specifications (as described in the Workletter);
(ii) Landlord's unreasonable delay in supplying information, approving
plans, specifications or estimates, giving authorizations or otherwise;
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(iii) failure to approve and pay for such Tenant Work as Landlord
undertakes to approve or to pay for pursuant to the Workletter, whether by
Allowance or otherwise;
(iv) the performance or completion by Landlord or any person engaged by
Landlord of any work in or about the Premises or the Building; or
(v) breach of any representation or warranty by Landlord hereunder, or
of any obligation of Landlord hereunder, or failure to perform or comply with
any obligation or condition binding upon Landlord pursuant to the Workletter,
including the failure to approve and pay for such Tenant Work or other items if
and to the extent the Workletter provides they are to be approved or paid by
Landlord.
LANDLORD INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of
the Property, the property manager and the leasing manager for the Property and
their respective partners, members, directors, officers, agents and employees.
LANDLORD WORK: The construction or installation of improvements to the Premises,
to be furnished by Landlord, specifically described in the Workletter or
exhibits attached hereto.
LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements,
orders, rulings or decisions adopted or made by any governmental body, agency,
department or judicial authority having jurisdiction over the Property, the
Premises or Tenant's activities at the Premises and any covenants, conditions or
restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR: The twelve month period beginning on the first day of the first
month following the Commencement Date (unless the Commencement Date is the first
day of a calendar month in which case beginning on the Commencement Date), and
each subsequent twelve month, or shorter, period until the Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument
encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and any other holidays recognized by the
janitorial and other unions servicing the Building in accordance with their
contracts.
OPERATING EXPENSES: All costs, expenses and disbursements of every kind and
nature which Landlord shall pay in connection with the management, operation,
maintenance and repair of the office portion of the Building and Property
(except that, if Landlord elects to construct a freestanding parking garage on
one of the surface parking lots serving the Building, the operating expenses of
such garage will not be included in Operating Expenses). Operating Expenses
shall not include (i) costs of alterations of the premises of tenants of the
Project, (ii) costs of capital improvements to the Project (except for amortized
portion of capital improvements installed for the purpose of reducing Operating
Expenses or complying with applicable Laws enacted after the Commencement Date),
(iii) depreciation charges, (iv) interest and principal payments on loans
(except for loans for capital improvements which Landlord is allowed to include
in Operating Expenses as provided under item (ii) above), (v) ground rental
payments, (vi) real estate brokerage and leasing commissions, (vii) advertising
and marketing expenses, (viii) costs for which Landlord is entitled to be
reimbursed by insurance proceeds, by other tenants, or otherwise, (ix) expenses
incurred in negotiating leases of tenants in the Project or enforcing lease
obligations of tenants in the Project, (x) Landlord's or Landlord's property
manager's corporate general overhead or corporate general administrative
expenses,
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(xi) costs in connection with construction of the Project, including any latent
defects or correction of defects in design or construction, (xii) costs incurred
due to violation by Landlord or any tenant of the provisions of any lease,
(xiii) costs of compliance with, or correction of any violations of, any Laws in
effect as of the commencement of this Lease, (xiv) fines, costs, penalties or
interest resulting from the negligence or fault of Landlord or its agents,
employees or contractors, (xv) costs or expenses of any kind related to
Hazardous Materials, ad (xvi) expenses which under generally accepted accounting
principles would not be considered an appropriate maintenance or operating
expense. If any Operating Expense, though paid in one year, relates to more than
one calendar year, at the option of Landlord such expense may be proportionately
allocated among such related calendar years. Operating Expenses for the Building
that are not, in Landlord's reasonable discretion, allocable solely to either
the office or retail portion of the Building shall be equitable allocated by
Landlord between and charged to the office and retail portions of the Building.
OPERATING EXPENSES BASE YEAR: The period designated in Section 1.01(12).
PREMISES: The space located in the Building at the Suite Numbers listed in
Section 1.01(11) and depicted on Exhibit A attached hereto.
PROJECT or PROPERTY: The Project consists of the office building with retail
spaces located at the street address specified in Section 1.01(1) in Emeryville,
California, associated surface and garage parking as designated by Landlord from
time to time, landscaping and improvements, together with the Land, any
associated interests in real property, and the personal property, fixtures,
machinery, equipment, systems and apparatus located in or used in conjunction
with any of the foregoing. The Project may also be referred to as the Property.
REAL PROPERTY: The Property excluding any personal property.
RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment
Deposits, and all other charges, payments, late fees or other amounts required
to be paid by Tenant under this Lease.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses or
Taxes. The Rent Adjustments shall be determined and paid as provided in Article
Four.
RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent
Adjustment attributable to each month of the applicable Adjustment Year. On or
before the beginning of each Adjustment Year or with Landlord's Statement
(defined in Article Four), Landlord may estimate and notify Tenant in writing of
its estimate of the excess, if any, of Operating Expenses over those for the
Operating Expenses Base Year and of Taxes over those for the Taxes Base Year.
Prior to the first determination by Landlord of the amount of Operating Expenses
for the Operating Expenses Base Year and of Taxes for the Taxes Base Year,
Landlord may estimate such amounts in the foregoing calculation. The last
estimate by Landlord shall remain in effect as the applicable Rent Adjustment
Deposit unless and until Landlord notifies Tenant in writing of a change, which
notice may be given by Landlord from time to time during an Adjustment Year.
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section
1.01(9), subject to remeasurement within 15 days after Lease signing, as
described herein.
RENTABLE AREA OF THE OFFICE PORTION OF THE PROJECT: The amount of square footage
which represents the sum of the rentable area of all space intended for office
occupancy in the Project, as determined by Landlord from time to time; and
Landlord shall notify Tenant of any adjustments in such rentable area of the
Building and any corresponding change in Tenant's Share. Notwithstanding the
foregoing, without Tenant's prior written approval, which Tenant may withhold in
its reasonable discretion, Landlord shall make no adjustments (other than the
initial remeasurement of the space described in Section
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1.10(9) hereof) which shall increase Tenant's Rent or Tenant's Share of any
Expenses or Taxes or other charges or costs.
SECURITY DEPOSIT: The funds specified in Section 1.01(10), if any, deposited by
Tenant with Landlord as security for Tenant's performance of its obligations
under this Lease.
STANDARD OPERATING HOURS: Monday through Friday from 8:00 A.M. to 6:00 P.M. and
Saturdays from 9:00 A.M. to 1:00 P.M., excluding National Holidays.
SUBSTANTIALLY COMPLETE: The completion of the Landlord Work or Tenant Work, as
the case may be, except for minor insubstantial details of construction,
decoration or mechanical adjustments which remain to be done.
TAXES: All federal, state and local governmental taxes, assessments and charges
of every kind or nature, whether general, special, ordinary or extraordinary,
which Landlord shall pay or become obligated to pay because of or in connection
with the ownership, leasing, management, control or operation of the Property or
any of its components (including any personal property used in connection
therewith), which may also include any rental or similar taxes levied in lieu of
or in addition to general real and/or personal property taxes. For purposes
hereof, Taxes for any year shall be Taxes which are assessed for any period of
such year, whether or not such Taxes are billed and payable in a subsequent
calendar year. There shall be included in Taxes for any year the amount of all
reasonable fees, costs and expenses (including reasonable attorneys' fees) paid
by Landlord during such year in seeking or obtaining any refund or reduction of
Taxes. Taxes for any year shall be reduced by the net amount of any tax refund
received by Landlord attributable to such year. If a special assessment payable
in installments is levied against any part of the Property, Taxes for any year
shall include only the installment of such assessment and any interest paid
during such year. Taxes shall not include any federal or state inheritance,
general income, gift or estate taxes, except that if a change occurs in the
method of taxation resulting in whole or in part in the substitution of any such
taxes, or any other assessment, for any Taxes as above defined, such substituted
taxes or assessments shall be included in the Taxes.
TAXES BASE YEAR: The period designated in Section 1.01(13).
TENANT ADDITIONS: Collectively, Tenant Work and Tenant Alterations.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations or
construction in or to the Premises or any Building systems serving the Premises
(excluding Landlord Work or Tenant Work); and any supplementary air-conditioning
systems installed by Landlord or by Tenant at Landlord's request pursuant to
Section 6.01(b).
TENANT INDEMNITEES: Collectively, Tenant, its directors, officers, shareholders,
members, partners, agents and employees.
TENANT WORK: All work installed or furnished to the Premises by Tenant pursuant
to the Workletter.
TENANT'S SHARE: The percentage that represents the ratio of the Rentable Area of
the Premises to the Rentable Area of the Office Portion of the Project, as
determined by Landlord from time to time. The initial Tenant's Share shall be
set forth upon measurement of the Premises pursuant to Section 1.01(9) hereof.
TERM: The term of this Lease commencing on the Commencement Date and expiring on
the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
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WORKLETTER: The Agreement regarding the manner of completion of Landlord Work
and Tenant Work set forth on Exhibit B attached hereto.
ARTICLE TWO
PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions provided in
this Lease. In the event Landlord delivers possession of the Premises prior to
the Commencement Date, Tenant shall be subject to all of the terms, covenants
and conditions of this Lease (except with respect to the payment of Rent) as of
the date of such possession.
2.02 TERM
(a) The Commencement Date shall be the earlier to occur of (i) the
Projected Commencement Date, or (ii) the date Tenant first occupies the Premises
for the conduct of business. Notwithstanding the foregoing, the Commencement
Date shall be extended on a day-for-day basis to the extent of any delay in the
Substantial Completion of the Tenant Work resulting from any Landlord Delay or
from Force Majeure (but Force Majeure shall not include delays in obtaining
permits).
(b) Within thirty (30) days following the occurrence of the Commencement
Date, Landlord and Tenant shall enter into an agreement (which is attached
hereto as Rider 1) confirming the Commencement and the Expiration Date.
2.03 FAILURE TO GIVE POSSESSION
If the Landlord shall be unable to give possession of the Premises on the
Projected Commencement Date because the Estimated Substantial Completion Date
has not occurred, then 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 the Premises
are made available to Tenant by Landlord, and no such failure to give possession
on the Projected Commencement Date shall affect the validity of this Lease or
the obligations of the Tenant hereunder. The Lease shall be amended so that the
term shall be extended by the period of time possession is delayed.
Notwithstanding anything to the contrary set forth herein, in the event
possession of the Premises is not delivered to Tenant free of all occupants and
ready for the commencement of Tenant Work within sixty (60) days after the date
this Lease is executed, then Tenant shall have the right at its sole option, to
terminate this Lease by giving written notice thereof to Landlord, in which
event Landlord shall immediately return to Tenant any and all monies and other
deposits (including any letter of credit or other security) provided to Landlord
by Tenant.
2.04 CONDITION OF PREMISES
Tenant and Landlord shall use reasonable efforts to notify the other in writing
within sixty (60) days after the later of Substantial Completion of the Tenant
Improvement Work or when Tenant takes possession of the Premises of any defects
in the Premises claimed by Tenant or Landlord or in the materials or workmanship
furnished in completing the Landlord and/or Tenant Work. Landlord or Tenant, as
the case may be, shall proceed diligently to correct the defects stated in such
notice unless Landlord or Tenant, as the case may be, disputes the existence of
any such defects. In the event of any dispute as to the existence of any such
defects, either party may submit such dispute to binding arbitration in
accordance with the AAA Rules for Commercial Arbitration, provided that such
dispute shall be heard and decided by one arbitrator, not a panel of
arbitrators, for cost- and time-saving purposes. No agreement of Landlord to
alter, remodel, decorate, clean or improve the Premises or the Real Property and
no representation regarding the condition
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of the Premises or the Real Property has been made by or on behalf of Landlord
to Tenant, except as may be specifically stated in this Lease or in the
Workletter.
2.05 PARKING
During the Term, Tenant may use the number of garage and surface lots spaces
specified in Section 1.01(15) for parking at the prevailing rates being charged
from time to time by Landlord or its parking operator to other tenants for
similar parking rights without consideration of any discounts. Tenant may use
fewer than the number of garage and surface lot spaces specified in Section
1.01(15) during the first 12 months of the Term. Commencing on the 13th month of
the Term, in the event Tenant does not pay for any of the specified spaces
during any three month period, Landlord may, at its option, terminate Tenant's
right to use such parking spaces. The locations and type of parking within the
garage and surface lots shall be designated by Landlord or Landlord's parking
operator from time to time. Tenant acknowledges and agrees that the parking
spaces serving the Project may include tandem parking and a mixture of spaces
for compact vehicles as well as full-size passenger automobiles, and that Tenant
shall not use parking spaces for vehicles larger than the striped size of the
parking spaces. All vehicles utilizing Tenant's parking privileges shall
prominently display identification stickers or other markers, and/or have passes
or keycards for ingress and egress, as may be required and provided by Landlord
or its parking operator from time to time. Tenant shall comply with any and all
reasonable, non discriminatory parking rules and regulations from time to time
established by Landlord or Landlord's parking operator, including a requirement
that Tenant pay to Landlord or Landlord's parking operator a charge for loss and
replacement of passes, keycards, identification stickers or markers, and for any
and all loss or other damage caused by persons or vehicles related to use of
Tenant's parking privileges. Tenant shall not allow any vehicles using Tenant's
parking privileges to be parked, loaded or unloaded except in accordance with
this Section, including in the areas and in the manner designated by Landlord or
its parking operator for such activities. If any vehicle is using the parking or
loading areas contrary to any provision of this Section, Landlord or its parking
operator shall have the right, in addition to all other rights and remedies of
Landlord under this Lease, to remove or tow away the vehicle without prior
notice to Tenant, and the cost thereof shall be paid to Landlord within ten (10)
days after notice from Landlord to Tenant.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the first office specified in Section
1.01(2), or to such other persons, or at such other places designated by
Landlord, without any prior demand therefor in immediately available funds and
without any deduction or offset whatsoever, except as otherwise provided herein,
Rent, including Monthly Base Rent and Rent Adjustments in accordance with
Article Four, during the Term, except that the first installment of Monthly Base
rent due shall be paid by Tenant to landlord within five (5) business days of
execution of this Lease. Monthly Base Rent shall be paid monthly in advance on
the first day of each month of the Term. Monthly Base Rent shall be prorated for
partial months within the Term.
ARTICLE FOUR
RENT ADJUSTMENTS AND PAYMENTS
4.01 RENT ADJUSTMENTS
Commencing on the first day of the thirteenth month of the Lease Term, Tenant
shall pay to Landlord Rent Adjustments with respect to each Adjustment Year as
follows:
(i) The Rent Adjustment Deposit representing Tenant's Share of Operating
Expenses for the applicable Adjustment Year in excess of Operating Expenses for
the Operating Expenses Base Year, monthly during the Term with the payment of
Monthly Base Rent; and
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(ii) The Rent Adjustment Deposit representing Tenant's Share of Taxes for
the applicable Adjustment Year in excess of Taxes for the Taxes Base Year,
monthly during the Term with the payment of Monthly Base Rent; and
(iii) Any Rent Adjustments due in excess of the Rent Adjustment Deposits
in accordance with Section 4.02. Rent Adjustments due from Tenant to Landlord
for any Adjustment Year shall be Tenant's Share of Operating Expenses for such
year in excess of Operating Expenses for the Operating Expenses Base Year and
Tenant's Share of Taxes for such year in excess of Taxes for the Taxes Base
Year.
4.02 STATEMENT OF LANDLORD
As soon as feasible after the expiration of the Operating Expenses Base Year and
the Taxes Base Year, and each Adjustment Year thereafter, Landlord will furnish
Tenant a statement ("Landlord's Statement") showing the following with
reasonable breakdown and detail:
(i) Operating Expenses and Taxes for the Operating Expenses Base Year
and Taxes Base Year and thereafter for the last Adjustment Year;
(ii) The amount of Rent Adjustments due Landlord for the last Adjustment
Year, less credit for Rent Adjustment Deposits paid, if any; and
(iii) Any change in the Rent Adjustment Deposit due monthly in the current
Adjustment Year, including the amount or revised amount due for months preceding
any such change pursuant to Landlord's Statement.
Tenant shall pay to Landlord within thirty (30) days after receipt of such
statement any amounts for Rent Adjustments then due in accordance with
Landlord's Statement. Any amounts due from Landlord to Tenant pursuant to this
Section shall be credited to the Rent Adjustment Deposit next coming due, or
refunded to Tenant if the Term has already expired provided Tenant is not in
default hereunder. In the event that Landlord does not pay within the timeframes
established in this Lease, interest shall accrue at the Default Rate on any
amounts that Landlord is obligated to pay, credit or refund to Tenant by reason
of this Section 4.02 or any other provision of this Lease. Landlord will deliver
Landlord's Statement on or before April 1 of each applicable year. Landlord
shall have the right to adjust said Statement after submission to Tenant only
for cost items which it reasonably could not have known accurately at the time
of the Statement's original submission. Such a restatement shall not constitute
a waiver or release of Tenant's obligations to pay such amounts. The Rent
Adjustment Deposit shall be credited against Rent Adjustments due for the
applicable Adjustment Year. During the last complete calendar year or during any
partial calendar year in which the Lease terminates, Landlord may include in the
Rent Adjustment Deposit its estimate of Rent Adjustments which may not be
finally determined until after the termination of this Lease. Tenant's
obligation to pay Rent Adjustments survives the expiration or termination of the
Lease. Notwithstanding the foregoing, in no event shall the sum of Monthly Base
Rent and the Rent Adjustments be less than the Monthly Base Rent payable.
4.03 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses and Taxes
in accordance with generally accepted accounting principles, consistently
applied. The Tenant or its representative (which representative shall be a
certified public accountant licensed to do business in the state in which the
Property is located and whose primary business is certified public accounting)
shall have the right, for a period of sixty (60) days following the date upon
which Landlord's Statement is delivered to Tenant, to examine the Landlord's
books and records with respect to the items in the foregoing statement of
Operating Expenses and Taxes during normal business hours, upon written notice,
delivered at least three (3) business days in advance. If Tenant does not object
in writing to Landlord's Statement within thirty (30) days after
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the above-mentioned (60)-day review period, specifying the nature of the item in
dispute and the reasons therefor, then Landlord's Statement shall be considered
final and accepted by Tenant. Any amount due to the Landlord as shown on
Landlord's Statement, whether or not disputed by Tenant as provided herein,
shall be paid by Tenant when due as provided above. If Tenant has objected to
the validity of Landlord's Statement per the above, Landlord agrees, upon
Tenant's written request, to hold Tenant's payment in interest-bearing escrow
pending resolution of the dispute. If Landlord restates its Statement as
described in 4.02 above, Tenant shall have a like amount of time as outlined
above to review Landlord's books and records following the receipt of the
restatement.
4.04 PARTIAL OCCUPANCY
For purposes of determining Rent Adjustments, if the Building is not fully
occupied during all or a portion of any year during the Term (including the Base
Year), Landlord shall make appropriate adjustments to the Operating Expenses for
such year employing sound accounting and management principles consistently
applied, to determine the amount of Operating Expenses that would have been paid
or incurred by Landlord had the Building been fully occupied, and the amount so
determined shall be deemed to have been the amount of Operating Expenses for
such year. In the event that the Real Property is not fully assessed for all or
a portion of any year (including the Base Year) during the Term, then Taxes
shall be adjusted to an amount which would have been payable in such year if the
Real Property had been fully assessed. In the event any other tenant in the
Building provides itself with a service of a type which Landlord would supply
under the Lease without an additional or separate charge to Tenant, then
Operating Expenses shall be deemed to include the cost Landlord would have
incurred had Landlord provided such service to such other tenant.
4.05 TENANT OR LEASE SPECIFIC TAXES
In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and
other charges to be paid by Tenant, Tenant shall pay to Landlord, upon demand,
any and all taxes payable by Landlord (other than federal or state inheritance,
general income, gift or estate taxes) whether or not now customary or within the
contemplation of the parties hereto: (a) upon, allocable to, or measured by the
Rent payable hereunder, including any gross receipts tax or excise tax levied by
any governmental or taxing body with respect to the receipt of such rent; or (b)
upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (c) upon the measured value of Tenant's personal
property located in the Premises or in any storeroom or any other place in the
Premises or the Property, or the areas used in connection with the operation of
the Property, it being the intention of Landlord and Tenant that, to the extent
possible, such personal property taxes shall be billed to and paid directly by
Tenant; (d) resulting from Tenant Work or Tenant Alterations to the Premises,
whether title thereto is in Landlord or Tenant; or (e) upon this transaction.
Taxes paid by Tenant pursuant to this Section 4.05 shall not be included in any
computation of Taxes payable pursuant to Sections 4.01 and 4.02.
ARTICLE FIVE
SECURITY DEPOSIT
Tenant concurrently with the execution of this Lease shall pay to Landlord in
immediately available funds (or approved letter of credit, as described in
Section 1.01(10) hereof) the Security Deposit. The Security Deposit may be
applied by Landlord to cure, in whole or part, any default of Tenant under this
Lease, and upon notice by Landlord of such application, Tenant shall replenish
the Security Deposit in full by paying to Landlord within ten (10) days of
demand the amount so applied. Landlord's application of the Security Deposit
shall not constitute a waiver of Tenant's default to the extent that the
Security Deposit does not fully compensate Landlord for all losses, damages,
costs and expenses incurred by Landlord in connection with such default and
shall not prejudice any other rights or remedies available to Landlord under
this Lease or by Law. Landlord shall not pay any interest on the Security
Deposit. Landlord shall not be required to keep
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the Security Deposit separate from its general accounts. The Security Deposit
shall not be deemed an advance payment of Rent or a measure of damages for any
default by Tenant under this Lease, nor shall it be a bar or defense of any
action that Landlord may at any time commence against Tenant. In the absence of
evidence satisfactory to Landlord of an assignment of the right to receive the
Security Deposit or the remaining balance thereof, Landlord may return the
Security Deposit to the original Tenant, regardless of one or more assignments
of this Lease. Upon the transfer of Landlord's interest under this Lease,
Landlord's obligation to Tenant with respect to the Security Deposit shall
terminate upon transfer to the transferee of the Security Deposit, or any
balance thereof, provided that such transferee assumes for Tenant's benefit in
an agreement reasonably acceptable to Tenant, all of Landlord's obligations
under this Lease, including with regard to the Security Deposit. If Tenant shall
fully and faithfully comply with all the terms, provisions, covenants, and
conditions of this Lease, the Security Deposit, or any balance thereof, shall be
returned to Tenant within thirty (30) days after Landlord recovers possession of
the Premises or such longer time as may be permissible under Law.
ARTICLE SIX
SERVICES
6.01 LANDLORD'S GENERAL SERVICES
(a) Landlord shall furnish the following services:
(1) heat, ventilation and air-conditioning ("HVAC") in the Premises
during Standard Operating Hours as necessary for the comfortable occupancy of
the Premises under normal business office operations, subject to compliance with
all applicable mandatory regulations and Laws;
(2) tempered and cold water for use in lavatories in common with
other tenants from the regular supply of the Building;
(3) customary cleaning and janitorial services in the Premises five
(5) days per week, excluding National Holidays;
(4) washing of the outside windows in the Premises weather
permitting at reasonable intervals determined by Landlord; and
(5) automatic passenger and swing/freight elevator service in common
with other tenants of the Building. Freight elevator service will be subject to
reasonable scheduling by Landlord.
(b) If Tenant uses heat generating machines or equipment in the Premises
to an extent which adversely affects the temperature otherwise maintained by the
air-cooling system or whenever the occupancy or electrical load adversely
affects the temperature otherwise maintained by the air-cooling system, Landlord
reserves the right to install or to require Tenant to install supplementary air-
conditioning units in the Premises. Tenant shall bear all reasonable costs and
expenses related to the installation, maintenance and operation of such units.
6.02 ELECTRICAL SERVICES
(a) Landlord shall furnish to the Premises Tenant's pro-rata share of the
Building's available electric current (which, for purposes of this Lease shall
be deemed to be seven (7) watts per usable square foot of the Premises, on a
diversified usage basis) for general business office use, including normal
lighting, normal business office machines and customary janitorial service.
Notwithstanding any provision of the Lease to the contrary, without, in each
instance, the prior written approval of Landlord, in Landlord's prudent business
judgment, Tenant shall not make any alterations or additions to the electric
equipment or systems. Tenant's use of electric current shall at no time exceed
the capacity of the wiring, feeders and risers
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providing electric current to the Premises or the Building. The consent of
Landlord to the installation of electric equipment shall not relieve Tenant from
the obligation to limit usage of electricity to no more than such capacity.
(b) If and to the extent electric current is furnished to the Premises in
excess of the amount of electric current required to be provided by Landlord as
described in Section 6.02(a), Tenant shall pay Landlord upon notice from
Landlord the actual cost of such excess electric current, as additional Rent.
The cost of such excess use and all additional costs separately billed to Tenant
pursuant to this Section shall not be included as part of Operating Expenses. At
any time and from time to time, Landlord may in its sole discretion either (i)
install one or more meters to measure electric current furnished to the Premises
or (ii) reasonably estimate electric current furnished to the Premises. Upon
notice from Landlord, Tenant shall pay Landlord the actual cost of installing
and maintaining all such meters and of any electrical engineering or consulting
firm, if Landlord retains such firm to estimate the electric current furnished
to the Premises in lieu of installation of a meter. Tenant shall pay Landlord
for such excess electric current at the then current, actual rates charged to
Landlord for such electricity provided to the Property by the utility provider
chosen by Landlord plus any additional actual cost of Landlord in keeping
account of the electric current so consumed. Landlord's notice shall specify
whether such excess use shall be payable (i) in advance as reasonably estimated
by Landlord in monthly installments at the time prescribed for monthly
installments of Monthly Base Rent or (ii) within thirty (30) days after notice
from Landlord given from time to time of the amount due for prior excess use as
metered or reasonably estimated by Landlord.
(c) Landlord shall furnish to the Premises replacement lamps, bulbs,
ballasts and starters used in any normal Building lighting installed in the
Premises, except that if the replacement or repair of such items is a result of
negligence of Tenant, its employees, agents, servants, licensees, subtenants,
contractors or invitees, such cost shall be paid by Tenant within thirty (30)
days after notice from Landlord and shall not be included as part of Operating
Expenses.
6.03 ADDITIONAL AND AFTER-HOUR SERVICES
At Tenant's written request, Landlord shall furnish additional quantities of any
of the services or utilities specified in Section 6.01, if Landlord can
reasonably do so, on the terms set forth herein. For services or utilities
requested by Tenant and furnished by Landlord, Tenant shall pay to Landlord as a
charge therefor Landlord's then current, actual cost thereof from time to time
for such services and utilities. Without limiting the generality of the
foregoing, for HVAC service beyond Standard Operating Hours, Landlord's
prevailing rate as of the date of this Lease includes a one (1) hour minimum per
activation. If Tenant shall fail to make any such payment within thirty (30)
days Landlord may, upon notice to Tenant and in addition to Landlord's other
remedies under this Lease, discontinue any or all of such additional services.
6.04 TELEPHONE SERVICES
All telegraph, telephone, and communication connections which Tenant may desire
shall be subject to Landlord's prior written approval, in Landlord's reasonable
discretion, and the location of all wires and the work in connection therewith
shall be performed by contractors reasonably approved by Landlord and shall be
subject to the direction of Landlord, except that such approval is not required
as to Tenant's telephone equipment (including cabling) within the Premises and
from the Premises in a route designated by Landlord to any telephone cabinet or
panel provided (as existing or as installed as part of Landlord's Work, if any)
on Tenant's floor for Tenant's connection to the telephone cable serving the
Building so long as Tenant's equipment does not require connections different
than or additional to those to the telephone cabinet or panel provided. Tenant
shall be responsible for and shall pay all costs incurred in connection with the
installation of its telephone cables and communication wiring in the Premises,
including any hook-up, access and maintenance fees related to the installation
of such wires and cables in the Premises and the commencement of service
therein, and the maintenance thereafter of such wire and cables; and there shall
be included in Operating Expenses for the Building all installation, removal,
hook up or maintenance costs
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incurred by Landlord in connection with telephone cables and communication
wiring serving the Building which are not allocable to any individual users of
such service but are allocable to the Building generally. If Tenant fails to
maintain all of its telephone cables and communication wiring in the Premises
and such failure affects or interferes with the operation or maintenance of any
other telephone cables or communication wiring serving the Building, Landlord or
any vendor hired by Landlord may enter into and upon the Premises forthwith and
perform such repairs, restorations or alterations as Landlord deems necessary in
order to eliminate any such interference (an Landlord may recover from Tenant
all of Landlord's costs in connection therewith). If required by Landlord, no
later than the Termination Date Tenant shall remove all telephone cables and
communication wiring installed by Tenant for and during Tenant's occupancy.
Tenant agrees that neither Landlord nor any of its agents or employees shall be
liable to Tenant, or any of Tenant's employees, agents, customers or invitees or
anyone claiming through, by or under Tenant, for any damages, injuries, losses,
expenses, claims or causes of action because of any interruption, diminution,
delay or discontinuance at any time for any reason in the furnishing of any
telephone or other communication service to the Premises and the Building except
to the extent caused by the grossly negligent acts of Landlord, its contractors,
agents or employees.
Landlord agrees to use reasonable efforts to utilize Tenant as a provider for
DSL internet services for any internet connections Landlord requires for its own
personal use in the Building. Such agreement shall be subject to Tenant's
ability to provide adequate services and to charge a market rate therefore.
6.05 DELAYS IN FURNISHING SERVICES
Except to the extent caused by the grossly negligent or intentional acts of
Landlord, its contractors, agents or employees, Tenant agrees that Landlord
shall not be in breach of this Lease nor be liable to Tenant for damages or
otherwise, for any failure to furnish, or a delay in furnishing, or a change in
the quantity or character of any service when such failure, delay or change is
occasioned, in whole or in part, by repairs, improvements or mechanical
breakdowns by the act or default of Tenant or other parties or by an event of
Force Majeure. No such failure, delay or change shall be deemed to be an
eviction or disturbance of Tenant's use and possession of the Premises, or
relieve Tenant from paying Rent or from performing any other obligations of
Tenant under this Lease, without any deduction or offset, except as specifically
specified in the next sentences. In the event of a disruption of any services
required to be provided to Tenant under this Lease, which disruption can
reasonably be shown to materially impair or interfere with Tenant carrying on
its business in any part of the Premises, Landlord shall provide a day-for-day
abatement of Rent in proportion to the portion of Tenant's Premises which is
reasonably unsuitable for conduct of Tenant's business as a direct result of
such disruption. Such abatement shall require Tenant to first give Landlord
written notice of the problem and demand to reasonably remedy same, and the
abatement shall commence only after three (3) business days after such Tenant
notice to Landlord and Landlord's failure to remedy within the three business
day period. Except to the extent caused by the gross negligence or intentional
acts of Landlord, its contractors, agents or employees, failure to any extent to
make available, or any slowdown, stoppage, or interruption of, the specified
utility services resulting from any cause, including changes in service provider
or Landlord's compliance with any mandatory governmental requirements now or
hereafter published or any requirements now r hereafter established by any
governmental agency, board, or bureau having jurisdiction over the operation of
the Property shall not render Landlord liable in any respect for damages to
either persons, property, or business, nor be construed as an eviction of Tenant
or work an abatement of Rent, nor relieve Tenant of Tenant's obligations for
fulfillment of any covenant or agreement hereof, and except as otherwise
provided herein. Should any equipment or machinery furnished by Landlord break
down or for any cause cease to function properly, Landlord shall use reasonable
diligence to repair same promptly.
6.06 CHOICE OF SERVICE PROVIDER
Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent
permitted by applicable law, elect to change, from time to time, the company or
companies which provide services (including
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electrical service, gas service, water, telephone and technical services) to the
Building, the Premises and/or its occupants. Notwithstanding anything to the
contrary set forth in this Lease, Tenant acknowledges that Landlord has not and
does not make any representations or warranties concerning the identity or
identifies of the company or companies which provide services to the Building
and the Premises or its occupants and Tenant acknowledges that the choice of
service providers and matters concerning the engagement and termination thereof
shall be solely that of Landlord. The foregoing provision is not intended to
modify, amend, change or otherwise derogate any provision of this Lease
concerning the nature or type of service to be provided or any specific
information concerning the amount thereof to be provided. Tenant agrees to
reasonably cooperate with Landlord and each of its service providers in
connection with any change in service or provider, provided that Landlord shall
effect any such change at no unreasonable cost or expense to Tenant.
6.07 SIGNAGE
Initial Building standard signage will be installed by Landlord in the directory
in the main lobby of the Building, in the listing of tenants in the elevator
lobby for the floor on which the Premises is located and at Tenant's main entry
door to the Premises at Tenant's sole cost and expense except to the extent that
funds are available out of any Landlord's Maximum Contribution, if any, provided
pursuant to the Workletter. In addition, Tenant will have the right, at its sole
cost and expense, to install non-exclusive signage on a common monument in the
main courtyard of the Building. Tenant must submit the design of the proposed
monument signage to Landlord's for its approval, which may be given or withheld
in the good faith exercise of Landlord's discretion. Any change in such initial
signage shall be only with Landlord's prior written consent, shall conform to
Building standard signage and shall be at Tenant's sole cost and expense.
Any time in which Tenant personally occupies the entirety of the Building's 5th
floor, it shall have the right to install signage in the 5th floor elevator
lobby, subject to Landlord's reasonable approval of the design thereof. At any
time that Tenant personally occupies over 50% of the rentable square footage of
the Building, Tenant shall also have the right to install non-exclusive signage
on the west exterior face of the Building. The size, specific location and
design of such signage shall be subject to Landlord's reasonable approval.
Notwithstanding the forgoing, if at any time during Ask Jeeves' lease term Ask
Jeeves forfeits its right to exterior signage pursuant to its lease, Tenant
shall be given the same rights for exterior signage that Ask Jeeves has been
given as of the date of this Lease.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall be entitled to possession of the Premises upon execution
of this Lease. Tenant acknowledges that Landlord may be completing final
punchlist and clean-up work on the Premises during the month of June, 1999, but
if such work materially impedes Tenant from reasonable conduct of its Tenant
Improvement Work, the period of such delay shall constitute a Landlord Delay.
Tenant shall occupy and use the Premises only for the uses specified in Section
1.01(14) to conduct Tenant's business. Tenant shall not occupy or use the
Premises (or permit the use or occupancy of the Premises) for any purpose or in
any manner which: (1) is unlawful or in violation of any Law or Environmental
Law; (2) may be dangerous to persons or property or which may increase the cost
of, or invalidate, any policy of insurance carried on the Building or covering
its operations; (3) is contrary to or prohibited by the terms and conditions of
this Lease or the rules of the Building set forth in Article Eighteen; or (4)
would tend to create or continue a nuisance.
(b) Tenant shall comply with all Environmental Laws pertaining to Tenant's
occupancy and use of the Premises and concerning the proper storage, handling
and disposal of any Hazardous Material introduced to the Premises, the Building
or the Property by Tenant or its employees, servants, agents, contractors,
customers or invitees. Landlord shall comply with all Environmental Laws
applicable to the
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Property other than those to be complied with by Tenant pursuant to the
preceding sentence. Tenant shall not generate, store, handle or dispose of any
Hazardous Material in, on, or about the Property without the prior written
consent of Landlord, which may be withheld in Landlord's sole discretion, except
that such consent shall not be required to the extent of Hazardous Material
contained in office products for use in general business offices in quantities
for ordinary day-to-day use or Hazardous Materials necessary for the operation
and maintenance of the generator provided such use does not give rise to an
unreasonable risk of release of Hazardous Material. In the event that Tenant is
notified of any investigation or violation of any Environmental Law arising from
Tenant's activities at the Premises, Tenant shall immediately deliver to
Landlord a copy of such notice. In such event or in the event Landlord
reasonably believes that a violation of Environmental Law for which Tenant is
responsible exists, Landlord may conduct such tests and studies relating to
compliance by Tenant with Environmental Laws or the alleged presence of
Hazardous Materials upon the Premises as Landlord deems reasonably necessary,
all of which shall be completed at Tenant's expense. Landlord's inspection and
testing rights are for Landlord's own protection only, and Landlord has not, and
shall not be deemed to have assumed any responsibility to Tenant or any other
party for compliance with Environmental Laws, as a result of the exercise, or
non-exercise of such rights. Tenant hereby indemnifies, and agrees to defend,
protect and hold harmless, the Landlord Indemnitees from any and all loss,
claim, demand, action, expense, liability and cost (including attorneys' fees
and expenses) arising out of or in any way related to the presence of any
Hazardous Material introduced to the Premises during the Lease Term by Tenant,
its agents, contractors or employees. If any Hazardous material is released,
discharged, or disposed of on or about the Property and such release, discharge
or disposal is not caused by Tenant or other occupants of the Premises, or their
employees, servants, agents contractors, customers or invitees, such release,
discharge or disposal shall be deemed casualty damage under Article Fourteen to
the extent the Premises are affected thereby; in such case, Landlord and Tenant
shall have the obligations and rights respecting such casualty damage provided
under such Article. In case of any action or proceeding brought against the
Landlord Indemnitees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such action or proceeding by counsel chosen by
Landlord, in Landlord's reasonable discretion.
Landlord represents and warrants to Tenant that there are no Hazardous
Materials in, on, under, about, or migrating from or to the Premises, Building
or the Property that would unreasonably impair, restrict or prevent Tenant's use
and quiet enjoyment of the Premises, Building or Project, and that neither the
Property nor the Landlord nor, to the best knowledge of the Landlord, any of
Landlord's tenants are in violation of or subject to any existing, pending, or
threatened investigation by any governmental authority under any applicable
Environmental Law or under any other Law pertaining to air or water quality, the
handling, transportation, storage, treatment, usage, presence, disposal or
release of Hazardous Materials, air emissions, other environmental matters, or
any zoning or other land use matters. If any Hazardous Material is present in
the Premises, the Building or the Project for any reason other than the acts of
Tenant and Tenant's agents, employees and contractors, then Landlord shall
indemnify, defend, protect and hold the Tenant Indemnitees harmless from any and
all claims, judgments, damages, penalties, fines, costs, liabilities or losses
arise at any time, including after the expiration of the lease term, in
connection with or arising out of the presence of such Hazardous Material. This
indemnification of Tenant Indemnitees by Landlord includes, without limitation,
costs incurred in connection with any investigation of site conditions or any
clean-up, remedial, removal or restoration work required by any federal, state
or local governmental agency or political subdivision because of Hazardous
Material present in the Premises, the Building or the Project. Without limiting
the foregoing, if for any reason other than the acts of Tenant and Tenant's
agents, employees and contractors, Hazardous Material is present in the
Premises, the Building or the Project and such violates applicable laws,
Landlord shall promptly take all actions at its sole expense as are necessary to
remove or remediate such Hazardous Material to comply with all applicable laws
and restore the Premises, Building and Project to the condition existing prior
to the removal of any such Hazardous Material; provided that with respect to the
Premises Tenant's approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld
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(c) Landlord and Tenant acknowledge that the Americans With Disabilities
Act of 1990 (42 U.S.C. Section 12101 et seq.) and regulations and guidelines
promulgated thereunder, as all of the same may be amended and supplemented from
time to time (collectively referred to herein as the "ADA") establish
requirements for business operations, accessibility and barrier removal, and
that such requirements may or may not apply to the Premises, the Building and
the Project depending on, among other things: (1) whether Tenant's business is
deemed a "public accommodation" or "commercial facility", (2) whether such
requirements are "readily achievable", and (3) whether a given alteration
affects a "primary function area" or triggers "path of travel" requirements. The
parties hereby agree that: (a) Landlord shall be responsible for ADA Title III
compliance in the Common Areas, except as provided below, (b) Tenant shall be
responsible for ADA Title III compliance in the Premises, including any
leasehold improvements or other work to be performed in the Premises under or in
connection with this Lease, to the extent required solely due to Tenant's
particular use of the Premises, if any, for other than general office purposes,
and (c) Landlord may perform, or require that Tenant perform, and Tenant shall
be responsible for the cost of, ADA Title III "path of travel" requirements
triggered by Tenant Alterations in the Premises (but not any compliance
triggered by the initial improvements constructed in accordance with the Work
Letter). Landlord represents and warrants to Tenant that as of the date hereof
and as of the Commencement Date the Project does and shall comply with all Laws,
including, without limitation, the ADA.
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes, ducts,
wiring and conduits in and through the Premises, so long as Tenant's use, layout
or design of the Premises is not materially affected or altered. Landlord or
Landlord's agents shall have the right to enter upon the Premises in the event
of an emergency, or to inspect the Premises, to perform janitorial and other
services, to conduct safety and other testing in the Premises and to make such
repairs, alterations, improvements or additions to the Premises or the Building
or other parts of the Property as Landlord may deem necessary or desirable
(including all alterations, improvements and additions in connection with a
change in service provider or providers). Janitorial and cleaning services shall
be performed after normal business hours. Any entry or work by Landlord may be
during normal business hours and Landlord may use reasonable efforts to ensure
that any entry or work shall not materially interfere with Tenant's occupancy of
the Premises.
(b) If Tenant shall not be personally present to permit an entry into the
Premises when for any reason an entry therein shall be necessary or permissible,
Landlord (or Landlord's agents), after attempting to notify Tenant (unless
Landlord believes an emergency situation exists), may enter the Premises without
rendering Landlord or its agents liable therefor, and without relieving Tenant
of any obligations under this Lease.
(c) Landlord may enter the Premises for the purpose of conducting such
reasonable inspections, tests and studies as Landlord may deem desirable or
necessary to confirm Tenant's compliance with all Laws and Environmental Laws or
for other purposes necessary in Landlord's reasonable judgment to ensure the
sound condition of the Property and the systems serving the Property. Landlord's
rights under this Section 7.02(c) are for Landlord's own protection only, and
Landlord has not, and shall not be deemed to have assumed, any responsibility to
Tenant or any other party as a result of the exercise or non-exercise of such
rights, for compliance with Laws or Environmental Laws or for the accuracy or
sufficiency of any item or the quality or suitability of any item for its
intended use.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs without such action
constituting an actual or constructive eviction of Tenant, in whole or in part,
or giving rise to an abatement of Rent by reason of loss or interruption of
business of the Tenant, or otherwise. Notwithstanding anything to the contrary
in this Lease, no changes, revisions, additions to, subtractions from,
rearrangements of, alterations, modifications, or supplements of or to,
walkways, driveways, parking areas, common areas, vertical or horizontal
transportation systems or rentable floor area may be made if they would (a)
materially change the size or location of the Premises, (b)
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adversely affect access to the Premises, or (c) materially reduce the ratio of
parking spaces to usable square feet below the ratio specified in Section
1.01(15). In addition, notwithstanding anything to the contrary herein, in the
event that Landlord needs to enter the Premises for the purposes of repairing
any item that Landlord is obligated or entitled to repair or for any other
purpose, then Landlord is required to provide Tenant with reasonable advance
notice (except in the case of an emergency in which event only oral notice shall
be required) of Landlord's intention to enter the Premises for the purpose of
performing such repairs. In performing any such repairs, Landlord shall use
reasonable efforts to minimize interference with Tenant's business and to
exercise such rights during non-business hours.
(e) The review, approval or consent of Landlord with respect to any item
required or permitted under this Lease is for Landlord's own protection only,
and Landlord has not, and shall not be deemed to have assumed, any
responsibility to Tenant or any other party, as a result of the exercise or non-
exercise of such rights, for compliance with Laws or Environmental Laws or for
the accuracy or sufficiency of any item or the quality or suitability of any
item for its intended Use.
(f) Landlord acknowledges that Tenant will have one or more secure rooms
in which no janitorial service will be provided by Landlord and which will only
be accessible by Landlord in emergency situations or with specific advance
approval by Tenant, which approval shall not be reasonably withheld or delayed.
(g) Landlord agrees to make reasonable efforts to give advance notice of
the timing of fire drills and to reasonably attempt to coordinate the timing of
fire drills with Tenant at mutually convenient times.
(h) Landlord will make reasonable efforts to provide advance notice (at
least one full business day) to Tenant when it requires non-emergency access to
the Premises.
7.03 QUIET ENJOYMENT
Landlord covenants, in lieu of any implied covenant of quiet possession or quiet
enjoyment, that so long as Tenant is in compliance with the covenants and
conditions set forth in this Lease, Tenant shall have the right to quiet
enjoyment of the Premises without hindrance or interference from Landlord or
those claiming through Landlord, and subject to the covenants and conditions set
forth in the Lease.
ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
Subject to the provisions of Articles Four and Fourteen, Landlord shall maintain
and make necessary repairs to the foundations, roofs, exterior walls, and the
structural elements of the Building, the electrical, plumbing, heating,
ventilating, air-conditioning, mechanical, communication, Security and the fire
and life safety systems of the Building and those corridors, washrooms and
lobbies which are Common Areas of the Building, except that: (a) Landlord shall
not be responsible for the maintenance or repair of any floor or wall coverings
in the Premises, and (b) the cost of performing any of said maintenance or
repairs whether to the Premises or to the Building caused by the gross
negligence of Tenant, its employees, agents, servants, licensees, subtenants,
contractors or invitees, shall be paid by Tenant, subject to the waivers set
forth in Section 16.04.
8.02 TENANT'S MAINTENANCE
Subject to the provisions of Article Fourteen, and provided that Tenant shall
not be responsible for the cost of performing any maintenance or repairs,
whether to the Premises or to the Building, caused by the gross negligence of
Landlord, its employees, agents, servants, licensees, subtenants, contractors or
invitees (all of
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which shall be at Landlord's sole cost), Tenant, at its expense, shall keep and
maintain the interior, non-structural portions of the Premises and all Tenant
Additions in good order, condition and repair subject to ordinary wear and tear,
damage due to casualty and condemnation. Tenant shall not permit waste and shall
promptly and adequately repair all damages to the Premises and replace or repair
all damaged or broken glass in the interior of the Premises, fixtures or
appurtenances. Any repairs or maintenance shall be completed with materials of
good quality. Any such repairs or maintenance shall be performed only by
contractors or mechanics approved by Landlord, which approval shall not be
unreasonably withheld, and whose work will not cause or threaten to cause
disharmony or interference with Landlord or other tenants in the Building and
their respective agents and contractors performing work in or about the
Building. If Tenant fails to perform any of its obligations set forth in this
Section 8.02, Landlord may, in its sole discretion following such notice and
cure period as specified in Section 11.01(ii), (except without notice in the
case of emergencies), perform the same, and Tenant shall pay to Landlord any
reasonable and actual costs or expenses incurred by Landlord within thirty (30)
days of demand.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT ALTERATIONS
(a) Except for completion of Tenant Work undertaken by Tenant pursuant to
the Workletter, the following provisions shall apply to the completion of any
Tenant Alterations:
(1) Tenant shall not, except as provided herein, without the prior
written consent of Landlord, which consent shall not be reasonably withheld,
make or cause to be made any Tenant Alterations in or to the Premises or any
Property systems serving the Premises. Prior to making any Tenant Alterations,
Tenant shall give Landlord ten (10) days prior written notice (or such earlier
notice as would be necessary pursuant to applicable Law) to permit Landlord
sufficient time to post appropriate notices of non-responsibility. Subject to
all other requirements of this Article Nine, Tenant may undertake Decoration
work without Landlord's prior written consent. Tenant shall furnish Landlord
with the names and addresses of all contractors and subcontractors. All Tenant
Alterations shall be completed only by contractors or mechanics approved by
Landlord, which approval shall not be unreasonably withheld, provided, however,
that Landlord may, in its sole discretion, specify the engineers and contractors
to perform all work relating to the Building's systems (including the
mechanical, heating, plumbing, security, ventilating, air-conditioning,
electrical, communication and the fire and life safety systems in the Building).
The contractors, mechanics and engineers who may be used are further limited to
those whose work will not cause or threaten to cause disharmony or interference
with Landlord or other tenants in the Building and their respective agents and
contractors performing work in or about the Building. Landlord may further
condition its consent upon Tenant furnishing to Landlord and Landlord approving
prior to the commencement of any work or delivery of materials to the Premises
related to the Tenant Alterations such of the following as specified by
Landlord: architectural plans and specifications for work requiring a building
permit, opinions from Landlord's engineers stating that the Tenant Alterations
will not adversely affect the Building's systems, necessary permits and
licenses, certificates of insurance and such other documents in such form as may
be reasonably requested by Landlord. Landlord may, in the exercise of reasonable
judgment, request that Tenant provide Landlord with appropriate evidence of
Tenant's ability to complete and pay for the completion of the Tenant
Alterations such as a performance bond or letter of credit. Upon completion of
the Tenant Alterations, Tenant shall deliver to Landlord an as-built mylar and
digitized (if available) set of plans and specifications for the Tenant
Alterations. Notwithstanding the foregoing, Tenant shall have the right, without
advance approval by Landlord, to make Alterations that cost less than $100,000
so long as such Alterations in no way involve the Building's structural,
mechanical, electrical or HVAC systems nor the existing layout of hard walls nor
require a permit within the Premises. Any such Alterations will require notice
to Landlord and shall be conducted pursuant to prudent construction practices,
and the Rules and Regulations established in this Lease.
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(2) Tenant shall pay the cost of all Tenant Alterations and the cost
of decorating the Premises and any work to the Property occasioned thereby. Upon
Landlord's request following completion of Tenant Alterations, Tenant shall
furnish Landlord with contractors' affidavits and full and final waivers of lien
and receipted bills covering all labor and materials expended and used in
connection therewith and such other documentation reasonably requested by
Landlord or Mortgagee.
(3) Tenant agrees to complete all Tenant Alterations (i) in
accordance with all Laws, Environmental Laws, all requirements of applicable
insurance companies and in accordance with Landlord's standard construction
rules and regulations, and (ii) in a good and workmanlike manner with the use of
good grades of materials. Tenant shall notify Landlord immediately if Tenant
receives any notice of violation of any Law in connection with completion of any
Tenant Alterations and shall immediately take such steps as are necessary to
remedy such violation. In no event shall such supervision or right to supervise
by Landlord nor shall any approvals given by Landlord under this Lease
constitute any warranty by Landlord to Tenant of the adequacy of the design,
workmanship or quality of such work or materials for Tenant's intended use or of
compliance with the requirements of Section 9.01(a)(3)(i) and (ii) above or
impose any liability upon Landlord in connection with the performance of such
work.
(b) All Tenant Alterations or Additions, whether installed by Landlord or
Tenant, shall without compensation or credit to Tenant, become part of the
Premises and the property of Landlord upon expiration of this Lease, and shall
remain in the Premises, unless pursuant to Article Twelve, Tenant may remove
them or is required to remove them at Landlord's request. At the time of
Landlord's approval of any Tenant Additions, Landlord agrees to specify which if
any components of the Alterations or Additions it will require Tenant to remove
upon the expiry of the Lease as described in Section 12.01 hereof and if
Landlord does not so specify, Tenant shall not be required to remove such
Alterations or Additions.
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or
supplier or any other lien to be filed against the Building, the Land, the
Premises, or any other part of the Property arising out of work performed, or
alleged to have been performed by, or at the direction of, or on behalf of
Tenant. If any such lien or claim for lien is filed, Tenant shall within ten
(10) days of receiving notice of such lien or claim (a) have such lien or claim
for lien released of record or (b) deliver to Landlord a bond in form, content,
amount, and issued by surety, reasonably satisfactory to Landlord, bonding
and/or removing from record title such lien or claim for lien and the
foreclosure or attempted foreclosure thereof. If Tenant fails to take any of the
above actions, Landlord, in addition to its rights and remedies under Article
Eleven, without investigating the validity of such lien or claim for lien, may
pay or discharge the same and Tenant shall, as payment of additional Rent
hereunder, reimburse Landlord upon demand for the amount so paid by Landlord,
including Landlord's expenses and attorneys' fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord, which consent shall not
be unreasonably withheld nor delayed, Tenant may not sublease, assign, mortgage,
pledge, hypothecate or otherwise transfer or permit the transfer of this Lease
or the encumbering of Tenant's interest therein in whole or in part, by
operation of Law or otherwise or permit the use or occupancy of the Premises, or
any part thereof, by anyone other than Tenant, provided, however, if Landlord
chooses not to recapture the space proposed to be subleased or assigned as
provided in Section 10.02, Landlord shall not unreasonably withhold its consent
to a subletting or assignment under this Section 10.01. Tenant agrees that the
provisions governing sublease and assignment set forth in this Article Ten shall
be deemed to be reasonable. If Tenant desires to enter into any sublease of the
Premises or assignment of this Lease, Tenant shall deliver written notice
thereof to
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Landlord ("Tenant's Notice"), together with the identity of the proposed
subtenant or assignee and the proposed principal terms thereof and, upon
Landlord's request, financial and other information sufficient for Landlord to
make an informed judgment with respect to such proposed subtenant or assignee at
least thirty (30) days prior to the commencement date of the term of the
proposed sublease or assignment. If Tenant proposes to sublease less than all of
the Rentable Area of the Premises, the space proposed to be sublet and the space
retained by Tenant must each be a marketable unit as reasonably determined by
Landlord and otherwise in compliance with all Laws. Landlord shall notify Tenant
in writing of its approval or disapproval of the proposed sublease or assignment
or its decision to exercise its rights under Section 10.02 within fifteen (15)
days after receipt of Tenant's Notice (and all required information.
(b) With respect to Landlord's consent to an assignment or sublease,
Landlord may take into consideration any factors that Landlord reasonably may
deem relevant, and the reasons for which Landlord's denial shall be deemed to be
reasonable shall include, without limitation, the following:
(i) the business reputation or creditworthiness of any proposed
subtenant or assignee is not acceptable to Landlord; or
(ii) in Landlord's reasonable judgment the proposed assignee or
sublessee would diminish the value or reputation of the Building or Landlord,
provided that assignees or subtenants of comparable reputation to tenants then
leasing space in the Project shall be deemed acceptable; or
(iii) any proposed assignee's or sublessee's use of the Premises
would violate Section 7.01 of the Lease or would violate the provisions of any
other leases of tenants in the Project; or
(iv) the proposed sublessee or assignee is a bona fide prospective
tenant of Landlord in the Project as demonstrated by a written proposal dated
within ninety (90) days prior to the date of Tenant's request; or
(v) the proposed sublessee or assignee would materially increase
the estimated pedestrian and vehicular traffic to and from the Premises and the
Building.
(c) Any sublease or assignment shall be expressly subject to the terms and
conditions of this Lease. Any subtenant or assignee shall execute such documents
as Landlord may reasonably require to evidence such subtenant or assignee's
assumption of the obligations and liabilities of Tenant under this Lease. Tenant
shall deliver to Landlord a copy of all agreements executed by Tenant and the
proposed subtenant and assignee with respect to the Premises. Landlord's
approval of a sublease, assignment, hypothecation, transfer or third party use
or occupancy shall not constitute a waiver of Tenant's obligation to obtain
Landlord's consent to further assignments or subleases, hypothecations,
transfers or third party use or occupancy.
(d) Notwithstanding the foregoing, and expressly subject to the provisions
of Section 10.04 with respect to the continuing liability of Tenant under this
Lease following an assignment or sublease, Tenant may sublet or assign this
Lease to an Affiliate without obtaining the prior written consent of Landlord
provided that in the event of an assignment of this Lease to an Affiliate, such
affiliate expressly assumes the obligations of Tenant under this Lease.
10.02 RECAPTURE
If Tenant proposes to sublease a portion of the Premises for all of the
remaining Term other than to an Affiliate, Landlord shall have the option to
exclude from the Premises covered by this Lease ("recapture") the space proposed
to be sublet effective as of the proposed commencement date of such sublease. If
Tenant proposes to assign this Lease other than to an Affiliate, Landlord shall
have the option to recapture the Premises effective as of the proposed
commencement date of the assignment. If Landlord elects to
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recapture, Tenant shall surrender possession of the space proposed to be
subleased or subject to the assignment to Landlord on the effective date of
recapture of such space from the Premises, such date being the Termination Date
for such space. Effective as of the date of recapture of any portion of the
Premises pursuant to this section, the Monthly Base Rent, Rentable Area of the
Premises and Tenant's Share shall be adjusted accordingly.
10.03 EXCESS RENT
Tenant shall pay Landlord on the first day of each month during the term of the
sublease or assignment, fifty percent (50%) of the amount by which the sum of
all rent and other consideration (direct or indirect) due from the subtenant or
assignee for such month exceeds: (i) that portion of the Monthly Base Rent and
Rent Adjustments due under this Lease for said month which is allocable to the
space sublet or assigned; and (ii) the following costs and expenses for the
subletting or assignment of such space: (1) brokerage commissions and attorneys'
fees and expenses, (2) the actual costs paid in making any improvements or
substitutions in the Premises required by any sublease or assignment; and (3)
"free rent" periods, costs of any inducements or concessions given to subtenant
or assignee, moving costs, and other amounts in respect of such subtenant's or
assignee's other leases or occupancy arrangements. All such costs and expenses
shall be amortized over the term of the sublease or assignment pursuant to sound
accounting principles.
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
past, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent such exercise is
expressly permitted by Landlord. Tenant's liability shall remain primary, and in
the event of default by any subtenant, assignee or successor of Tenant in
performance or observance of any of the covenants or conditions of this Lease,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said subtenant, assignee or successor. If Landlord grants
consent to such sublease or assignment, Tenant shall pay all reasonable
attorneys' fees and expenses (not to exceed $1,000 in any instance) incurred by
Landlord with respect to such assignment or sublease. In addition, if Tenant has
any options to extend the term of this Lease or to add other space to the
Premises, such options shall not be available to any subtenant or assignee
(other than an Affiliate), directly or indirectly without Landlord's express
written consent, which may be withheld in Landlord's sole discretion.
10.05 ASSUMPTION AND ATTORNMENT
If Tenant shall assign this Lease as permitted herein, the assignee shall
expressly assume all of the obligations of Tenant hereunder in a written
instrument reasonably satisfactory to Landlord and furnished to Landlord. If
Tenant shall sublease the Premises as permitted herein, Tenant shall, at
Landlord's option, within fifteen (15) days following any request by Landlord,
obtain and furnish to Landlord the written agreement of such subtenant to the
effect that the subtenant will upon default by Tenant and if so requested by
Landlord, attorn to Landlord.
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
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(i) Tenant fails to pay any installment or other payment of Rent
including Rent Adjustment Deposits or Rent Adjustments when due and fails to
cure such failure within five (5) business days after written notice of such
failure from Landlord;
(ii) Tenant fails to observe or perform any of the other covenants,
conditions or provisions of this Lease or the Workletter and fails to cure such
default within thirty (30) days after written notice thereof to Tenant, provided
that if the default reasonably requires more than thirty (30) days to cure,
Tenant shall not be in default if it commences such cure within such thirty (30)
day period and thereafter diligently proceeds to complete the cure;
(iii) the interest of Tenant in this Lease is levied upon under execution
or other legal process, and such levy is not discharged within ninety (90) days
thereafter;
(iv) a petition is filed by or against Tenant to declare Tenant bankrupt
or seeking a plan of reorganization or arrangement under any Chapter of the
Bankruptcy Act, or any amendment, replacement or substitution therefor, or to
delay payment of, reduce or modify Tenant's debts, which in the case of an
involuntary action is not discharged within ninety (90) days;
(v) any assignment of Tenant's property is made for the benefit of
creditors and such assignment is not discharged within ninety (90) days;
(vi) a receiver is appointed for Tenant or Tenant's property, which
appointment is not discharged within ninety (90) days; or
(vii) upon the dissolution of Tenant.
11.02 LANDLORD'S REMEDIES
(a) A Default shall constitute a breach of the Lease for which Landlord
shall have the rights and remedies set forth in this Section 11.02 and all other
rights and remedies set forth in this Lease or now or hereafter allowed by Law,
whether legal or equitable, and all rights and remedies of Landlord shall be
cumulative and none shall exclude any other right or remedy.
(b) With respect to a Default, at any time Landlord may terminate Tenant's
right to possession by written notice to Tenant stating such election. Any
written notice required pursuant to Section 11.01 shall constitute notice of
unlawful detainer pursuant to California Code of Civil Procedure Section 1161
if, at Landlord's sole discretion, it states Landlord's election that Tenant's
right to possession is terminated after expiration of any period required by Law
or any longer period required by Section 11.01. Upon the expiration of the
period stated in Landlord's written notice of termination (and unless such
notice provides an option to cure within such period and Tenant cures the
Default within such period), Tenant's right to possession shall terminate and
this Lease shall terminate, and Tenant shall remain liable as hereinafter
provided. Upon such termination in writing of Tenant's right to possession,
Landlord shall have the right, subject to applicable Law, to re-enter the
Premises and dispossess Tenant and the legal representatives of Tenant and all
other occupants of the Premises by unlawful detainer or other summary
proceedings, or otherwise as permitted by Law, regain possession of the Premises
and remove their property (including their trade fixtures, personal property and
those Tenant Additions which Tenant is required or permitted to remove under
Article Twelve), but Landlord shall not be obligated to effect such removal, and
such property may, at Landlord's option, be stored elsewhere, sold or otherwise
dealt with as permitted by Law, at the risk of, expense of and for the account
of Tenant, and the proceeds of any sale shall be applied pursuant to Law.
Landlord shall in no event be responsible for the value, preservation or
safekeeping of any such property. Tenant hereby waives all claims for damages
that may be caused by Landlord's removing or storing Tenant's personal property
pursuant to this Section or Section 12.01, and Tenant hereby indemnifies, and
agrees to defend, protect and hold harmless, the Indemnitees from any and all
loss, claims,
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demands, actions, expenses, liability and cost (including attorneys' fees and
expenses) arising out of or in any way related to such removal or storage. Upon
such written termination of Tenant's right to possession and this Lease,
Landlord shall have the right to recover damages for Tenant's Default as
provided herein or by Law, including the following damages provided by
California Civil Code Section 1951.2:
(1) the worth at the time of award of the unpaid Rent which had been
earned at the time of termination;
(2) the worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination until the time of award
exceeds the amount of such Rent loss that Tenant proves could reasonably have
been avoided;
(3) the worth at the time of award of the amount by which the unpaid
Rent for the balance of the term of this Lease after the time of award exceeds
the amount of such Rent loss that Tenant proves could be reasonably avoided; and
(4) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, without limitation, Landlord's unamortized costs of
tenant improvements, leasing commissions and legal fees incurred in connection
with entering into this Lease. The word "rent" as used in this Section 11.02
shall have the same meaning as the defined term Rent in this Lease. The "worth
at the time of award" of the amount referred to in clauses (1) and (2) above is
computed by allowing interest at the Default Rate. The worth at the time of
award of the amount referred to in clause (3) above is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent (1%). For the purpose of determining unpaid
Rent under clause (3) above, the monthly Rent reserved in this Lease shall be
deemed to be the sum of the Monthly Base Rent, monthly storage space rent, if
any, and the amounts last payable by Tenant as Rent Adjustments for the calendar
year in which Landlord terminated this Lease as provided hereinabove.
(c) Even if Tenant is in Default and/or has abandoned the Premises, this
Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession by written notice as provided in Section 11.02(b)
above, and Landlord may enforce all its rights and remedies under this Lease,
including the right to recover Rent as it becomes due under this Lease. In such
event, Landlord shall have all of the rights and remedies of a landlord under
California Civil Code Section 1951.4 (lessor may continue Lease in effect after
Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant
has the right to sublet or assign, subject only to reasonable limitations), or
any successor statute. During such time as Tenant is in Default, if Landlord has
not terminated this Lease by written notice and if Tenant requests Landlord's
consent to an assignment of this Lease or a sublease of the Premises, subject to
Landlord's option to recapture pursuant to Section 10.02, Landlord shall not
unreasonably withhold its consent to such assignment or sublease. Tenant
acknowledges and agrees that the provisions of Article Ten shall be deemed to
constitute reasonable limitations of Tenant's right to assign or sublet. Tenant
acknowledges and agrees that in the absence of written notice pursuant to
Section 11.02(b) above terminating Tenant's right to possession, no other act of
Landlord shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, including acts of maintenance
or preservation or efforts to relet the Premises or the appointment of a
receiver upon initiative of Landlord to protect Landlord's interest under this
Lease or the withholding of consent to a subletting or assignment, or
terminating a subletting or assignment, if in accordance with other provisions
of this Lease.
(d) The voluntary or other surrender or termination of this Lease, or a
mutual termination or cancellation thereof, shall not work a merger and shall
terminate all or any existing assignments, Subleases, sub tenancies or
occupancies permitted by Tenant, except if and as otherwise specified in writing
by Landlord.
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(e) No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant, and no exercise by Landlord of its rights
pursuant to Section 25.15 to perform any duty which Tenant fails timely to
perform, shall impair any right or remedy or be construed as a waiver. No
provision of this Lease shall be deemed waived by Landlord unless such waiver is
in writing signed by Landlord. The waiver by Landlord of any breach of any
provision of this Lease shall not be deemed a waiver of any subsequent breach of
the same or any other provision of this Lease.
11.03 ATTORNEY'S FEES
In the event any party brings any suit or other proceeding with respect to the
subject matter or enforcement of this Lease, the prevailing party (as determined
by the court, agency or other authority before which such suit or proceeding is
commenced) shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of investigation as
actually incurred, including court costs, expert witness fees, costs and
expenses of investigation, and all attorneys' fees, costs and expenses in any
such suit or proceeding (including in any action or participation in or in
connection with any case or proceeding under the Bankruptcy Code, 11 United
States Code Sections 101 et seq., or any successor statutes, in establishing or
enforcing the right to indemnification, in appellate proceedings, or in
connection with the enforcement or collection of any judgment obtained in any
such suit or proceeding).
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the Bankruptcy
Code where the trustee of Tenant elects to assume this Lease for the purposes of
assigning it, such election or assignment, may only be made upon compliance with
the provisions of (b) and (c) below, which conditions Landlord and Tenant
acknowledge to be commercially reasonable. In the event the trustee elects to
reject this Lease then Landlord shall immediately be entitled to possession of
the Premises without further obligation to Tenant or the trustee.
(b) Any election to assume this Lease under Chapter 11 or 13 of the
Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the
"Electing Party") must provide for:
The Electing Party to cure or provide to Landlord adequate assurance that
it will cure all monetary defaults under this Lease within fifteen (15) days
from the date of assumption and it will cure all nonmonetary defaults under this
Lease within thirty (30) days from the date of assumption. Landlord and Tenant
acknowledge such condition to be commercially reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign
Tenant's interest under this Lease to any other person, such interest may be
assigned only if the intended assignee has provided adequate assurance of future
performance (as herein defined), of all of the obligations imposed on Tenant
under this Lease.
For the purposes hereof, "adequate assurance of future performance" means
that Landlord has ascertained that each of the following conditions has been
satisfied:
(i) The assignee has submitted a current financial statement,
certified by its chief financial officer, which shows a net worth and working
capital in amounts sufficient to assure the future performance by the assignee
of Tenant's obligations under this Lease; and
(ii) Landlord has obtained consents or waivers from any third
parties that may be required under a lease, mortgage, financing arrangement, or
other agreement by which Landlord is bound, to enable Landlord to permit such
assignment.
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(d) Landlord's acceptance of rent or any other payment from any trustee,
receiver, assignee, person, or other entity will not be deemed to have waived,
or waive, the requirement of Landlord's consent, Landlord's right to terminate
this Lease for any transfer of Tenant's interest under this Lease without such
consent, or Landlord's claim for any amount of Rent due from Tenant.
11.05 LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and
pursued with reasonable diligence the cure of any failure of Landlord to meet
its obligations hereunder within thirty (30) days after the receipt by Landlord
of written notice from Tenant of the alleged failure to perform. In the event of
an emergency Tenant may immediately perform work that is Landlord's
responsibility, and notify the Landlord promptly after the work has been
undertaken, however Tenant shall not be able to seek reimbursement from Landlord
therefor except as specified in the next sentence. If Landlord fails to perform
(or commence to perform in those instances where compliance requires more time)
any of its obligations under this Lease and that failure continues for a period
of more than 30 days (or in the case of emergencies, one (1) business day) after
receipt of written notice from Tenant specifying that failure or in the event of
an emergency requiring immediate attention, Tenant may incur any reasonable
expense necessary to perform the obligation of Landlord specified in such notice
and may bill Landlord therefore (but not offset against Rent or other amounts
due to Landlord).
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good
condition, ordinary wear and tear, and damage caused by Landlord, casualty,
condemnation and latent defects excepted. Tenant shall deliver to Landlord all
keys to the Premises. Tenant shall remove from the Premises all movable personal
property of Tenant and Tenant's trade fixtures, including, subject to Section
6.04, cabling for any of the foregoing. Tenant shall be entitled to remove such
Tenant Additions, which at the time of their installation Landlord and Tenant
agreed may be removed by Tenant. Tenant shall also remove such other Tenant
Additions as required by Landlord, including any Tenant Additions containing
Hazardous Materials. Landlord agrees to notify Tenant within fifteen (15) days
of receipt of complete Construction Drawings for Tenant's initial Tenant
Improvement Work (as defined in the Workletter) what if any portion of that
Tenant Improvement Work Landlord will require Tenant to remove upon termination
of the Lease. Landlord agrees not to require Tenant to remove any Additions that
it did not specifically specify for removal at the time of its approval of such
Additions, as described in Section 9.01 hereof. Tenant immediately shall repair
all damage resulting from removal of any of Tenant's property, furnishings or
Tenant Additions. In the event possession of the Premises is not delivered to
Landlord when required hereunder, or if Tenant shall fail to remove those items
to the extent Tenant is required to as described above, Landlord may (but shall
not be obligated to), at Tenant's expense, remove any of such property and
store, sell or otherwise deal with such property as provided in Section
11.02(b), including the waiver and indemnity obligations provided in that
Section.
12.02 LANDLORD'S RIGHTS
All property which may be removed from the Premises by Landlord following
termination of this Lease and abandonment by Tenant shall be conclusively
presumed to have been abandoned by Tenant and Landlord may deal with such
property as provided in Section 11.02(b), including the waiver and indemnity
obligations provided in that Section.
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ARTICLE THIRTEEN
HOLDING OVER
In the event that Tenant holds over in possession of the Premises after the
Termination Date, Tenant shall pay Landlord 150% of the monthly Rent payable for
the month immediately preceding the holding over (including increases for Rent
Adjustments which Landlord may reasonably estimate. Tenant shall also pay all
damages sustained by Landlord by reason of such retention of possession. The
provisions of this Article shall not constitute a waiver by Landlord of any re-
entry rights of Landlord and Tenant's continued occupancy of the Premises shall
be as a tenancy in sufferance.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) If any fire or other casualty (whether insured or uninsured) renders
all or a substantial portion of the Premises or the Building untenantable,
Landlord shall, with reasonable promptness after the occurrence of such damage
but in no event later than 60 days following such fire or other casualty,
estimate the length of time that will be required to substantially complete the
repair and restoration and shall by notice advise Tenant of such estimate
("Landlord's Notice"). If Landlord estimates that the amount of time required to
substantially complete such repair and restoration will exceed one hundred
eighty (180) days from the date such damage occurred, then Landlord, or Tenant
if all or a substantial portion of the Premises is rendered untenantable or if
Tenant's access is materially impaired, or if Tenant's parking rights are
materially reduced, shall have the right to terminate this Lease as of the date
of such damage upon giving written notice to the other at any time within twenty
(20) days after delivery of Landlord's Notice, provided that if Landlord so
chooses, Landlord's Notice may also constitute such notice of termination.
(b) Unless this Lease is terminated as provided in the preceding
subparagraph, Landlord shall proceed with reasonable promptness to repair and
restore the Building's Common Areas and Premises to its condition as existed
prior to such casualty, subject to reasonable delays for insurance adjustments
and Force Majeure delays, and also subject to zoning Laws and building codes
then in effect. Landlord shall proceed with reasonable diligence to complete
such repairs and restoration; provided that, in any event, if Landlord fails to
complete such repair and restoration within two hundred seventy (270) days after
such damage occurred, then Tenant may terminate this Lease by giving Landlord
written notice thereof.
(c) Tenant acknowledges that Landlord shall be entitled to the full
proceeds of any insurance coverage, whether carried by Landlord or Tenant, for
damages to the Premises, except for those proceeds of Tenant's insurance of its
own personal property and equipment which would be removable by Tenant at the
Termination Date. All such insurance proceeds shall be payable to Landlord
whether or not the Premises are to be repaired and restored, provided, however,
if this Lease is not terminated and the parties proceed to repair and restore
Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of
Tenant's insurance covering Tenant Additions, such proceeds shall be applied to
reimburse Tenant for its cost of repairing and restoring Tenant Additions.
(d) Notwithstanding anything to the contrary herein set forth, Landlord
shall have no duty pursuant to this Section to repair or restore any portion of
any Tenant Additions or to expend for any repair or restoration of the Premises
or Building amounts in excess of insurance proceeds paid to Landlord and made
available for repair or restoration. Whether or not the Lease is terminated
pursuant to this Article Fourteen, in no event shall Tenant be entitled to any
compensation or damages for loss of the use of the whole or any part of the
Premises or for any inconvenience or annoyance occasioned by any such damage,
destruction, rebuilding or restoration of the Premises or the Building or access
thereto, except to the extent caused by the gross negligence of Landlord, its
contractors, agents or employees.
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(e) Any repair or restoration of the Premises performed by Tenant shall be
in accordance with the provisions of Article Nine hereof.
14.02 INSUBSTANTIAL UNTENANTABILITY
If the Premises or the Building is damaged by a casualty but neither is rendered
substantially untenantable and Landlord estimates that the time to substantially
complete the repair or restoration will not exceed one hundred eighty (180) days
from the date such damage occurred, then Landlord shall proceed to repair and
restore the Building or the Premises other than Tenant Additions, with
reasonable promptness, unless such damage is to the Premises and occurs during
the last twelve (12) months of the Term, in which event either Tenant or
Landlord shall have the right to terminate this Lease as of the date of such
casualty by giving written notice thereof to the other within twenty (20) days
after the date of such casualty. Tenant can eliminate the aforementioned right
by Landlord to terminate in the last twelve (12) months of the Term if it
officially extends the Term of the Lease as provided herein and legally
documents the Term extension as required. Notwithstanding the aforesaid,
Landlord's obligation to repair shall be limited in accordance with the
provisions of Section 14.01 above.
14.03 RENT ABATEMENT
If all or any part of the Premises are rendered untenantable by fire or other
casualty and this Lease is not terminated, Monthly Base Rent and Rent
Adjustments shall abate for that part of the Premises which is untenantable on a
per diem basis from the date of the casualty until Landlord has Substantially
Completed the repair and restoration work in the Premises which it is required
to perform, provided, that as a result of such casualty, Tenant does not occupy
the portion of the Premises which is untenantable during such period.
14.04 WAIVER OF STATUTORY REMEDIES
The provisions of this Lease, including this Article Fourteen, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, the Premises or the Property or any part of either, and
any Law, including Sections 1932(2), 1933(4), 1941 and 1942 of the California
Civil Code, with respect to any rights or obligations concerning damage or
destruction shall have no application to this Lease or to any damage to or
destruction of all or any part of the Premises or the Property or any part of
either, and are hereby waived.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Building or of the
Premises is taken or condemned by any competent authority for any public use or
purpose (including a deed given in lieu of condemnation) and the Premises is
thereby rendered untenantable, this Lease shall terminate as of the date title
vests in such authority, and Monthly Base Rent and Rent Adjustments shall be
apportioned as of the Termination Date. Notwithstanding anything to the contrary
herein set forth, in the event the taking is temporary (for less than six (6)
months), Landlord may elect either (i) to terminate this Lease or (ii) permit
Tenant to receive the entire award attributable to the Premises in which case
Tenant's Rent shall continue unabated, or (iii) abate Tenant's Rent during such
temporary taking, in which case Landlord is entitled to receive the entirety of
any award attributable to the Premises. If the taking is longer than six (6)
months, either Landlord or Tenant shall have the right to terminate this Lease.
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15.02 TAKING OF PART
In the event a material part of the Building Common Areas or the Premises or any
facility materially necessary to Tenant's access, or a material part of Tenant's
parking is taken or condemned by any competent authority (or a deed is delivered
in lieu of condemnation) and such taken parking is not replaced by Landlord, and
this Lease is not terminated, the Lease shall be amended to reduce or increase,
as the case may be, the Monthly Base Rent and Tenant's Proportionate Share to
reflect the Rentable Area of the Premises or Building, as the case may be,
remaining after any such taking or condemnation. Landlord shall make necessary
repairs and restorations to the Premises (exclusive of Tenant Additions) and to
the Building to the extent necessary to constitute the portion of the Building
not so taken or condemned as a complete, tenantable, architectural and
economically efficient unit. During the period Landlord is performing such
repairs, improvements and alterations, all rent and charges will abate in direct
proportion to Tenant's inability to reasonably conduct business in the Premises.
15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Additions
paid for by tenant without any credit or allowance from Landlord so long as
there is no diminution of landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies acceptable to Landlord, during the Term: (a) Commercial General
Liability Insurance on a primary basis and without any right of contribution
from any insurance carried by Landlord covering the Premises on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage, including contractual liability covering the indemnification provisions
in this Lease, and such insurance shall be for such limits that are reasonably
required by Landlord from time to time but not less than a combined single limit
of Three Million and No/100 Dollars ($3,000,000.00); (b) Workers' Compensation
and Employers' Liability Insurance to the extent required by and in accordance
with the Laws of the State of California; (c) "All Risks" property insurance in
an amount adequate to cover the full replacement cost of all Tenant Additions,
equipment, installations, fixtures and contents of the Premises in the event of
loss; and (d) in the event a motor vehicle is to be used by Tenant in connection
with its business operation from the Premises, Comprehensive Automobile
Liability Insurance coverage with limits of not less than One Million and No/100
Dollars ($1,000,000.00) combined single limit coverage against bodily injury
liability and property damage liability arising out of the use by or on behalf
of Tenant, its agents and employees in connection with this Lease, of any owned,
non-owned or hired motor vehicles.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (i) name Landlord and the Indemnitees as additional insureds
(except Workers' Compensation and Employers' Liability Insurance), (ii) be
issued by one or more responsible insurance companies licensed to do business in
the State of California reasonably satisfactory to Landlord, (iii) where
applicable, provide for deductible amounts satisfactory to Landlord and not
permit co-insurance, (iv) shall provide that such insurance may not be canceled
or amended without thirty (30) days' prior written notice to the Landlord, and
(v) each policy of "All-Risks" property insurance shall provide that the policy
shall not be invalidated should the insured waive in writing prior to a loss,
any or all rights of recovery against any other party for losses
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covered by such policies. Tenant shall deliver to Landlord, certificates of
insurance and at Landlord's request, copies of all policies and renewals thereof
to be maintained by Tenant hereunder, not less than ten (10) days prior to the
Commencement Date and not less than ten (10) days prior to the expiration date
of each policy.
16.03 LANDLORD'S INSURANCE
Landlord agrees to purchase and keep in full force and effect during the Term
hereof, including any extensions or renewals thereof, insurance under policies
issued by insurers of recognized responsibility, qualified to do business in the
State of California on the Building in amounts not less than the greater of
eighty (80%) percent of the then full replacement cost (without depreciation) of
the Building (above foundations and excluding Tenant Additions) or an amount
sufficient to prevent Landlord from becoming a co-insurer under the terms of the
applicable policies, against fire and such other risks as may be included in
standard forms of all risk coverage insurance reasonably available from time to
time. Landlord agrees to maintain in force during the Term, Commercial General
Liability Insurance covering the Building on an occurrence basis against all
claims for personal injury, bodily injury, death, and property damage. Such
insurance shall be for a combined single limit of not less than Three Million
and No/100 Dollars ($3,000,000.00). Neither Landlord's obligation to carry such
insurance nor the carrying of such insurance shall be deemed to be an indemnity
by Landlord with respect to any claim, liability, loss, cost or expense due, in
whole or in part, to Tenant's negligent acts or omissions or willful misconduct.
Without obligation to do so, Landlord may, in its sole discretion from time to
time, carry insurance in amounts greater and/or for coverage additional to the
coverage and amounts set forth above.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, it will include in its "All Risks" policies appropriate clauses
pursuant to which the insurance companies (i) waive all right of subrogation
against Tenant with respect to losses payable under such policies and/or (ii)
agree 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
losses covered by such policies.
(b) Tenant agrees to include, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, in its "All Risks" insurance policy or policies on Tenant Additions,
whether or not removable, and on Tenant's furniture, furnishings, fixtures and
other property removable by Tenant under the provisions of this Lease
appropriate clauses pursuant to which the insurance company or companies (i)
waive the right of subrogation against Landlord and/or any tenant of space in
the Building with respect to losses payable under such policy or policies and/or
(ii) agree that such policy or 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 losses covered by such policy or policies. If Tenant is unable to
obtain in such policy or policies either of the clauses described in the
preceding sentence, Tenant shall, if legally possible and without necessitating
a change in insurance carriers, have Landlord named in such policy or policies
as an additional insured. If Landlord shall be named as an additional insured in
accordance with the foregoing, Landlord agrees to endorse promptly to the order
of Tenant, without recourse, any check, draft, or order for the payment of money
representing the proceeds of any such policy or representing any other payment
growing out of or connected with said policies, and Landlord does hereby
irrevocably waive any and all rights in and to such proceeds and payments.
(c) Provided that Landlord's right of full recovery under its policy or
policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Real Property and the fixtures, appurtenances and equipment therein, to
the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault
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of Tenant, its servants, agents or employees. Provided that Tenant's right of
full recovery under its aforesaid policy or policies is not adversely affected
or prejudiced thereby, Tenant hereby waives any and all right of recovery which
it might otherwise have against Landlord, its servants, and employees and
against every other tenant of the Real Property who shall have executed a
similar waiver as set forth in this Section 16.04 (c) for loss or damage to
Tenant Additions, whether or not removable, and to Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions hereof to the extent the same is coverable by Tenant's insurance
required under this Lease, notwithstanding that such loss or damage may result
from the negligence or fault of Landlord, its servants, agents or employees, or
such other tenant and the servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if the
clauses to be included in their respective insurance policies pursuant to
subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore
provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured,
as aforesaid. Landlord and Tenant hereby also agree to notify the other promptly
of any cancellation or change of the terms of any such policy that would affect
such clauses or naming. All such policies which name both Landlord and Tenant as
additional insureds shall, to the extent obtainable, contain agreements by the
insurers to the effect that no act or omission of any additional insured will
invalidate the policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises
promptly after Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives
all claims for, damage to the person or property sustained by Tenant or any
occupant of the Premises or the property resulting directly or indirectly from
any existing or future condition, defect, matter or thing in and about the
Premises or the Property or any part of either or any equipment or appurtenance
therein, or resulting from any accident in or about the Premises or the
property, or resulting directly or indirectly from any act or neglect of any
tenant or occupant of the Property except to the extent caused by the gross
negligence or willful and wrongful act of any of the Indemnitees or a breach of
any material provision of this Lease by Landlord. To the extent permitted by
Law, except as otherwise provided in this Lease, Tenant hereby waives any
consequential damages, compensation or claims for inconvenience or loss of
business, rents or profits as a result of such injury or damage, except to the
extent caused by the intentional, gross negligence or willful and wrongful act
of any of the Indemnitees. If any such damage, whether to the Premises or the
Property or any part of either, or whether to Landlord or to other tenants in
the Property, results from any breach by Tenant of an obligation hereunder which
is not cured within the notice and cure periods provided in this Lease, Tenant
shall be liable therefor and Landlord may, at Landlord's option, repair such
damage and Tenant shall, upon demand by Landlord, as payment of additional Rent
hereunder, reimburse landlord within thirty (30) days of demand for the total
cost of such repairs, in excess of amounts, if any, paid to Landlord under
insurance covering such damages. Tenant shall not be liable for any such damage
to the extent Landlord or a tenant has recovered part or the full amount of such
damage from proceeds of insurance policies and/or the insurance company has
waived its right of subrogation against Tenant.
17.02 INDEMNITY
Tenant agrees to indemnify, defend, protect and hold Landlord harmless from and
against any and all injury, loss, damage, liability, costs or expenses
(including, without limitation, attorneys fees, reasonable
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investigative and discovery costs), of whatever nature, to any person or
property caused or claimed to be caused by or resulting from any negligent act
or omission of Tenant or its agents, employees or contractors, or any breach of
any representation or warranty made by Tenant hereunder. Landlord agrees to
indemnify, defend, protect and hold Tenant harmless from and against any and all
injury, loss, damage, liability, costs or expenses (including, without
limitation, attorneys fees, reasonable investigation and discovery costs), of
whatever nature, to any person or property caused or claimed to be caused by or
resulting from any negligent act or omission of Landlord or its agents,
employees or contractors, or any breach of any representation or warranty made
by Landlord hereunder. With regard to property damage, the provisions of this
Article are subject and subordinate to the provisions of Section 16.04.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to comply with the rules and regulations listed on Exhibit C attached hereto and
with all reasonable, non-discriminatory modifications and additions thereto
which Landlord may make from time to time.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations as set forth on Exhibit C or as
hereafter adopted, or the terms, covenants or conditions of any other lease as
against any other tenant, and the Landlord shall not be liable to the Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Project in a uniform and non-discriminatory manner.
ARTICLE NINETEEN
LANDLORD'S RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
and without liability to Tenant for damage or injury to persons, property or
business and without being deemed an eviction or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for offset or abatement
of Rent: (1) to change the Building's name or street address upon thirty (30)
days' prior written notice to Tenant; (2) to install, affix and maintain all
signs on the exterior and/or interior of the Building; (3) to designate and/or
approve prior to installation, all types of signs, window shades, blinds,
drapes, awnings or other similar items, and all internal lighting that may be
visible from the exterior of the Premises; (4) upon reasonable notice to Tenant,
to display the Premises to prospective purchasers and lenders at reasonable
hours at any time during the Term and to prospective tenants at reasonable hours
during the last twelve (12) months of the Term; (5) to grant to any party the
exclusive right to conduct any business or render any service in or to the
Building, provided such exclusive right shall not operate to prohibit Tenant
from using the Premises for the purpose permitted hereunder; (6) subject to
Section 7.02, to change the arrangement and/or location of entrances or
passageways, doors and doorways, corridors, elevators, stairs, washrooms or
public portions of the Building, and to close entrances, doors, corridors,
elevators or other facilities, provided that such action shall not materially
and adversely interfere with Tenant's access to the Premises or the Building;
(7) to have access for Landlord and other tenants of the Building to any mail
chutes and boxes located in or on the Premises as required by any applicable
rules of the United States Post Office; and (8) to close the Building after
Standard Operating Hours, except that Tenant and its employees and invitees
shall be entitled to admission at all times, under such regulations as Landlord
prescribes for security purposes.
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ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant,
certifying (i) that this Lease is unmodified and in full force and effect (or if
there have been modifications, a description of such modifications and that this
Lease as modified is in full force and effect); (ii) the dates to which Rent has
been paid; (iii) that Tenant is in the possession of the Premises if that is the
case; (iv) that Landlord is not in default under this Lease, or, if Tenant
believes Landlord is in default, the nature thereof in detail; (v) that Tenant
has no offsets or defenses to the performance of its obligations under this
Lease (or if Tenant believes there are any offsets or defenses, a full and
complete explanation thereof); (vi) if such is the case, that the Premises have
been completed in accordance with the terms and provisions hereof or the
Workletter, that Tenant has accepted the Premises and the condition thereof and
of all improvements thereto and has no claims against Landlord or any other
party with respect thereto; (vii) that Tenant will give to the Mortgagee copies
of all notices of default required to be given by Tenant to Landlord; and (viii)
to any other information reasonably requested.
ARTICLE TWENTY-ONE
OMITTED
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that, except for the broker(s) listed in Section 1.01(16),
Tenant has not dealt with any real estate broker, sales person, or finder in
connection with this Lease, and no such person initiated or participated in the
negotiation of this Lease, or showed the Premises to Tenant. Tenant hereby
agrees to indemnify, protect, defend and hold Landlord and the Indemnitees,
harmless from and against any and all liabilities and claims for commissions and
fees arising out of a breach of the foregoing representation. Landlord agrees to
pay any commission to which Landlord's Broker listed in Section 1.01(16) is
entitled in connection with this Lease pursuant to Landlord's written agreement
with such broker. Landlord and Tenant agree that any commission payable to
Tenant's Broker shall be paid by Landlord pursuant to a separate agreement
between Landlord and Tenant's Broker.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
Subject to the provisions hereof, this Lease is and shall be expressly subject
and subordinate at all times to (i)any ground or underlying lease of the Real
Property, now or hereafter existing, and all amendments, extensions, renewals
and modifications to any such lease, and (ii) the lien of any mortgage or trust
deed now or hereafter encumbering fee title to the Real Property and/or the
leasehold estate under any such lease, and all amendments, extensions, renewals,
replacements and modifications of such mortgage or trust deed and/or the
obligation secured thereby, unless such ground lease or ground lessor, or
mortgage, trust deed or Mortgagee, expressly provides or elects that the Lease
shall be superior to such lease or mortgage or trust deed. If any such mortgage
or trust deed is foreclosed (including any sale of the Real Property pursuant to
a power of sale), or if any such lease is terminated, upon request of the
Mortgagee or ground lessor, as the case may be, Tenant shall attorn to the
purchaser at the foreclosure sale or to the ground lessor under such lease, as
the case may be, provided, however, that such purchaser or ground lessor shall
not be subject to any offset, defense, or damages arising out of a default of
any obligations of any preceding Landlord This subordination shall be self-
operative and no further certificate or instrument of subordination
33
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need be required by any such Mortgagee or ground lessor. Tenant shall execute
promptly any reasonable certificate or instrument that Landlord, Mortgagee or
ground lessor may request provided that, notwithstanding anything to the
contrary herein, Tenant's agreement to subordinate its interest hereunder to any
current or future mortgagee or lessor shall be subject to Tenant's receipt of a
commercially reasonable nondisturbance agreement executed and acknowledged by
such mortgagee or lessor in form reasonably acceptable to Tenant providing that
so long as an Event of Default has not occurred with respect to Tenant, such
Mortgagee or ground lessor shall rant Tenant nondisturbance and recognize
Tenant's rights under this Lease. Landlord agrees to obtain such a
nondisturbance agreement from the existing Mortgagee within thirty (30) days of
the execution of this Lease by both parties.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon the Landlord by Tenant,
provided that prior to such notice Tenant has received notice of the address of
such Mortgagee or ground lessor and Landlord's express written instruction to
serve a copy of such notice upon such lessor or Mortgagee. Such lessor or
Mortgagee shall have the right within the time period(s) afforded Landlord
hereunder and commencing with their receipt of Tenant's written notice, to cure
any such default(s) of Landlord.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be given
pursuant to this Lease must be in writing and shall be personally delivered,
sent by Federal Express or other reputable overnight courier service, or mailed
by first class, registered or certified United States mail, return receipt
requested, postage prepaid.
(b) All notices, demands or requests to be sent pursuant to this Lease
shall be deemed to have been properly given or served by delivering or sending
the same in accordance with this Section, addressed to the parties hereto at
their respective addresses listed in Sections 1.01(2) and (3).
(c) Notices, demands or requests sent by mail or overnight courier service
as described above shall be effective upon deposit in the mail or with such
courier service. However, the time period in which a response to any such
notice, demand or request must be given shall commence to run from (i) in the
case of delivery by mail, the date of receipt on the return receipt of the
notice, demand or request by the addressee thereof, or (ii) in the case of
delivery by Federal Express or other overnight courier service, the date of
acceptance of delivery by an employee, officer, director or partner of Landlord
or Tenant. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given, as indicated by advice
from Federal Express or other overnight courier service or by mail return
receipt, shall be deemed to be receipt of notice, demand or request sent.
Notices may also be served by personal service upon any officer, director or
partner of Landlord or Tenant, and shall be effective upon such service.
(d) By giving to the other party at least thirty (30) days written notice
thereof, either party shall have the right from time to time during the term of
this Lease to change their respective addresses for notices, statements, demands
and requests, provided such new address shall be within the United States of
America.
ARTICLE TWENTY-FIVE
MISCELLANEOUS
34
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25.01 LATE CHARGES
(a) All payments required hereunder (other than the Monthly Base Rent,
Rent Adjustments, and Rent Adjustment Deposits, which shall be due as
hereinbefore provided) to Landlord shall be paid within ten (10) days after
Landlord's demand therefor. All such amounts (including Monthly Base Rent, Rent
Adjustments, and Rent Adjustment Deposits) not paid when due shall bear interest
from the date due until the date paid at the Default Rate in effect on the date
such payment was due.
(b) In the event Tenant is more than ten (10) days late in paying any
installment of Rent due under this Lease at least three times in any 12-month
period, Tenant shall pay Landlord a late charge equal to five percent (5%) of
the third and any subsequent delinquent installment(s) of Rent. The parties
agree that (i) such delinquency will cause Landlord to incur costs and expenses
not contemplated herein, the exact amount of which will be difficult to
calculate, including the cost and expense that will be incurred by Landlord in
processing each delinquent payment of rent by Tenant, (b) the amount of such
late charge represents a reasonable estimate of such costs and expenses and that
such late charge shall be paid to Landlord for each delinquent payment in
addition to all Rent otherwise due hereunder. The parties further agree that the
payment of late charges and the payment of interest provided for in subparagraph
(a) above are distinct and separate from one another in that the payment of
interest is to compensate Landlord for its inability to use the money improperly
withheld by Tenant, while the payment of late charges is to compensate Landlord
for its additional administrative expenses in handling and processing delinquent
payments.
(c) Payment of interest at the Default Rate and/or of late charges shall
not excuse or cure any default by Tenant or Landlord under this Lease, nor shall
the foregoing provisions of this Article or any such payments prevent either
party from exercising any right or remedy available upon any such failure to pay
Rent or other sums when due, including the right to terminate this Lease.
25.02 NO JURY TRIAL; VENUE; JURISDICTION
Each party hereto (which includes any assignee, successor, heir or personal
representative of a party) shall not seek a jury trial, hereby waives trial by
jury, and hereby further waives any objection to venue in the County in which
the Project is located, and agrees and consents to personal jurisdiction of the
courts of the State of California, in any action or proceeding or counterclaim
brought by any party hereto against the other on any matter whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any statute, emergency or
otherwise, whether any of the foregoing is based on this Lease or on tort law.
No party will seek to consolidate any such action in which a jury has been
waived with any other action in which a jury trial cannot or has not been
waived. It is the intention of the parties that these provisions shall be
subject to no exceptions. By execution of this Lease the parties agree that this
provision may be filed by any party hereto with the clerk or judge before whom
any action is instituted, which filing shall constitute the written consent to a
waiver of jury trial pursuant to and in accordance with Section 631 of the
California Code of Civil Procedure. No party has in any way agreed with or
represented to any other party that the provisions of this Section will not be
fully enforced in all instances. The provisions of this Section shall survive
the expiration or earlier termination of this Lease.
25.03 NONDISCRIMINATION
The parties agree for themselves and their heirs, executors, administrators,
successors and assigns and all persons claiming under or through them, and this
Lease is made and accepted upon and subject to the following conditions: that
there shall be no discrimination against or segregation of any person or group
of persons on account of race, color, creed, religion, sex, marital status,
national origin or ancestry (whether in the leasing, subleasing, transferring,
use, occupancy, tenure or enjoyment of the Premises or otherwise) nor
35
<PAGE>
shall either party or any person claiming under or through either party
establish or permit any such practice or practices of discrimination or
segregation with reference to the use or occupancy of the Premises.
25.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant. The submission of the Lease to Tenant
does not constitute a reservation of or option for the Premises.
25.05 TENANT AUTHORITY
Each party represents and warrants to the other that it has full authority and
power to enter into and perform its obligations under this Lease, that the
person executing this Lease is fully empowered to do so, and that no consent or
authorization is necessary from any third party. Each party may request that the
other provide evidence of such authority.
25.06 ENTIRE AGREEMENT
This Lease, the Exhibits attached hereto and the Workletter contain the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements, either oral or written, and no other representations or
statements, either oral or written, on which Tenant has relied. This Lease shall
not be modified except by a writing executed by Landlord and Tenant.
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE [intentionally deleted]
25.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that
any liability or obligation under this Lease shall only be enforced against
Landlord's equity interest in the Property and in no event against any other
assets of the Landlord, or Landlord's officers or directors or partners, and
that any liability of Landlord with respect to this Lease shall be so limited
and Tenant shall not be entitled to any judgment in excess of such amount.
25.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term. Receipt
or acceptance of payment from anyone other than Tenant, including an assignee of
Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept
such payment on account of the amount due without prejudice to Landlord's right
to pursue any remedies available to Landlord.
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer
(provided that such transferee shall assume all of Landlord's obligations
hereunder by written agreement for Tenant's benefit and in a commercially-
reasonable form), and any remaining liability of
36
<PAGE>
Landlord with respect to this Lease shall be limited to the dollar amount
specified in Section 25.08 and Tenant shall not be entitled to any judgment in
excess of such amount.
25.11 BINDING EFFECT
Subject to the provisions of Article Ten, this Lease shall be binding upon and
inure to the benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
25.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
25.13 TIME; APPLICABLE LAW; CONSTRUCTION
Time is of the essence of this Lease and each and all of its provisions. This
Lease shall be construed in accordance with the Laws of the State of California.
If more than one person signs this Lease as Tenant, the obligations hereunder
imposed shall be joint and several. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each item, covenant or condition of this Lease shall be
valid and be enforced to the fullest extent permitted by Law. Wherever the term
"including" or "includes" is used in this Lease, it shall have the same meaning
as if followed by the phrase "but not limited to". The language in all parts of
this Lease shall be construed according to its normal and usual meaning and not
strictly for or against either Landlord or Tenant.
25.14 ABANDONMENT [intentionally deleted]
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES
If Tenant fails timely to perform any of its duties under this Lease or the
Workletter, and such failure continues following notice and the applicable cure
period specified in Section 11.01(ii), Landlord shall have the right (but not
the obligation), to perform such duty on behalf and at the expense of Tenant and
all reasonable and actual sums expended by Landlord in performing such duty
shall be deemed to be additional Rent under this Lease and shall be due and
payable upon demand by Landlord.
25.16 SECURITY
Landlord shall provide Tenant with a description of the security system which is
currently in place and Landlord shall contract for an independent security
company to provide security guard patrol during normal business hours and
evening hours during which Tenant is open for business. However, in no event
shall Landlord be responsible for the quality of any such patrol or system which
may be provided hereunder or for damage or injury to Tenant, its employees,
invitees or others due to the failure, action or inaction of such patrol or
system.
25.17 NO LIGHT, AIR OR VIEW EASEMENTS
Any diminution or shutting off of light, air or view by any structure which may
be erected on lands of or adjacent to the Project shall in no way affect this
Lease or impose any liability on Landlord.
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25.18 RECORDATION
Neither this Lease, nor any notice nor memorandum regarding the terms hereof,
shall be recorded by Tenant. Any such unauthorized recording shall be a Default
for which there shall be no cure or grace period. Each party agrees to execute
and acknowledge, at the request of either party, a memorandum of this Lease, in
recordable form, and in a form reasonably acceptable to Tenant, to include,
without limitation, recitation of Tenant's extension and expansion options
hereunder.
25.19 SURVIVAL
The waivers of the right of jury trial, the other waivers of claims or rights,
the releases and the obligations of the parties under this Lease to indemnify,
protect, defend and hold each other harmless shall survive the expiration or
termination of this Lease, and so shall all other obligations or agreements
which by their terms survive expiration or termination of the Lease.
25.20 RIDERS
All Riders attached hereto and executed both by Landlord and Tenant shall be
deemed to be a part hereof and hereby incorporated herein.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
TENANT: LANDLORD:
NORTHPOINT COMMUNICATIONS, INC., EMERY STATION ASSOCIATES, LLC,
a DELAWARE corporation a California limited liability company
By: /s/ TIMOTHY M. MONAHAN By: /s/ RICHARD K. ROBBINS
---------------------------------- -------------------------------------
Richard K. Robbins, Managing Member
Print Name: Timothy M. Monahan
--------------------------
Its: Vice President Finance & Planning
---------------------------------
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EXHIBIT B
WORKLETTER AGREEMENT
This Workletter Agreement ("Workletter") is attached to and a part of a
certain Office Lease dated as of , 199 executed concurrently herewith
------ ----
by Emery Station Associates, LLC, a California limited liability company, as
Landlord, and NorthPoint Communications, Inc, a Delaware corporation, as Tenant,
for the Premises as described therein (the "Lease").
1. Defined Terms. Capitalized terms used in this Workletter shall have the
-------------
same meanings set forth in the Lease except as otherwise specified herein and
except for terms capitalized in the ordinary course of punctuation. For purposes
of this Workletter the following capitalized terms have the following meanings:
1.1. "Design Documents" means the layout plans and specifications for
the real property improvements to be constructed by Tenant in the Premises which
are the final product of the preliminary space planning and which include, among
other things, all partitions, doors, HVAC (heating, ventilating and air
conditioning systems) distribution, ceiling systems, light fixtures, plumbing
installations, electrical installations and outlets, telephone installations and
outlets, any other installations required by Tenant, fire and life-safety
systems, wall finishes and floor coverings, whether to be newly installed or
requiring changes from the as-is condition of the Premises as of the date of
execution of the Lease, all in sufficient detail for Landlord's review;
1.2 "Construction Drawings" means the final architectural plans and
specifications, and engineering plans and specifications, for the real property
improvements to be constructed by Tenant in the Premises in sufficient detail to
be submitted for governmental approvals and building permits and to serve as the
detailed construction drawings and specifications for the contractor, and shall
include, among other things, all partitions, doors, HVAC (heating, ventilating
and air conditioning systems) distribution, ceiling systems, light fixtures,
plumbing installations, electrical installations and outlets, telephone
installations and outlets, any other installations required by Tenant, fire and
life-safety systems, wall finishes and floor coverings, whether to be newly
installed or requiring changes from the as-is condition of the Premises as of
the date of execution of the Lease;
1.3 "Tenant Improvements" means all real property improvements to be
constructed by Tenant as shown on the Construction Drawings, as they may be
modified as provided herein;
1.4 "Tenant Improvement Allowance" means an amount not in excess of
the product of thirty-five ($35.00) dollars multiplied by the total rentable
square footage of the Premises, as described in the Lease, to be paid by
Landlord on account of all construction costs, space planning and design fees,
architecture and engineering fees, permit fees and construction management fees
incurred by Tenant in designing and constructing the Tenant Improvements.
1.5 "Landlord Work" means the construction and installation of any
work that Landlord has agreed to perform prior to the delivery of the Premises
to Tenant for construction of the Tenant Improvements. The Landlord Work, if
any, is set forth on Schedule 1 that is attached to this Workletter.
2. Development of Plans
--------------------
2.1 Approval of Architect and Contractor. Tenant's architect,
------------------------------------
contractor, major suppliers and major subcontractors shall each be subject to
the reasonable approval of Landlord. Landlord may request information about
these entities, including financial information and a summary of
<PAGE>
representative projects. If Landlord does not approve the architect, contractor,
any major subcontractor or major supplier, the parties shall negotiate in good
faith to select another architect, contractor, subcontractor or materials
supplier mutually acceptable to the parties. Landlord shall be entitled to
withhold its approval of any entity or person, who, in Landlord's reasonable
determination, is financially or otherwise professionally unqualified to design
or construct the Tenant Improvements. Notwithstanding the foregoing, Landlord's
approval of any architect, contractor, subcontractor or materials supplier shall
not constitute Landlord's representation or warranty that any such architect,
contractor, subcontractor or supplier is in fact qualified to perform the Tenant
Improvements.
2.2 Design Documents. Prior to Tenant's commencement of the
----------------
construction of the Tenant Improvements, Tenant shall prepare the Design
Documents and deliver them to Landlord. Within five (5) business days following
delivery of the Design Documents, Landlord shall approve the Design Documents or
deliver to Tenant written notice of their disapproval which shall specify the
changes that must be made to the Design Documents as a condition of Landlord's
approval. Within five (5) business days following receipt of Landlord's notice
of disapproval, Tenant shall deliver a revised set of Design Documents to
Landlord which shall incorporate the changes specified in Landlord's notice of
disapproval. Landlord's failure to specify any such changes during that five (5)
business day period shall be conclusively deemed Landlord's approval of the
Design Documents. Notwithstanding the foregoing, Landlord agrees that it Shall
not disapprove any portion of the Design Documents or any change thereto
required by any applicable governmental agency or which is consistent in all
material respects with the description of the Premises set forth in the space
plan attached to the Lease.
2.3 Construction Drawings. As soon as the Design Documents are
---------------------
approved by Landlord, Tenant shall prepare the Construction Drawings that are
consistent with and logical evolutions of the Design Documents and the Schedule
of Values. The Construction Drawings and Schedule of Values shall be delivered
to Landlord for approval. If Landlord does not approve the Construction Drawings
and/or the Schedule of Values, Landlord shall deliver to Tenant, as soon as
reasonably possible but within three (3) business days following receipt
thereof, written notice of such disapproval. The notice shall specify the
changes that must be made to the Construction Drawings and/or the Schedule of
Values as a condition for obtaining Landlord's approval. Within three (3)
business days following receipt of Landlord's notice of disapproval, Tenant
shall deliver a revised set of Construction Drawings and/or Schedule of Values
to Landlord, which incorporate the changes specified in Landlord's notice of
disapproval. Landlord's failure to specify any such changes during its three (3)
business day review period shall be conclusively deemed Landlord's approval of
the Construction Drawings. Notwithstanding the foregoing, Landlord agrees that
it shall not disapprove any portion of the Construction Drawings or any change
thereto required by any applicable governmental agency; or which is consistent
in all material respects with the description of the Premises set forth in the
Design Documents previously approved by Landlord. Landlord and Tenant shall each
sign a copy of the approved Construction Drawings and Schedule of Values.
2.4 Landlord's Approval. If the Construction Drawings conform to the
-------------------
Design Documents and this Workletter, Landlord's approval shall not be
unreasonably withheld. If the Construction Drawings show work requiring a
modification or change to the shell of the Building, Landlord shall not be
deemed unreasonable if Landlord disapproves such Construction Drawings or if
Landlord conditions its consent to such Construction Drawings upon Tenant's
paying to Landlord, prior to the commencement of construction, the full cost of
modifying or changing the shell of the Building. In any event, any disapproval
of any work or plans by Landlord shall be accompanied by a written statement of
the proposed item, the reason(s) for disapproval, and the specific changes
required to make the item acceptable. Landlord may, at Landlord's option, have
the Design Documents or the Construction Drawings reviewed by Landlord's
architect, engineer and/or construction manager; provided, however, that any
such review shall be performed within the time periods set forth above for
Landlord's review of the Design Documents and the Construction Drawings. In no
event shall the approval by Landlord (or Landlord's architect, engineer or
construction manager) of the Design Documents or the Construction Drawings
constitute a representation or warranty by Landlord (or Landlord's architect,
engineer or construction manager) of: (i) their accuracy, sufficiency or
completeness for their intended purpose; (ii) the absence of
<PAGE>
design defects or construction flaws; or (iii) their compliance with applicable
laws. Tenant agrees that Landlord (and Landlord's architect, engineer and
construction manager) shall incur no liability by reason of its approval or
disapproval of any item.
2.5 Compliance with Laws. Tenant covenants, agrees, represents and
--------------------
warrants that the Design Documents and Construction Drawings (i) shall be in a
form satisfactory for filing with appropriate governmental authorities and (ii)
shall conform to all applicable codes, rules, regulations and ordinances of all
governing authorities, including all building codes and the ADA.
2.6 Charges. No material changes shall be made to the Design
-------
Documents or the Construction Drawings without the prior written consent of
Landlord and Tenant. All change orders requested by Tenant shall be made in
writing and shall specify any added or reduced cost resulting therefrom. Any
change proposed by Tenant shall be approved or disapproved by Landlord (and
Landlord's approval shall not been unreasonably withheld or conditioned) within
three (3) business days following Landlord's receipt of detailed information
pertaining to the proposed change. Landlord's failure to disapprove any proposed
change within three (3) business days shall be deemed Landlord's approval
thereof.
3. Construction of Tenant Improvements
-----------------------------------
3.1 Permits and Approvals. Tenant shall submit the Construction
---------------------
Drawings to all appropriate governmental agencies for approval and shall not
commence construction or installation of the Tenant Improvements unless and
until Tenant has obtained all necessary permits and approvals and has delivered
copies of these documents to Landlord.
3.2 Commencement and Completion of Construction. Following Tenant's
-------------------------------------------
satisfaction of all of the requirements of Section 2 above and this Section 3,
Tenant shall commence construction and installation of the Tenant Improvements
in accordance with the Construction Drawings and shall pursue the same
diligently to completion. Tenant covenants to give Landlord at least ten (10)
days' prior written notice of its commencement of construction or delivery of
materials to the Premises to enable Landlord to post a notice of
nonresponsibility respecting the Tenant Improvements.
3.3 Building Systems. Except as permitted by the approved Design
----------------
Documents or Construction Drawings, in no event shall Tenant interfere with the
provision of heating, plumbing, electrical or mechanical system services to the
Building, make any structural changes to the Building, make any changes to the
heating, plumbing, electrical or mechanical systems of the Building, or make any
changes to the Premises which would weaken or impair the structural integrity of
the Building, alter the aesthetic appearance of the Building exterior, or which,
would affect any warranties applicable to the Building or any improvements
constructed or installed by Landlord therein, without Landlord's prior written
consent, which consent may be withheld in Landlord's sole discretion. If Tenant
performs work that pertains to the structure of the building or the building's
systems, Landlord may require Tenant to engage Landlord's structural engineer to
design, supervise and monitor any construction work affecting either the
Building systems or the structure of the Building.
3.4 Inspections. Landlord and its officers, agents or employees shall
-----------
have the right at all reasonable times to enter upon the Premises and inspect
the Tenant Improvements and to determine that the same are in conformity with
the Construction Drawings and all of the requirements of this Workletter. Tenant
acknowledges, however, that Landlord is under no obligation to supervise,
inspect or inform Tenant of the progress of construction and Tenant agrees that
it shall not rely upon Landlord to perform any of these activities. Neither the
inspection rights granted to Landlord in this Workletter, nor the making of such
inspections by Landlord, shall operate as a waiver of any rights of Landlord to
require that the construction and installation of the Tenant Improvements
conform with this Workletter, the Construction Drawings and all requirements of
applicable law.
<PAGE>
3.5 Walk-Through of Tenant Improvements. Within two (2) business days
-----------------------------------
following the completion of the Tenant Improvements, Tenant shall notify
Landlord and shall provide Landlord an opportunity to inspect the Tenant
Improvements. Within three (3) business days following Tenant's notice, Landlord
(or its representative) shall (accompanied by Tenant or its representative)
walk-through and inspect Tenant's work on the Tenant Improvements and shall
either approve Tenant's work or advise Tenant in writing of any defects or
uncompleted items that do not substantially conform to the Construction
Drawings. Tenant shall promptly repair such defects or uncompleted items to
Landlord's reasonable satisfaction. Landlord's approval of the Tenant
Improvements, or Landlord's failure to advise Tenant of any defects or
uncompleted items in the Tenant Improvements, shall not relieve Tenant of
responsibility for constructing and installing the Tenant Improvements in
accordance with the Construction Drawings, this Workletter and all applicable
laws.
3.6 Final Documents. Following completion of the Tenant Improvements,
---------------
Tenant shall (a) obtain and deliver to Landlord a copy of the Final Certificate
of Occupancy for the Tenant Improvements from the governmental agency or
agencies having jurisdiction thereof; (b) promptly cause a notice of completion
to be validly recorded for the Tenant Improvements; (c) furnish Landlord with
unconditional waivers of lien in statutory form from all parties performing
labor and/or supplying equipment and/or materials in connection with the Tenant
Improvements, including Tenant's architect(s); (d) deliver to Landlord a
certificate of Tenant's architect(s) certifying completion of the Tenant
Improvements in substantial accordance with the Construction Drawings; (e)
deliver to Landlord a full set of reproducible as-built drawings (signed and
dated by the contractor and each responsible subcontractor) for the Tenant
Improvements; and (f) Tenant shall deliver to Landlord copies of all written
construction and equipment warranties and manuals received by Tenant related to
the Tenant Improvements.
4. Payment of Costs of Tenant Improvements
---------------------------------------
4.1 Tenant's Cost. Any cost incurred in the design or construction of
-------------
the Tenant Improvements in excess of the Tenant Improvement Allowance shall be
borne by Tenant in accordance with the terms and conditions set forth below. The
costs of the Tenant Improvements shall include the following items:
(a) The costs of the architect, contractor, suppliers and
subcontractors and any other consultants retained by Tenant in connection with
the preparation of Design Documents and Constructions Drawings, including,
engineering costs associated with completion of the State of California energy
utilization calculations under Title 24 legislation;
(b) All costs of obtaining from the City of Emeryville and any other
governmental authority, approvals, building permits and occupancy permits, if
any;
(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) All costs of procuring, installing and constructing the Tenant
Improvements; and
(e) All costs of designing, procuring, constructing and installing
Tenant Improvements in compliance with all applicable laws, including with all
building codes and the ADA.
In no event shall the Tenant Improvement Allowance be used to pay any costs of
procuring or installing in the Premises any trade fixtures, equipment,
furniture, furnishings, telephone equipment, cabling for any of the foregoing,
or other personal property to be used in the Premises by Tenant, which cost
shall be paid by Tenant.
<PAGE>
4.2 Procedure for Disbursement of the Tenant Improvement Allowance.
--------------------------------------------------------------
On or before the twenty-fifth (25th) day of each calendar month during the
construction of the Tenant Improvements, but in no event more frequently than
once every thirty (30) days, Tenant shall deliver to Landlord such invoices
marked paid and Landlord shall pay within thirty (30) days after receipt of such
invoice each amount invoiced by Tenant's architect or Tenant's contractor.
Following substantial completion of the Tenant Improvements and prior to
Landlord's final disbursement of the Tenant Improvement Allowance, Tenant shall
have submitted to Landlord a cost breakdown of Tenant's final and total
construction costs incurred in connection with the Tenant Improvements, together
with receipted invoices showing evidence of full payment therefor; and (b) the
Lease shall be in full force and effect and there shall exist no event of
default under the Lease or this Workletter.
5. Rent Commencement Date. Until the date specified in the Lease as
----------------------
the Rent Commencement Date, the entry by Tenant to perform Tenant Improvements
shall be without payment of Base Monthly Rent or Rent Adjustments, but, from and
after the Delivery Date, such entry and all acts in connection with it are
subject to and governed by all other provisions of the Lease, including without
limitation, Tenant's indemnification and insurance obligations.
As provided in the Lease, the Rent Commencement Date shall be delayed on a
day-for-day basis by each day of delay attributable to Landlord Delay or Force
Majeure. The term "Landlord Delay" as used in this Agreement shall include any
delay in construction of the Tenant Improvements because of any act or omission
by Landlord, its agents, employees, contractors or other representatives,
including any: (1) delay attributable to changes in or additions to the approved
Design Documents or to the approved Construction Drawings requested by Landlord;
(2) delay attributable to the postponement of the design, permitting or
construction of the Tenant Improvements at the request of Landlord; (3) delay by
Landlord in the submission of information (including any plans or drawings) or
the giving of authorizations or approvals within the time limits set forth in
this Agreement; (4) delay attributable to the failure of Landlord to pay, when
due, any amounts required to be paid by Landlord pursuant to this Agreement; (5)
delay attributable to the acts or failures to act, whether willful, negligent or
otherwise, of Landlord, its agents or contractors, where such acts or failures
to act delay the Substantial Completion of the Landlord's Work or the Tenant
Improvements beyond the Projected Commencement Date; (6) unreasonable delay
caused by the failure of the Building to comply with all Laws; or (7) delay
caused by Landlord's failure to allow Tenant uninterrupted access to the
Building to commence and thereafter perform construction of the Tenant
Improvements.
6. General Requirements for Construction
-------------------------------------
6.1 Tenant's Obligation to Construct. Tenant shall construct and
--------------------------------
install the Tenant Improvements in a good and workmanlike manner in accordance
with the Construction Drawings, this Workletter and all applicable laws. Tenant
shall be solely responsible for the payment of all cost and expenses related to
the construction and installation of the Tenant Improvements, subject to
reimbursement by Landlord as provided for in this Workletter.
6.2 Tenant's Access to the Premises. Tenant shall coordinate with the
-------------------------------
Building's project manager for access to the Premises and the scheduling of
construction work. Tenant shall exercise due diligence and best efforts to
ensure that Tenant's construction and installation of the Tenant Improvements
does not unreasonably interfere with the use and enjoyment of other tenants of
the Building or the Project or with the contractors and subcontractors of
Landlord or other tenants that are working in the Building or the Project.
Landlord shall use commercially reasonable efforts to accommodate Tenant's
scheduling of deliveries and construction activities.
6.3 Coordination of Construction Activities. If any shutdown of
---------------------------------------
plumbing, electrical or air conditioning equipment of the Building becomes
necessary during the course of construction of the Tenant Improvements, Tenant
shall notify Landlord and Landlord and Tenant shall agree upon when, and upon
what conditions, such shutdown may be made in order to cause the least
disruption to other tenants in
<PAGE>
the Building. Any damage to the Building or the Project caused by Tenant or its
contractor or subcontractors in connection with the construction of the Tenant
Improvements shall be immediately repaired at Tenant's sole cost and expense.
6.4 Protection against Lien Claims. Tenant agrees to fully pay and
------------------------------
discharge all claims for labor done and materials and services furnished in
connection with the construction of the Tenant improvements, to diligently file
or procure the filing of a valid notice of completion within ten (10) days
following completion of construction of the Tenant Improvements, to diligently
file or procure the filing of a notice of cessation upon any cessation of labor
on the Tenant Improvements for a continuous period of thirty (30) days or more,
and to take all reasonable steps to forestall the assertion of claims of lien
against the Premises, the Building or the Project. Upon the request of Landlord,
Tenant shall provide Landlord with satisfactory evidence of the release or
removal (including removal by appropriate surety bond) of all liens recorded
against the Premises, the Project, or any portion thereof, and all stop notices
received by Tenant.
7. Insurance
---------
7.1 Tenant's Required Insurance Coverage. At least five (5) days
------------------------------------
prior to the date Tenant commences construction of the Tenant Improvements,
Tenant shall submit to Landlord evidence of (i) the insurance coverage required
under Article 16 of the Lease; and (ii) broad form "Builder's Risk" property
damage insurance with limits of not less than one hundred percent (100%) of the
estimated value of the Tenant Improvements. All such policies shall provide that
thirty (30) days' written notice must be given to Landlord prior to termination
or cancellation. The insurance policies shall name Landlord and Landlord's
property manager as additional insureds and shall provide that Landlord,
although an additional insured, may recover for any loss suffered by Landlord or
Landlord's agents by reason of the negligence of Tenant or Tenant's contractors,
subcontractors and/or employees.
7.2 Other Insurance Coverage. At least five (5) business days prior
------------------------
to the date Tenant commences construction of the Tenant Improvements, Tenant
shall deliver to Landlord certificates of insurance from the carrier(s)
providing insurance to Tenant's evidencing the following types of coverage in
such amounts as are reasonably determined by Landlord to be commercially
reasonable for the construction of the Tenant Improvements: (i) commercial
general liability insurance; (ii) workers' compensation insurance; and (iii)
umbrella liability insurance. The insurance specified in (I) and (iii) above
shall name Landlord and Landlord's property manager as additional insureds, and
all such policies shall provide that thirty (30) days' written notice must be
given to Landlord prior to termination or cancellation.
7.3 Waivers of Claims against Landlord. Tenant waives, and Tenant
----------------------------------
shall use reasonable efforts to cause each of its contractors, suppliers and
subcontractors to waive, all rights to recover against Landlord and its agents,
contractors and employees for any loss or damage arising from a cause covered by
insurance required to be carried by Tenant hereunder and shall use reasonable
efforts to cause each respective insurer to waive all rights of subrogation
against Landlord and its agents, contractors and employees in connection
therewith to the same extent.
8. Default and Remedies
--------------------
8.1 Defaults. Each of the following events shall constitute an event
--------
of default ("Default") under this Workletter:
(a) Failure by Tenant to commence and/or complete construction and
installation of the Tenant Improvements in accordance with the terms and
conditions set forth in this Workletter or the failure by Tenant to comply with
any of the covenants, provisions or conditions of this Workletter which failure
is not corrected by Tenant within thirty (30) days after notice from Landlord
(or if the failure is such that it cannot reasonably be corrected within said
thirty (30) day period, the correction of such failure is not initiated by
Tenant within said thirty (30) day period and thereafter prosecuted diligently
to completion);
<PAGE>
(b) Material deviations in construction from the Construction
Drawings without the approval of Landlord, the appearance of defective
workmanship or materials in the construction of the Tenant Improvements which
are not corrected by Tenant within thirty (30) days after notice from Landlord
(or if the defect is such that it cannot reasonably be corrected within said
thirty (30) day period, the correction of such defect is not initiated by Tenant
within said thirty (30) day period and thereafter prosecuted diligently to
completion); and
(c) The Default by Tenant of any material provision of the Lease,
which remains uncured following written notice and the cure period(s) specified
in the Lease, as provided in Article 11.
8.2 Remedies. In the event of a Default by Tenant under this
--------
Workletter, Landlord shall thereafter have no further obligation to disburse any
portion of the Tenant Improvement Allowance unless and until such Default is
cured. Any such Default shall be a default under the Lease and shall entitle
Landlord to exercise all remedies set forth in the Lease.
9. Force and Effect. The terms and conditions of this Workletter
----------------
supplement the Lease and shall be construed to be a part of the Lease and are
incorporated in the Lease. Without limiting the generality of the foregoing, any
default by any party hereunder shall have the same force and effect as a default
under the Lease. Should any inconsistency arise between this Workletter and the
Lease as to the specific matters that are the subject of this Workletter, the
terms and conditions of this Workletter shall control.
10. Miscellaneous. Except as otherwise specifically provided in this
-------------
Agreement, Landlord shall not receive any fee or charge for supervision, profit,
overhead, administration or general conditions in connection with the design or
construction of the Tenant Improvements. Neither Tenant nor its contractors
shall be charged for reasonable use of the parking areas or for the use of
electricity, water, HVAC, building standard security, elevators and/or hoists
during the construction of the Tenant Improvements, provided that Landlord shall
not be required to provide HVAC during the construction of the Tenant
Improvements and Tenant's contractors shall be responsible for protecting and
cleaning the elevators they use.
IN WITNESS WHEREOF, the parties hereto have executed this Workletter as of
the date first set forth in the Lease.
TENANT: LANDLORD:
Northpoint Communications, Inc., EMERY STATION ASSOCIATES, LLC,
a Delaware corporation a California limited liability company
By: /s/ TIMOTHY M. MONAHAN By: /s/ RICHARD K. ROBBINS
---------------------------------- -------------------------------------
Richard K. Robbins, Managing Member
Print Name: Timothy M. Monahan
--------------------------
Its: Vice President Finance & Planning
---------------------------------
By:
----------------------------------
Print Name:
--------------------------
Its:
---------------------------------
<PAGE>
SCHEDULE 1
LANDLORD'S WORK
ARCHITECTURAL
- -------------
* Common Areas will be completed by Landlord. These include exterior courtyard
landscaping, the main lobby, Wintergarden and aerobics room at the ground level.
* Bathrooms will be completed on all floors (one in each wing on the big floors
and one central bathroom on the 5th floor). Water fountains are adjacent to each
bathroom.
* Common elevator lobbies will be completed on multi-tenant floors (e.g. 2nd and
4th floors); the elevator lobby on the 5th floor will be private to Tenant and
can be designed by them. All elevator cabs are by Landlord.
* Terraces are finished by Landlord. The base building includes access doors to
the terraces in certain locations; additional doors can be added by Tenant.
Ramps to these doors inside the Premises (where required by code) shall be part
of Tenant work.
* Landlord encloses the exterior (i.e. with brick panels and glass windows,
which are operable on the north and east sides). Interior framing/sheet rocking
and insulation of the perimeter wall and columns of the Premises plus window
miniblinds shall be part of Tenant Work. Landlord has agreed to allow Tenant to
install miniblinds in the building-standard color/material WITHOUT the
perforations.
ELECTRICAL/TELEPHONE/SECURITY
- -----------------------------
* Main electrical service enters the building at the main electrical room at
grade on the southwest corner. From there, bus ducts supply individual
electrical rooms in each wing (plus the central electrical room on the 5th
floor). The electrical room on the 4th floor south and on the 5th floor will not
be shared with tenants other than Tenant.
* The Building's main telecom room is at grade immediately north of the east
lobby. It connects via two 4" conduits to the Pacbell vault out in Peladeau
street. Landlord has installed conduit from the main telecom room up to the
central telephone room on each floor.
* Landlord's security system secures the project perimeter plus all primary
access points and the wing elevators. Security from the suite door(s) and inside
the Premises is Tenant's responsibility.
PLUMBING
- --------
* Main domestic water and waste risers serve each floor and can be connected to
for Tenant kitchenettes, etc.
* A live fire sprinkler system is provided in a base building configuration.
HVAC
- ----
* A central chiller and cooling tower are provided by Landlord, as is the boiler
system for heat. Three individual fan rooms supply three separate, fully-
installed HVAC supply loops per large floor; the 5th floor has a single supply
loop. Distribution off the loops is Tenant's TI responsibility.
* Condenser water stubs exist at each floor. Landlord can supply affordable
condenser water to Tenant for certain above-standard HVAC needs.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. No sidewalks, entrance, passages, courts, elevators, vestibules, stairways,
corridors or halls shall be obstructed or encumbered by Tenant or used for any
purpose other than ingress and egress to and from the Premises and if the
Premises are situated on the ground floor of the Project, Tenant shall further,
at Tenant's own expense, keep the sidewalks and curb directly in front of the
Premises clean and free from rubbish.
2. No awning or other projection shall be attached to the outside walls or
windows of the Project without the prior written consent of Landlord. No
curtains, blinds, shades, drapes or screens shall be attached to or hung in, or
used in connection with any window or door of the Premises, without the prior
written consent of Landlord. Such awnings, projections, curtains, blinds,
shades, drapes, screens and other fixtures must be of a quality, type, design,
color, material and general appearance approved by Landlord, and shall be
attached in the manner approved by Landlord. All lighting fixtures hung in
offices or spaces along the perimeter of the Premises must be of a quality,
type, design, bulb color, size and general appearance approved by Landlord.
3. No sign, advertisement, notice, lettering, decoration or other thing shall
be exhibited, inscribed, painted or affixed by Tenant on any part of the outside
or inside of the Premises or of the Project, without the prior written consent
of Landlord. In the event of the violation of the foregoing by Tenant, Landlord
may remove same without any liability, and may charge the expense incurred by
such removal to Tenant.
4. The sashes, sash doors, skylights, windows and doors that reflect or admit
light or air into the halls, passageways or other public places in the Project
shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or
other articles be placed on the window sills or in the public portions of the
Project.
5. No showcases or other articles shall be put in front of or affixed to any
part of the exterior of the Project, nor placed in public portions thereof
without the prior written consent of Landlord.
6. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rubbish, rags or other substances shall be thrown therein. All damages resulting
from any misuse of the fixtures shall be borne by Tenant to the extent that
Tenant or Tenant's agents, servants, employees, contractors, visitors or
licensees shall have caused the same.
7. Tenant shall not mark, paint, drill into or in any way deface any part of
the Premises or the Project. No boring, cutting or stringing of wires shall be
permitted, except with the prior written consent of Landlord, and as Landlord
may direct.
8. No animal or bird of any kind shall be brought into or kept in or about the
Premises or the Project, except seeing-eye dogs or other seeing-eye animals,
including seeing-eye mammals and seeing-eye geese. Tenant shall be allowed to
have fish in aquariums so long as such aquariums are sufficiently earthquake-
secure and do not overload the structural capacity of the Building floor.
9. Intentionally omitted.
10. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of the Project, or neighboring
buildings or premises, or those having business with them. Tenant shall not
throw anything out of the doors, windows or skylights or down the passageways.
11. Neither Tenant nor any of Tenant's agents, servants, employees,
contractors, visitors or licensees shall at any time bring or keep upon the
Premises any flammable, combustible or explosive fluid, chemical or substance.
UPS batteries, when installed and maintained in safe and code-compliant manner,
are allowed.
<PAGE>
12. Without Landlord's reasonable approval, which will not be withheld nor
delayed, no additional locks, bolts or mail slots of any kind shall be placed
upon any of the doors or windows by Tenant, nor shall any change be made in
existing locks or the mechanism thereof. Tenant must, upon the termination of
the tenancy, restore to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by Tenant, and in the event of the
loss of any keys so furnished, Tenant shall pay to Landlord the cost thereof.
13. All removals, or the carrying in or out of any safes, freight, furniture,
construction material, bulky matter or heavy equipment of any description must
take place during the hours which Landlord or its agent may determine from time
to time. Landlord reserves the right to prescribe the weight and position of all
safes, which must be placed upon two-inch thick plank strips to distribute the
weight. The moving of safes, freight, furniture, fixtures, bulky matter or heavy
equipment of any kind must be made upon previous notice to the Building Manager
and in a manner and at times prescribed by him, and the persons employed by
Tenant for such work are subject to Landlord's prior approval. Landlord reserves
the right to inspect all safes, freight or other bulky articles to be brought
into the Project and to exclude from the Project all safes, freight or other
bulky articles which violate any of these Rules and Regulations or the Lease of
which these Rules and Regulations are a part.
14. Tenant shall not purchase spring water, towels, janitorial or maintenance
or other like service from any company or persons not approved by Landlord.
Landlord shall approve a sufficient number of sources of such services to
provide Tenant with a reasonable selection, but only in such instances and to
such extent as Landlord in its judgment shall consider consistent with security
and proper operation of the Project.
15. Landlord shall have the right to prohibit any advertising or business
conducted by Tenant referring to the Project which, in Landlord's opinion, tends
to impair the reputation of the Project or its desirability as a first class
building for offices and/or commercial services and upon notice from Landlord,
Tenant shall refrain from or discontinue such advertising.
16. Landlord reserves the right to exclude from the Project between the hours
of 6:00 p.m. and 8:00 a.m. Monday through Friday, after 1:00 p.m. on Saturdays
and at all hours Sundays and legal holidays, all persons who do not present a
pass to the Project issued by Landlord. Landlord may furnish passes to Tenant so
that Tenant may validate and issue same. Tenant shall safeguard said passes and
shall be responsible for all acts of persons in or about the Project who possess
a pass issued to Tenant.
17. Tenant's contractors shall, while in the Premises or elsewhere in the
Project, be subject to and under the control and direction of the Building
Manager (but not as agent or servant of said Building Manager or of Landlord).
18. If the Premises is or becomes infested with vermin as a result of the use
or any misuse or neglect of the Premises by Tenant, its agents, servants,
employees, contractors, visitors or licensees, Tenant shall forthwith at
Tenant's expense cause the same to be exterminated from time to time to the
satisfaction of Landlord and shall employ such licensed exterminators as shall
be approved in writing in advance by Landlord.
19. The requirements of Tenant will be attended to only upon application at the
Office of the Project. Project personnel shall not perform any work or do
anything outside of their regular duties unless under special instructions from
the office of the Landlord.
20. Canvassing, soliciting and peddling in the Project are prohibited and
Tenant shall cooperate to prevent the same.
<PAGE>
21. No water cooler, air conditioning unit or system or other apparatus shall
be installed or used by Tenant without the written consent of Landlord, not to
be unreasonably withheld. Small, portable air conditioning units are allowed for
temporary needs.
22. There shall not be used in any premises, or in the public halls, plaza
areas, lobbies, or elsewhere in the Project, either by Tenant or by jobbers or
others, in the delivery or receipt of merchandise, any hand trucks or dollies,
except those equipped with rubber tires and sideguards.
23. Tenant, Tenant's agents, servants, employees, contractors, licensees, or
visitors shall not park any vehicles in any driveways, service entrances, or
areas posted "No Parking" and shall comply with any other parking restrictions
imposed by Landlord from time to time.
24. Tenant shall install and maintain, at Tenant's sole cost and expense, an
adequate visibly marked (at all times properly operational) fire extinguisher
next to any duplicating or photocopying machine or similar heat producing
equipment, which may or may not contain combustible material, in the Premises.
25. Intentionally omitted.
26. Tenant shall not use the name of the Project for any purpose other than as
the address of the business to be conducted by Tenant in the Premises, nor shall
Tenant use any picture of the Project in its advertising, stationery or in any
other manner without the prior written permission of Landlord. Landlord
expressly reserves the right at any time to change said name without in any
manner being liable to Tenant therefor.
27. Tenant shall not prepare any food nor do any cooking, operate or conduct
any restaurant, luncheonette or cafeteria for third parties not associated with
its business. No odors of cooking or other processes may emanate from the
Premises.
28. The Premises shall not be used as an employment agency, a public
stenographer or typist, a labor union office, a physician's or dentist's office,
a dance or music studio, a school, a beauty salon, or barber shop, the business
of photographic, multilith or multigraph reproductions or offset printing (not
precluding using any part of the Premises for photographic, multilith or
multigraph reproductions solely in connection with Tenant's own business and/or
activities), a restaurant or bar, an establishment for the sale of
confectionery, soda, beverages, sandwiches, ice cream or baked goods, an
establishment for preparing, dispensing or consumption of food or beverages of
any kind in any manner whatsoever, or news or cigar stand, or a radio,
television or recording studio, theatre or exhibition-hall, or manufacturing, or
the storage or sale of merchandise, goods, services or property of any kind at
wholesale, retail or auction, or for lodging, sleeping or for any immoral
purposes.
29. Business machines and mechanical equipment shall be placed and maintained
by Tenant at Tenant's expense in settings sufficient in Landlord's judgment to
absorb and prevent vibration, noise and annoyance. Tenant shall not install any
machine or equipment which causes noise, heat, cold or vibration to be
transmitted to the structure of the building in which the Premises are located
without Landlord's prior written consent, which consent may be conditioned on
such terms as Landlord may require. Tenant shall not place a load upon any floor
of the Premises exceeding the floor load per square foot that such floor was
designed to carry and which is allowed by Law.
30. Tenant shall not bring any Hazardous Materials onto the Premises except for
those that are in general commercial use and are incidental to Tenant's business
office operations and only in quantities suitable for immediate use.
31. Tenant shall not store any vehicle within the parking area. Tenant's
parking rights are limited to the use of parking spaces for short-term parking,
of up to twenty-four (24) hours, of vehicles utilized in the
<PAGE>
normal and regular daily travel to and from the Project. Tenants who wish to
park a vehicle for longer than a 24-hour period shall notify the Building
Manager for the Project and consent to such long-term parking may be granted for
periods up to two (2) weeks. Any motor vehicles parked without the prior written
consent of the Building Manager for the Project for longer than a 24-hour period
shall be deemed stored in violation of this rule and regulation and shall be
towed away and stored at the owner's expense or disposed of as provided by Law.
32. Smoking is prohibited in the Premises, the Building and all enclosed Common
Areas of the Project, including all lobbies, all hallways, all elevators and all
lavatories.
<PAGE>
RIDER 1
COMMENCEMENT DATE AGREEMENT
, a ("Landlord"), and
- ------------------------- -------------------------
, a ("Tenant"), have entered,
- ------------------------- -------------------------
into a certain Office Lease dated as of , 199 (the "Lease").
-- ------
WHEREAS, Landlord and Tenant wish to confirm and memorialize the Commencement
Date and Expiration Date of the Lease as provided for in Section 2.02(b) of the
Lease;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Unless otherwise defined herein, all capitalized terms shall have the
same meaning ascribed to them in the Lease.
2. The Commencement Date (as defined in the Lease) is .
------------------
3. The Expiration Date (as defined in the Lease) of the Lease is .
-------
4. Tenant hereby confirms the following:
(a) That it has accepted possession of the premises pursuant to the
terms of the Lease;
(b) That the Landlord Work is Substantially Complete; and
(c) That the Lease is in full force and effect.
5. Except as expressly modified hereby, all terms and provisions of the
Lease are hereby ratified and confirmed and shall remain in full force and
effect and binding on the parties hereto.
6. The Lease and this Commencement Date Agreement contain all of the
terms, covenants, conditions and agreements between the Landlord and the Tenant
relating to the subject matter herein. No prior other agreements or
understandings pertaining to such matters are valid or of any force and effect.
TENANT: LANDLORD:
- ------------------------------------- --------------------------------------
a a
----------------------------------- ------------------------------------
By: By:
---------------------------------- ----------------------------------
Print Name: Print Name:
-------------------------- --------------------------
Its: Its:
--------------------------------- ---------------------------------
<PAGE>
ADDENDUM TO OFFICE LEASE
This Addendum to Office Lease is attached to and forms a part of that
certain Office Lease by and between Emery Station Associates, LLC ("Landlord")
and NorthPoint Communications Inc. ("Tenant") for premises located in the
building located at 5858 Horton, Emeryville, California. Words and terms that
are defined in the Lease shall have the same meaning in this Addendum as the
meaning provided in the Lease. In the event of any inconsistency between the
terms of this Addendum and the Lease, the terms of this Addendum shall control.
1. Expansion Option
----------------
(a) Subject to the expansion rights of Ask Jeeves, Inc., Tenant may
lease additional space on the fourth floor of the Project ("4th Floor Expansion
Option Space") under the following terms and conditions. Landlord shall provide
Tenant with notice if Ask Jeeves, Inc. does not exercise its expansion option(s)
("Expansion Notice"). Tenant shall have a period of fifteen (15) days after
receipt of the Expansion Notice to notify Landlord of its election to lease the
4th Floor Expansion Option Space ("Expansion Option")
(b) If Tenant properly exercises its Expansion Option:
1. Landlord shall deliver for lease to Tenant the 4th Floor
Expansion Space for a term commencing on the date of Substantial Completion of
the space if the tenant improvements are constructed by Landlord and 90 days
after delivery of the space to Tenant if the tenant improvements are constructed
by Tenant and expiring on the Expiration Date of this Lease.
2. The Base Monthly Rent for the 4th Floor Expansion Space shall
be determined in accordance with the schedule of Base Monthly Rent set forth in
the Basic Lease Information. The Base Year for the 4th Floor Expansion Space
shall be the year such space is incorporated into the Premises.
3. Landlord will provide an allowance of $35.00 per rentable
square foot and, the tenant improvements will be constructed in such expansion
space in accordance with the construction procedures established by and the
terms and conditions of the Work Letter.
(c) Landlord shall prepare an amendment to this Lease to reflect
changes in the Premises, Monthly Base Rent, Tenant's Share, the number of
parking spaces allocated to Tenant, the Security Deposit and other appropriate
terms. A copy of the amendment shall be sent to Tenant within a reasonable time
after exercise of the Expansion Option and shall be executed by Tenant and
returned to Landlord for its execution. Upon delivery to Tenant of the 4th Floor
Expansion Option Space, it shall be considered Premises, subject to all terms
and conditions of this Lease.
(d) This Expansion Option is personal to Tenant and may not be
transferred or assigned in connection with an assignment or sublease of the
Premises except to an Affiliate of Tenant. Further, Tenant may not exercise this
Expansion Option if it enters into subleases for more than 10,000 square feet of
Rentable Area of the Premises to entities other than an Affiliate.
(e) Notwithstanding anything to the contrary contained, herein, the
Expansion Option shall terminate at Landlord's option and upon notice to Tenant,
and shall be of no further force and effect, whether or not Tenant has timely
exercised such option if a material, monetary Default exists at the time of
exercise of the Expansion Option or at the time of its commencement, provided
that Landlord previously has given Tenant notice and an opportunity to cure such
Default as required by the Lease.
<PAGE>
2. Option to Extend.
-----------------
(a) Landlord hereby grants Tenant an option to extend the term of the
Lease for one additional period of five (5) years, commencing immediately after
the expiration of the initial term, upon the same material terms and conditions
contained herein, except that (i) the Monthly Base Rent for the Premises shall
be equal to ninety-five percent (95%) of the fair market rent for the Premises
determined in the manner set forth in subparagraph (b) below, (ii) Tenant shall
accept the Premises in an "as is" condition without any obligation of Landlord
to repaint, remodel, repair, improve or alter the Premises, except to the extent
that the determination of fair market rent includes improvements and/or an
improvement allowance (iii) the Base Years for Taxes and Expenses shall be the
calendar year in which the renewal term commences, and (iv) there shall be no
further options to extend the term of the Lease. The determination of "fair
market rent" shall take into account and reflect any then market tenant
improvements, improvement allowances and moving allowances, rent abatement and
other concessions and inducements then being offered for comparable space in
comparable buildings in the market area of the Premises. For example, if the
then fair market rent includes a $10 per rentable square foot improvement
allowance and three months of free rent, then, at Landlord's option, Tenant
shall either receive these actual inducements, or have their value factored into
Tenant's base rent for the renewal term, so that if Landlord chooses the latter
option Tenant's base rental would be reduced by the value of these inducements.
Tenant's election to exercise the option granted herein must be given to
Landlord in writing no less than 270 days prior to expiration of the initial
term. If Tenant properly exercises the option granted herein, references in the
Lease to the term shall be deemed to mean the option term unless the context
clearly provides otherwise. Notwithstanding anything to the contrary contained
herein, this extension option shall be conditioned upon Tenant not being in
material, monetary Default under the Lease at the time Tenant gives Landlord its
notice of exercise, provided that Landlord must have previously provided Tenant
written notice and an opportunity to cure any such Default as required by the
Lease.
(b) If Tenant properly exercises its option to extend the term of the
Lease, the Monthly Base Rent during the option term shall be determined in the
following manner. The Monthly Base Rent shall be adjusted to an amount equal to
ninety-five percent (95%) of the fair market rent for the Premises as of the
commencement of the option term for a term equal to the option term, as
specified by Landlord by notice to Tenant not less than two hundred forty (240)
days prior to commencement of the option term, subject to Tenant's right of
arbitration as set forth below. If Tenant believes that the fair market rent
specified by Landlord exceeds the actual fair market rent for the Premises as of
commencement of the option term, then Tenant shall so notify Landlord within
thirty (30) days following receipt of Landlord's notice. If Tenant fails to so
notify Landlord within said thirty (30) days, Landlord's determination of the
fair market rent for the Premises shall be final and binding upon the parties.
For a period of ten (10) business days after the date Tenant provides Landlord
its notification of objection to such fair market rent, the parties shall
negotiate in good faith and endeavor to agree upon the fair market rent, and in
any event at the end of such ten business day period (the "Agreement Date"),
Tenant shall (x) accept Landlord's determination, or (y) give Landlord notice
that Tenant elects to proceed to arbitration. If the parties agree on the fair
market rent on or before the Agreement Date, they shall promptly execute an
amendment to this Lease setting forth such agreed upon rental terms. If
arbitration is elected, the parties shall complete the arbitration process as
follows:
(1) Within twenty (20) business days after the Agreement Date,
if the parties have not otherwise agreed upon the fair market rent, Tenant, at
its sole expense, shall obtain and deliver in writing to Landlord a
determination of the fair market rent for the Premises for a term equal to the
option term from a broker ("Tenant's broker") licensed in the State of
California and engaged in the office brokerage business in the area of Oakland,
Emeryville and Berkeley, California, for at least the immediately preceding five
(5) years. If Landlord accepts such determination, the Monthly Base Rent for the
option term shall be adjusted to an amount equal to the amount determined by
Tenant's broker.
(2) If Landlord does not accept such determination, within 15
days after receipt of the determination of Tenant's broker, Landlord shall
designate a broker ("Landlord's broker") licensed in
<PAGE>
the State of California and engaged in the office brokerage business in the area
of Oakland, Emeryville and Berkeley, California, for at least the immediately
preceding five (5) years. Landlord's broker and Tenant's broker shall name a
third broker, similarly qualified, within five (5) days after the appointment of
Landlord's broker. Each of said three brokers shall determine the fair market
rent for the Premises as of the commencement of the option term for a term equal
to the option term of the Lease within 15 days after the appointment of the
third broker. If the difference between the determination of Landlord's broker
and Tenant's broker is ten percent (10%) or less of the higher determination,
then the average between the two determinations shall be the fair market rent.
If said difference is greater than ten percent (10%), then the two brokers shall
within twenty (20) days of the date that the later submittal is submitted to the
parties designate a third broker who shall also be licensed in the State of
California and engaged in the office brokerage business in the area of Oakland,
Emeryville and Berkeley, California, for at least the immediately preceding five
(5) years .The sole responsibility of the third broker will be to determine
which of the determinations made by the first two brokers is most accurate. The
third broker shall have no right to propose a middle ground or any modification
of either of the determinations made by the first two brokers. The third
broker's choice shall be submitted to the parties within thirty (30) days after
his or her selection. Such determination shall bind both of the parties and
shall establish the fair market rent.
(3) Landlord shall pay the costs and fees of Landlord's broker
in connection with any determination hereunder, and Tenant shall pay the costs
and fees of Tenant's broker in connection with such determination. The costs and
fees of any third broker shall be paid one-half by Landlord and one half by
Tenant.
(c) If the amount of the fair market rent is not known as of the
commencement of the option term, then Tenant shall continue to pay the Monthly
Base Rent in effect at the expiration of the initial term until the amount of
the fair market basic rent is determined. When such determination is made,
Tenant shall pay any deficiency to Landlord, and Landlord shall refund to
Tenant, or allow as a credit against ensuing Rent payments, any overpayment,
upon demand.
3. Right of First Offer.
---------------------
(a) Tenant shall have the right of first offer (the "Right of First
Offer") to lease Available Premises (as hereinafter defined in Paragraph 2 (b))
which becomes available in the Building, subject, however to the rights of other
tenants which are in existence as of the Date of Lease.
(b) Available Premises shall mean space in the Building which is or
becomes available to lease. Space shall not be deemed to be Available Premises
if there is a lease, lease option or any right or option of extension, renewal,
expansion, or if an existing tenant renews or extends its term pursuant to the
terms of an extension right.
(c) Before offering the Available Space to anyone else, Landlord
shall give Tenant written notice of any Available Space (the "Available Space
Notice"). After receipt of the Available Space Notice, Landlord and Tenant shall
negotiate, in good faith, for a period of thirty (30) days to try to reach
agreement upon the terms and conditions upon which Tenant will lease the
Available Space. The parties acknowledge that the term and rent for the
Available Space may not be the same as the Term and Monthly Base Rent of the
Premises. If Landlord and Tenant reach an agreement for leasing the Additional
Space, Landlord shall prepare an amendment to this Lease to reflect changes in
the Premises, Monthly Base Rent, Tenant's Share, the number of parking spaces
allocated to Tenant, the Security Deposit and other appropriate terms. A copy of
the amendment shall be sent to Tenant with in a reasonable time after exercise
and executed by Tenant and returned to Landlord for its execution. Upon delivery
to Tenant of the Available Space, it shall be considered Premises, subject to
all terms and conditions of this Lease.
(d) If, after such period of good faith negotiations, Landlord and
Tenant are unable to reach an agreement for the lease of the Available Space,
Tenant's rights with respect to the space covered by the Available Space Notice
shall be null and void and Landlord shall be free to enter into negotiations
with
<PAGE>
other prospective tenants and enter into a lease for such space upon such terms
and conditions it may choose.
(e) This Right of First Offer is personal to Tenant and may not be
transferred or assigned in connection with an assignment or sublease of the
Premises except to an Affiliate of Tenant. Further, Tenant may not exercise the
Right of First Offer if it enters into subleases for more than 10,000 square
feet of Rentable Area of the Premises to entities other than an Affiliate.
(f) Notwithstanding anything to the contrary contained herein, the
Right of First Offer shall terminate at Landlord's option and upon notice to
Tenant, and shall be of no further force and effect, whether or not Tenant has
timely exercised such right, if a material, monetary Default exists at the time
of exercise of the Right of First Offer or at the time of the commencement of
the term for the first offer space, provided that Landlord previously has given
Tenant notice and an opportunity to cure such Default as required by the Lease.
4. Right of First Offer to Lease Phase 2 Site of Emery Station.
------------------------------------------------------------
(a) Tenant shall have the right of first offer (the "Phase 2 Right of
First Offer") to lease the building which is projected to be developed on the
Phase 2 site which is adjacent to the Project (the "Phase 2 Building").
(b) Tenant acknowledges, understands and agrees that (i) Landlord may,
for any reason, elect not to construct the Phase 2 Building and that Landlord
has not made any representations or warranties regarding either the certainty of
such construction, the timing of such construction or the availability of
proceeds to construct such building and (ii) the decision to construct the Phase
2 Building may require the consent of the Boards of Directors of the members of
Landlord and such consent may or may not be forthcoming.
(c) Landlord shall provide Tenant written notice of its decision to
commence construction of the Phase 2 Building and the date of commencement of
such construction (the "Phase 2 Notice"). Tenant shall have a period equal to
the later of 120 days after the date of commencement of construction or April 1,
2000 in which to notify Landlord of its election to lease the Phase 2 Building
on the following terms and conditions:
(i) Term-10 years.
(ii) Tenant Improvement Allowance-$40.00 per usable square foot
(iii) Shell Condition-Substantially similar to the shell
condition of the Building
(iv) Rent-12% return-on-costs (including land costs, hard
costs, soft costs and financing costs of the land and improvements ) but not
more than $2.50 per square feet of Rentable Area per annum. The rent shall be
increased 3% per annum on the anniversary date of each year of the Term.
(v) Net lease-The lease for the Phase 2 Building shall be a
net lease and Tenant shall pay its proportionate share of all Operating Expenses
and Taxes from and after the commencement date of the lease.
(vi) Additional terms and conditions-Within 30 days after
Tenant exercises its Phase 2 Right of First Offer, Landlord and Tenant shall
enter into a lease utilizing the form of this Lease, modified as appropriate to
reflect the particulars of the Phase 2 Building terms and conditions.
(vii) Tenant shall have the rights for exterior building signage
so long as it personally occupies no less than 50% of the Phase 2 building.
Such signage shall be subject to landlord's reasonable approval regarding size,
exact location and design.
<PAGE>
(d) Notwithstanding anything herein contained to the contrary, at the
time Tenant exercises the Phase 2 Right of First Offer, the creditworthiness of
Tenant must be reasonably commensurate with the creditworthiness of a tenant who
would be financially qualified to enter into this type of lease for this amount
and type of space in other Class A buildings in Emeryville, California.
(e) This Phase 2 Right of First Offer is personal to Tenant and may
not be transferred or assigned in connection with an assignment or sublease of
the Premises except to an Affiliate of Tenant. Further, Tenant may not exercise
the Right of First Offer if it enters into subleases for more than 10,000 square
feet of Rentable Area of the Premises to entities other than an Affiliate.
Landlord shall have the right at any time to assign its rights and obligations
herein regarding Phase 2 to an affiliate or to a third party so long as such
assignee assumes all obligations to Tenant relating thereto.
(f) Notwithstanding anything to the contrary contained, herein, the
Phase 2 Right of First Offer shall terminate at Landlord's option and upon
notice to Tenant, and shall be of no further force and effect, whether or not
Tenant has timely exercised such right, if a material, monetary Default exists
at the time of exercise of the Phase 2 Right of First Offer or at the time of
the commencement of the term for the first offer space, provided that Landlord
previously has given Tenant notice and an opportunity to cure such Default as
required by the Lease.
5. Public Transportation. Landlord agrees to have the Emery-Go-Round
---------------------
connection to BART extended to 10:30 PM weeknights or, alternatively, to engage
a private van company to provide such service.
6. Emergency Generator. Tenant shall have the right, at its sole cost and
-------------------
expense, to access the Building's emergency generator for emergency
communications and data equipment power. The right to access the emergency
generator shall be subject to Tenant's compliance with such reasonable terms and
conditions as Landlord may establish from time to time.
7. Roof Access/Satellite Dishes. Tenant shall have the non-exclusive right
----------------------------
to install and maintain no more than two (2) small dishes (i.e. less than 18"
diameter) and no more than two (2) large dishes (i.e. no more than 60" in
diameter) on the roof for its own business use. Such rights shall require Tenant
to: (I) keep the roof area in a warrantable and working condition, (ii) to
adequately screen the dishes from view in an acceptably aesthetic manner, (iii)
not adversely impact the operations of the Building nor of other tenants, (iv)
not adversely impact the health of Building occupants, (v) comply with all
relevant laws, codes, etc., and (vi) remove the dishes and restore the roof to
its original condition, reasonable wear and tear and damage not caused by Tenant
excepted, at the end of the Lease Term.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 291,655
<SECURITIES> 111,097
<RECEIVABLES> 1,727
<ALLOWANCES> 296
<INVENTORY> 683
<CURRENT-ASSETS> 412,908
<PP&E> 95,332
<DEPRECIATION> 5,544
<TOTAL-ASSETS> 503,106
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 503,106
<SALES> 2,504
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<CGS> 7,801
<TOTAL-COSTS> 7,801
<OTHER-EXPENSES> 27,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,689
<INCOME-PRETAX> (37,902)
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</TABLE>
